29 November 2022 CTF Conference - Finance Update

This provides summaries of oral remarks provided by Shawn Porter (Associate Assistant Deputy Minister, Tax Policy Branch, Finance Canada) on two of the topics at the Finance Update held at the CTF annual conference in Toronto on 29 November 2022.

GAAR Consultation

He noted that the August 9 GAAR consultation paper stated at its outset that Finance thinks the GAAR is working reasonably well – but, even so, it could do with a tune-up after more than 30 years of practice, experience, tax administration and case law.

The approach in the paper was generally to set out a range of ways to address a short list of issues that had been identified. Some of the proposals advanced were intended to generate discussion and inspire thinking. Although the paper sought to cover the possible proposals in a balanced manner, even being transparent where a possibility was perhaps not workable or necessary, some of the proposals still prompted strong reactions – all of which is an expected and useful part of the consultation process.

We have received 14 written submissions, spread fairly evenly across academics, civil society, business groups, individuals, and tax advisory firms; so, even though ardent views may be expressed by some groups, there are competing views.

The paper noted the government’s intention to add an explicit economic substance rule to the GAAR. This was intended to be transparent to reflect the platform commitment and the mandate letter to the Minister to modernize the GAAR regime to focus on economic substance.

Although the judicially developed analytical framework is reasonably sound, there are some cases that may benefit from a further statutory “nudge” with regard to economic substance – and the case was made for this benefiting the efficiency of the system overall. Finance does not wish to undo 30-plus years of experience we all have working with the GAAR, and the precedents established in a significant volume of decided cases.

Department officials are analyzing the 14 submissions received, and are developing recommendations for the government. The next step is to release draft legislative proposals, for further consultation.

Pillar 2 Consultation

He noted that the federal government updated and restated the government’s commitment to Pillar 2, and stated that, to function effectively, Pillar 2 requires participation and extensive coordination from international partners around the world.

Canada was committed to the global minimum tax on large corporations, and continues to work closely with its international partners to develop a coordinated implementation framework to be put in place in a timely and coordinated manner

He appeared to obliquely advert to a comment made in a morning session that implementing Pillar 2 in Canada effective 2023 would be highly problematic, but did not comment otherwise than as noted and to note that Finance will continue to monitor the situation closely, and engage internationally quite actively.