A Principled Approach to Reforming the Canadian Outbound Tax System: Broader Accrual and Full Exemption

31 Pages Posted: 10 Dec 2008

See all articles by Jinyan Li

Jinyan Li

York University - Osgoode Hall Law School

Date Written: December 9, 2008


This article is based on a submission to the Advisory Panel of Canada's System of International Taxation. It discusses the general approach to tax reform and the specific questions about redesigning the outbound tax system. The main thesis is that the neutrality theories (CIN, CEN and CON) are not particularly determinative or even that useful in thinking about the reform questions in Canada. A principled approach along the lines of fundamental tax principles and tax expenditure analysis should be seriously considered. The ability-to-pay and tax entitlement are fundamental principles underlying the existing outbound tax system. No serious suggestion has been made anywhere that the re-designed system should be fundamentally different. As such, these principles should continue to apply. Situating the exemption system as part of the normative system as opposed to a tax expenditure may redirect the debate to some different questions. This article supports a broader accrual system for foreign portfolio income and a full exemption of dividends received from "foreign affiliates" of Canadian resident corporations.

Keywords: Territorial taxation, exemption system, credit system, capital import neutrality, capital export neutrality, capital ownership neutrality, territorial principle of taxation, ability to pay, foreign portfolio income, foreign business income

JEL Classification: K34

Suggested Citation

Li, Jinyan, A Principled Approach to Reforming the Canadian Outbound Tax System: Broader Accrual and Full Exemption (December 9, 2008). CLPE Research Paper 44/2008. Available at SSRN: https://ssrn.com/abstract=1313734 or http://dx.doi.org/10.2139/ssrn.1313734

Jinyan Li (Contact Author)

York University - Osgoode Hall Law School ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
416-736-5025 (Phone)

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