Offering tax exemptions to foreign pension funds could help Canadian infrastructure projects get off the ground, says a report.
The School of Public Policy report, written by Jack Mintz and Stephen Richardson, focuses on expanding the exemption for withholding taxes on foreign dividends and interest earned by pension plans. Right now, Canada has a reciprocal agreement with the United States exempting these taxes.
But the authors argue that isn’t enough.
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“If Canada could negotiate broadening these exemptions to countries beyond the United States, it would realize important advantages with little cost,” they write.
Providing tax exemptions to foreign pension plans could make Canada a more appealing destination to these investors, who look for long-term projects with steady returns. Public–private partnerships (P3) infrastructure projects could also be a prime candidate for foreign capital.
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Mintz and Richardson argue that establishing more bilateral tax exemption treaties can help Canadians save for retirement. By not moving further in the direction for non-U.S. foreign interest and dividend income of Canadian pension funds, these funds are left with lower benefits or higher contribution rates for pension plan members.
Such benefits outweigh any lost revenue from taxes, the authors argue.
“While, with more negotiated exemptions, Canada may lose some revenue by forsaking some withholding tax, that would almost certainly be outweighed by the total economic gains as pension returns increase and, in reciprocal arrangements, Canada becomes more welcoming to foreign capital,” they write.
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