It is clear the province and the federal government are not on the same page when it comes to global corporate taxation policy, says a local business expert.
On July 1, the Organization for Economic Co-operation and Development (OECD) announced 132 countries would take part in a new framework for international tax reform that would see a minimum global corporate tax rate of 15 per cent.
The move is being made in an effort to reform global-tax infrastructure to prevent large multi-national corporations from setting up tax shelters to avoid paying taxes.
The 15-per-cent rate may have little to no effect on Alberta’s ability to bring in large multi-national corporations, but it does show the stark differences between the political ideologies of the provincial and federal governments, said Vishal Baloria, a professor with the Alberta School of Business at the University of Alberta.
“It does highlight just how different, how sort of diametrically opposed, what our provincial government and our federal government wanted to convey, which I don't think is a good thing,” Baloria said.
It's clear the Alberta government heavily prioritizes competition, as the province fast-tracked a reduction in the corporate tax rate in July 2020 to eight per cent.
“[Alberta] clearly believe[s] that by doing so, we're going to attract banks and tech companies from central Canada — from Toronto and Montreal, perhaps. ... otherwise, they wouldn't have done it,” said Baloria.
But based on how quickly Ottawa jumped on board for a global tax, Baloria said it appears the feds don't value competition in the same light as Alberta.
“They seem to think it's going to happen anyway — meaning the United States and a bunch of European countries are behind it — so why not, let's just co-operate,” Baloria said.
Baloria doesn’t have an opinion on the number itself, but he said he has concerns about the collusion of countries and how that might affect competition in a free market.
“Just think about it from a consumer's perspective. When you go out and buy a coffee, would you prefer the five coffee shops that you might attend are all colluding and deciding on a specific price? Or would you prefer the five coffee shops to operate independently, [and set pricing] depending on the quality of the product, and various other things?
“We usually think of competition as a good thing,” he said.
Associate Minister of Natural Gas and Electricity Dale Nally said this week Alberta has the most competitive business taxes in Canada, which makes it one of the most attractive destinations for job-creating investment in all of North America.
“Alberta’s job-creation tax cut has benefited all industries and supported projects of all sizes, including the essential, job-creating natural gas and electricity industries that fall under my mandate as minister and employ so many people from the St. Albert and Sturgeon County region,” said Nally in a statement emailed to The Gazette.
Competitive tax rates are an essential part of Alberta’s Recovery Plan, Nally said.
According to the OECD, the global tax rate framework will be completed in October and includes a double-pillar approach.
Pillar One would re-allocate some of the taxing rights from large multi-nationals from their home countries to the markets where they have business activities and earn profits, regardless of whether they have a physical presence there, stated a press release from the OECD.
Pillar Two would use the global minimum corporate tax rate to cease competition between countries over corporate income tax.
These pillars would be created to include digital corporations as well.
Baloria said companies such as Amazon have stated they prefer the one tax number because it simplifies things.
“One perspective on that could be that they prefer lack of complexity. So even if they end up paying higher taxes, they may still be better off, because at least the system is less complex,” he said.
A more cynical take, Baloria continued, is they knew this was going to happen, so it’s more about public relations and managing the message.
“I think Canada and various other governments have wanted to tax Amazon in the same way that they tax Walmart, which is more of a physical brick-and-mortar store. I think that definitely was the initial motivation behind all of this,” Baloria said.
The 15-per-cent rate is estimated to bring in additional global tax revenues of around $150 billion US annually.
Baloria thinks the co-operation between countries should come in the form of international penalties when companies evade taxes and commit tax fraud.
“For items like that I believe that we ought to co-operate with other countries. But for almost everything else … I think our current tax system … was fine. Not perfect, but fine in the sense that it had elements of co-operation. But it also has or had elements of competition.
“I think you want both. You don't want to co-operate on everything, because that essentially becomes a cartel. You don't want to compete on everything, because then it's just a race to the bottom.”
