Madam Speaker, I appreciate the opportunity to speak today at third reading of Bill S-3.
This legislation implements nine tax treaties. All of them are important to Canada's trade and investment with the countries involved and to the elimination of double taxation for businesses and individuals with operations and investments in those countries. Among these treaties are seven new ones that have been concluded with Kyrgyzstan, Lebanon, Algeria, Bulgaria, Portugal, Uzbekistan and Jordan. Bill S-3 also amends Canada's tax treaty with Japan and replaces our existing convention with Luxembourg.
These treaties were designed with two primary objectives in mind—the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The potential for double taxation arises when a taxpayer resides in one country and earns income in another. Without a tax treaty, both countries can tax this income.
Tax treaties are therefore essential in helping to ensure that income is not taxed twice. This can be achieved in several ways. The most important method requires the country of residence to either exempt the income from tax or give credit for the tax paid to the source country under a tax treaty. Another is to allocate taxation rights between a taxpayer's country of residence and the source country of the income. One of the ways of achieving this is for tax treaties to provide for reciprocal rate reductions.
The treaties contained in Bill S-3 meet this objective through reduced withholding taxes for individuals and businesses. Withholding taxes, as hon. members know, are the taxes that countries usually impose on income paid to non-residents. Let me provide some examples.
The treaty with Kyrgyzstan limits the maximum withholding tax on dividends and interest to 15% and to 10% on royalties. Some exemptions exist for interest and royalties on copyrights, computer software, patents and know-how.
The convention with Lebanon provides for a maximum 5% withholding tax on dividends paid to a company controlling at least 10% of the voting power in the company paying the dividends, and 15% in all other cases.
Copyright, computer software, patent and know-how royalties will be taxed at 5%; other royalties as well as interest at 10%.
I could cite the other treaties with Algeria, Bulgaria, Portugal, Uzbekistan, Jordan, Luxembourg and Japan, but the bill lays out the measures very clearly. They are in a similar fashion to the one I cited earlier so I will not belabour the House with that information.
I would be remiss in my remarks if I did not mention the second main objective of tax treaties, the prevention of fiscal evasion. The treaties contained in this bill encourage the exchange of information between revenue authorities to prevent tax evasion or tax avoidance. Sharing information helps revenue authorities in both countries identify and act on cases of tax evasion or avoidance.
There is one remaining issue I want to highlight before closing, and that is the taxpayer migration rules as proposed by the Minister of Finance.
Amendments to the Income Tax Act will be introduced under separate legislation with respect to Canada's right to tax emigrants on gains that accrue while they are in Canada.
With this in mind, Canada has been negotiating its tax treaties to ensure that double taxation will not happen when emigrants' pre-departure gains are taxed. However, this provision is included in only four of the treaties covered in the bill, the ones with Luxembourg, Portugal, Lebanon and Jordan. I will explain why.
The treaties with Uzbekistan, Bulgaria, Algeria and Kyrgyzstan were all negotiated before the new rules were announced. Because of this, there is a provision in the proposed taxpayer migration rules for Canada to give a unilateral foreign tax credit to emigrants until the year 2007. This time frame guarantees that there will be no double taxation of pre-departure gains before these treaties have been negotiated to take the new rules into account. Japan has asked to review taxpayer migration in future negotiations.
In summary, I want to assure hon. members that the tax treaties contained in this bill only hold positive benefits for Canadian businesses and individuals with operations and investments in these countries.
The fact that our exports now account for over 40% of Canada's annual GDP is testament to the importance of tax treaties to both international trade and to Canada's domestic economic performance.
Once these treaties come into force, the number of tax treaties Canada has in place with other countries will increase to 75.
I therefore urge all hon. members to pass this legislation without delay.