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Call for clarity and calm: TEI urges OECD to vivify permanent establishment rules: Canadian liaison meetings, support for Internet tax moratorium highlight TEI's fall activities.

While the tax legislative agenda was full this fall--with major bills actively considered on international reform and job creation, energy, and the Internet--Congress ultimately adjourned for the session without taking any significant action in the tax area. Thus, proposals as far-ranging as FSC/ETI, tax shelters and penalties, requiring CEOs to sign federal tax returns, and making the Internet tax moratorium permanent remain unresolved and will be revisited in 2004. During the past few weeks, however, Tax Executives Institute not only monitored and addressed key legislative issues, but also submitted comments to tax authorities in Ottawa, Quebec, Toronto, and the Organisation for Economic Cooperation and Development.

Permanent Establishment Rules

TEI completed work on a major project that was coordinated by the Institute's European Chapter. On October 17, TEI filed comments with the OECD on the definition of permanent establishment under the OECD Model Tax Treaty. The submission was prompted by a 2002 decision by the Italian Supreme Court in the Ministry of Finance (Tax Office) v. Philip Morris (GmbH) case on definitional issues previously thought to have been well settled. In its submission, TEI contended that the principles advanced by the Italian Supreme Court run contrary to the generally accepted understanding of Article 5 of the Model Treaty and its Commentary, and hence urged the OECD to clarify the rules.

TEI President Raymond G. Rossi commended the European Chapter and International Tax Committee for their work, saying "This is an important issue for our members and their employers. The Model Treaty undergirds hundreds of treaties relied on in global business. The Philip Morris decision threatens to undermine longstanding PE rules that guard against double taxation. By undertaking this project, the European Chapter demonstrated the breadth, depth, and maturity of TEI as an advocacy organization, and it did a service to the business community at large."

In urging the OECD to clarify the PE rules, TEI's submission stressed that the Model Treaty reflects a multinational consensus on the rules regarding jurisdiction to tax cross-border profits, the crux of which is requiring a permanent establishment in the jurisdiction seeking to impose a tax. The principles enable businesses to operate with confidence that a single level of tax will apply to their revenue. Uncertainty erodes this confidence and should be minimized, especially where the risk of multiple taxation is present.

TEI's comments to the OECD are reprinted in this issue, beginning on page 489.

Canadian Liaison Meetings

The first week of December took members of TEI's Canadian Chapters to Ottawa for the Institute's annual liaison meetings with representatives of the Canadian Department of Finance and the Canada Customs and Revenue Agency (CCRA) on pending income tax and excise tax issues. TEI President Ray Rossi participated in the meetings, which were chaired by Vice President for Canadian Affairs Mario M. Tombari, Sherrie Ann Pollock (chair of the Canadian Commodity Tax Committee), and Monika M. Siegmund (chair of the Canadian Income Tax Committee); the delegations to the committees also included members of the two committees and representatives of the Institute's staff.

The income and excise tax meetings with CCRA were held on December 2. The income tax session began with a discussion of specific items in CCRA's Corporate Business Plan. TEI also voiced concerns about the increased litigation of tax matters in Canada. Expressing general support for the accelerated audit approach in CCRA's New Directions initiative, TEI explained taxpayer reservations about restrictions on the ability of large corporations to file objections. In addition to many other issues, TEI discussed the importance of protecting the confidentiality of taxpayer information, and deductibility issues regarding non-competition payments, fines, and interest. TEI also requested updates on the activities of the Provincial Income Allocation Task Force and the Transfer Pricing Review Committee.

In a separate meeting with CCRA on excise tax issues, TEI followed up on responses to GST questions raised at the Institute's 2003 Canadian Tax Conference, as well as posed several new ones. For example, TEI asked CCRA how "emission trading credits" under the Kyoto Accord will be treated for GST purposes, eligibility of certain special purpose entities ("health and welfare trusts") to claim 100 percent of input tax credits, and volunteered to work with CCRA to establish an efficient process dealing with export documentation. TEI also asked several questions regarding the Administrative Monetary Penalty System.

On December 3, TEI met separately with the Department of Finance on income tax and excise tax issues. At the income tax meeting, TEI discussed issues regarding non-resident withholding taxes on dividend and interest. In particular, Finance was asked to discuss steps being taken in respect of Canada-U.S. treaty negotiations regarding the withholding rate in light of nil withholding rates the United States has negotiated with the United Kingdom, Australia, and Mexico. TEI also asked about the ongoing review of capital cost allowance rates, the meaning of the term "has been wound up," partnership income allocation, and other issues. The delegation also voiced concerns about the limitations in CCRA's accelerated audit approach, the confidentiality of taxpayer information, and issues involving foreign affiliates, spin-offs, and the foreign tax credit limits.

At the meeting on excise tax issues, TEI's delegation asked about efforts to enhance the competitiveness of Canadian companies making supplies to a global marketplace, reiterating concerns raised during previous meetings. Among other issues, the delegation discussed simplifying and expanding tax-free transfers of business assets. TEI also requested an update on harmonization of provincial sales taxes.

The agendas for TEI's four Canadian liaison meetings are reprinted in this issue, beginning on page 498. Written responses to TEI's questions and comments, prepared or received by CCRA and Finance officials, will be posted on TEI's website.

Other Canadian Activities

On November 24, TEI's Toronto Chapter sent a letter to Ontario's Minister of Finance opposing the rollback of corporate tax deductions. TEI expressed its disappointment at the intention (of the new government) to increase corporate income taxes to 2001 levels, along with maintaining other corporate taxes, including Ontario's capital tax, at the current rates. The submission, which was approved by TEI's Executive Committee, highlighted the detrimental effects of the changes on Ontario's business climate. TEI suggested that, should changes be necessary, it would be better to freeze corporate tax rates, thereby postponing additional reductions until fiscal conditions improve. TEI also reiterated its longstanding position advocating elimination of capital taxes at the federal and provincial levels. The letter is reprinted in this issue, beginning on page 495.

On November 26, TEI's Montreal Chapter sent a letter to Quebec's Minister of Finance regarding the Quebec capital tax. The Quebec government's 2003 budget provides that the scheduled reduction in capital tax rates would be deferred. TEI recommended that the government reconsider its decision, particularly in light of the Institute's position that capital taxes at the federal and provincial levels be eliminated. The letter is reprinted in this issue, beginning on page 497.

Extension of Internet Tax Moratorium

On September 30, TEI wrote to Senator John McCain, chair of the Senate Committee on Commerce, Science and Transportation, to support the Internet Tax Non-Discrimination Act of 2003, which would permanently extend the Internet Tax Freedom Act's moratorium on taxes on Internet access and multiple and discriminatory Internet taxes. The submission, which was prepared under the aegis of the Institute's E-Commerce Coordinating Committee and State and Local Tax Committee, noted that the (now-expired) moratorium had provided several benefits, such as enhancing the accessibility of the Internet, fostering electronic commerce, and advancing the principle that additional taxes should be predicated on the method of doing business. The letter is reprinted in this issue, beginning on page 488.
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Title Annotation:Recent Activities
Publication:Tax Executive
Date:Nov 1, 2003
Previous Article:Unfinished business in 2003 presages busy 2004.
Next Article:Helping members in transition.

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