Thanks to Robert-Falcon Ouellette, MP for the photo.
A Win-Win Tax Bill
Bill S-4, Canada-Taiwan Avoidance of Double Taxation Arrangement (“ADTA”)
Remarks for House of Commons Finance Committee
John Weston, Dec 5, 2016
Mr. Chair - It’s a great honor to be here. I wear three hats in speaking today. Between 2008 and 2015, I served as the MP for West Vancouver - Sunshine Coast - Sea to Sky Country. Secondly, I was based in Taiwan for 10 years, from where I did business in Hong Kong, China and throughout the Pacific Rim. Having been liberated by the electors last year, I’ve returned to law practice, in Pacific Rim law, Govt Affairs, and Indigenous Affairs. I’m now at one of Canada’s leading business law firms, McMillan, which has offices in HK, Ottawa, Vancouver, Toronto, and other places.
Ironically, when I received the invitation to present today, I was just putting the finishing touches on my book, Lighting People’s Hearts on Fire - Seeking Excellence in Leadership. In the book I comment on how much more relevant and effective Committee work could be. Yet it’s hard to imagine how your Committee might discuss any more concrete, relevant, and effective ways to help Canadians who invest and do business in Israel, Hong Kong, and Taiwan.
Given my background, I’ll focus remarks on Taiwan, where I resided for the eventful decade, between 1986 and 1997. I had the honor of serving as one of the first two Canadians at the Canadian Trade Office in Taipei when it was launched in 1986 under the ambitious and highly respected Bob Kelly. That followed over 16 years of a vacuum, when Canada had no diplomatic presence in Taiwan, after severing ties with Taiwan in 1970. The semi-diplomatic office was established clearly within the context of our One China Policy, which governs our diplomatic relations to this day.
When I arrived in 1986, martial law was in force, as it had been since 1949. Opposition parties were illegal and all papers were controlled. I got to witness first hand one of the most dramatic democratic transformations the world has seen, all without a shot being fired. Unlike when I arrived, today there is an independent judiciary; free speech and an uncensored press; freedom of association; free travel to China and other places; a freely trading currency; and, of course, free elections. You’ll note the number of times I used the word “free” in the last sentence.
Voting participation rates in the last 5 Taiwan Presidential elections have averaged over 76%. It’s a mark of robust democracy that Taiwan produces such high-calibre, well-educated leaders to serve in government, including past President Ma Ying-Jeou and new President, Ing-wen Tsai, both of whom are Ivy League-educated lawyers. Dr. Tsai has achieved international fame, as the first female President of Taiwan, and after last weekend, as someone who knows how to place an important phone call.
From 2013 through 2015, I headed the Canada-Taiwan Parliamentary Friendship Group, known for its hard work, cross-party camaraderie, and productivity. In that Group, we learned the virtues of the type of Accord you are considering today. Such agreements are typical signs of progress between jurisdictions that encourage friendship, free trade, investment, and increased exchange between peoples.
List of Benefits
There are at least 10 benefits to expect from this Accord. Deft drafting and careful diplomacy have eliminated the one impediment that delayed this Accord for over 20 years. Here are the 10 benefits:
1) Encourages trade with a democratic jurisdiction.
2) Allocates taxing rights between the two jurisdictions so that taxpayers are not subject to double taxation.
3) Reduces the risk of excessive taxation that may arise because of high withholding taxes on payments of dividends, interest, remittances and royalties paid by a resident of one jurisdiction to a resident of the other.
4) Ensures that taxpayers will not be subject to discriminatory taxation in the foreign jurisdiction.
5) Provides greater certainty to taxpayers regarding their potential tax liability in the foreign jurisdiction.
6) Encourages adherence to the rule of law for people by promoting tax compliance.
7) Increases tax revenues.
8) Discourages good Canadians from renouncing their citizenship. Canadians who hold dual US citizenship are renouncing their US citizenship in increasing numbers due to arbitrary and capricious practices by the IRS and the US Treasury Dept.
9) The ADTA paves the way to other promising economic arrangements, including a Foreign Investment Protection Agreement and a free trade agreement.
10) Takes advantage of good timing. There is peace across Taiwan Straits, so it’s easier for Canada to engage with both Beijing and Taipei while adhering resolutely to our One China Policy.
2. Impact on Canada-Taiwan Investment Environment
Ever since I have been involved with Taiwan, I’ve observed that two-way investment occurs at a level far below what you would expect, given the level of bilateral trade and the number of people who have both Canadian and Taiwanese heritage. According to the Taipei Economic and Cultural Office, there are about 50,000 Canadian passport holders in Taiwan and up to 150,000 Taiwan passport holders in Canada. On two-way investment, the Canadian Trade Office in Taipei reports that Taiwan is currently Canada’s 12th largest trading partner. Bilateral trade in 2015 was over $6 billion, with Canada exporting approximately $1.5 billion in goods and services to Taiwan.
Despite this robust trade and economic relationship, two-way investment flows are underperforming. According to Statistics Canada, Taiwan’s FDI stocks in Canada in 2015 stood at only $108 million, ranking Taiwan as our 40th largest investor worldwide, while Canadian direct investment stock in Taiwan in 2015 amounted to only $115 million.
The Canadian Trade Office in Taipei reports that a number of bilateral investment deals are pending that would benefit from the provisions within the ADTA.
3. Negative Effects or Downsides
The ADTA was signed on January 15, 2016 in Taipei, and passed by the Taiwan Legislature in February, following nearly two decades of discussion and negotiation. Delays in getting this done relate most directly to one concern; that of offending the PRC, in the context of the One China Relationship. This Bill avoids offending that relationship through deft legislative drafting. You will note use of words such as “territory” and “jurisdiction”. This avoids the implication that Canada is affording diplomatic recognition to Taiwan as an independent country. The signatories are the two trade offices, not governments directly. This Accord has been carefully designed to navigate the tightrope which all but Donald Trump require when promoting relations with Taiwan.
In conclusion, this Accord is expected to help facilitate increased two-way investment by significantly lowering withholding tax rates. As I’ve related, there are in total at least 10 concrete benefits and no serious downside risks. I therefore recommend that the Committee support S-4.
You have some urgency here. The Agreement will enter into effect once Canada has completed its legal procedures and the Canadian Trade Office in Taipei and the Taipei Economic and Cultural Office in Canada notify each other in writing of the completion of the procedures. Should this occur before December 31, 2016, the new ADTA will come into effect on January 1, 2017. Should it pass, but not receive royal assent before December 31, it would come into effect on January 1, 2018. Getting this done before the House rises will create a valuable year of potential investment between Canada and Taiwan.
I look forward to your questions.