Canada has approved a law updating the country's tax treaties to tackle corporate tax avoidance after the latest figures revealed that companies avoided up to C$11bn in taxes in 2014.
Last Friday royal assent was given to Bill C-82, a multilateral tax treaty developed by more than 100 countries that is designed to reduce opportunities for tax avoidance by multinationals and improve cross-border tax dispute resolution.
The Bill allows Canada to modify any bilateral tax treaties with it holds with other countries to include measures in line with the OECD's recommendations on the fight against base erosion and profit shifting (BEPS), without having to fully renegotiate those treaties.
Our government is committed to building an economy that helps people and businesses get ahead. To do that, we need a tax system that is effective and fair"
Canada signed the MLI in June 2017 and the Liberals promised in the 2018 federal budget to enact it into Canadian law. Passing Bill C-82 into law will modify the application of many of Canada's bilateral tax treaties, which are hashed out between countries to deal with the issue of double taxation of the earnings of individuals and corporations that span jurisdictions. They are used to determine what country should tax the earnings of an international investor — their home nation or the source of the investment.
Minister of Finance Bill Morneau said: "Our government is committed to building an economy that helps people and businesses get ahead. To do that, we need a tax system that is effective and fair. The MLI [multilateral instrument] will help us build on actions we've already taken to enhance the integrity of Canada's tax system, and give Canadians greater confidence that the system is working in their best interest."
Liberal MP Jennifer O'Connell said last Fall that the C-82 would alter Canada's tax treaties to include "base erosion and profit shifting standards on treaty abuse," while also "improving dispute resolution" and other anti-avoidance rules, such as mandatory binding arbitration for tax treaty disputes.
The government hopes that the Bill will help to reduce the "offshore tax non-compliance" that the CRA says has contributed to the tax gap in the country. Published on June 18, 2019, the CRA's fifth report, Tax Gap and Compliance Results for the Federal Corporate Income Tax System, estimates that in 2014, the overall corporate tax gap in the country was between C$9.4bn and C$11.4bn, representing a loss of between 24% and 29% of corporate tax revenues.