Enhancing the Competitiveness of Canada’s International Tax system (Part 1)

By Wally Conway

International Benchmarks and Practices

Governments today understand that jobs and revenue growth come from global economic growth. Sustained economic growth for any country will be enhanced if it attracts and retains mobile human and investment capital, and this will only occur if it can create a competitive business environment.

While all factors that contribute to a competitive business environment may not be under the control of a country’s government, special attention is being paid to those factors that a government does control.

One controllable factor is the nation’s tax system. 

Governments today are competing for global economic growth by making their tax systems friendlier towards mobile human and investment capital. This is not an easy task. Many governments have the constraint of surging deficits and debt levels. As well, a new financial crisis may yet emerge – if we ever really escaped the last one.

To make their tax systems competitive, governments aren’t just focusing on tax rates. Perhaps more importantly, increased attention is being given to what the appropriate mix should be between personal and corporate income tax and indirect taxes to raise revenue. As well, focus is on compliance and enforcement burdens, enhancing business tax certainty and adopting international tax principles and practices that accommodate global business enterprises.

Among the international tax principles and practices that have historically received the widest support, at least among developed nations, are those in the OECD model tax treaty and the related commentary.

The stated goals of the OECD in developing these principles and practices include the removal of barriers to trade, capital flows and investment, the allocation of rights of taxation amongst nations, the avoidance of excessive and double taxation, the protection against discriminatory tax practices, the establishment of international tax dispute mechanisms and the promotion of economic growth. Canada is a member of the OECD and has participated in the development of the OECD international tax principles and practices.

While much effort has been devoted by OECD members to develop and promote international tax principles and practices, the adherence to such principles and practices has not been a certainty for various reasons, not the least of these has been the recent rise of importance of developing countries and their efforts to protect their tax base and economy; India and China are two examples that come to mind. 

In my future posts, I will comment on how Canada is fairing in this competitive environment in comparison to international benchmarks and practices – one of the principles the Advisory Panel on Canada’s System of International Taxation stated in its December 2008 final report that should guide Canadian tax policy makers – and I will suggest ways to improve its competitiveness where it does not measure up. 

I look forward to your input on how you think the competitiveness of Canada’s international tax system can be enhanced.