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Treaty signifies further clampdown on international tax evasion

The federal government’s recent move to sign a multilateral convention aimed at preventing companies from ‘treaty shopping’ between jurisdictions represents a further crackdown on international tax avoidance and evasion, Canadian tax lawyer David J. Rotfleisch tells

The Department of Finance recently announced that it has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. It will modify a number of treaties in order to implement measures developed by an OECD-G20 project aimed at countering international tax avoidance via ‘base erosion and profit shifting’ (BEPS).

“BEPS refers to aggressive tax planning arrangements undertaken by multinational enterprises which, though legal, exploit the interaction between domestic and international tax rules to inappropriately reduce their taxes. For example, some enterprises will shift their taxable profits away from the jurisdiction where the underlying economic activity has taken place in order to avoid paying their fair share,” says the government.

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains: “The draft document was released last year and its purpose is to implement a wholesale amendment of bilateral tax treaties that result in mismatches and allow abuses including ‘treaty shopping’.”

This ultimately resulted in multi-jurisdictional structures that benefit from differential rates of taxation between treaties, he says. 

Some 68 countries, including Canada, have signed the convention, says Rotfleisch, with eight others expected to join, although the United States is one notable exception. 

“Its main effects are to amend anti-treaty shopping rules, dispute resolution and mutual agreement procedures measures. The treaty is expected to be ratified by Canada by 2019,” he says.

“This is a further clamping down on international tax avoidance and tax evasion.”

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