Canada Concerned By US Tax Reforms

By Global Tax Weekly

US tax reforms are causing a certain amount of competitive anxiety in some of world’s major economies, especially in Canada, given that its geographical proximity to the US makes it doubly vulnerable to such competitive pressures. And the results of the International Monetary Fund’s latest assessment of the Canadian economy will have done nothing to assuage these concerns.

Often, the IMF’s messages get lost behind a thick fog of economic jargon. But in this case its conclusions were quite clear. Its staffers wrote of “economic anxiety,” of Canada as “a less attractive destination for investment,” of substantial “shifting of real activity and profit,” and of the need for a “careful rethink of Canadian tax policy.”

Surveys suggest that businesses on the ground in Canada are growing increasingly worried about the future too, due largely to the tax and trade policies of the US. The IMF’s report therefore lends some credibility to these fears, which cannot now be so readily dismissed by the Government as the usual call for tax cuts by the business lobby.

However, it is not so clear how seriously the Canadian Government itself is taking this matter. It has at least acknowledged that US tax reform could have an impact on the Canadian economy, and in February Finance Minister Bill Morneau revealed that an analysis of the US tax changes is underway. But it’s fair to say that corporate tax competitiveness hasn’t been high on the Trudeau administration’s list of priorities, and, aside from the ongoing review, there are few signs to suggest a dramatic policy shift on tax, which has hitherto been largely focused on fairness in the individual tax system. So, Canada might be famed for having a leader that’s easy on the eye, but as an investment destination, it could be becoming significantly less attractive.

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