India-Canada tax treaty review sought

The India-Canada Tax Treaty needs to be re-evaluated and modernised so as to boost trade and investment between the two countries, according to an eminent tax expert.

"There is an urgent need to reduce or eliminate withholding taxes on interest on debt; equal and fair treatment for foreign investors similar to domestic companies; and a mandatory binding arbitration provision which will apply in cases where the competent authorities have not resolved certain issues within an agreed period," Prof Vern Krishna, an eminent tax expert, has revealed in his book Canada India Tax Treaty.

When the treaty was negotiated several decades back, and even renegotiated in 1996, he said there was a minimum trade between the two countries, and India was a developing country.

"But the situation has now changed. There is not only increase in trade and investment, but India itself is changing, and is emerging as a developed country, and in a very short time it would be a developed country," Prof Krishna said.

He said: "The economic emergence of India holds importance for Canada and its business community. Since India commenced its significant reform process in 1991, the country has moved from a closed economic approach to one which is increasing open and engaged."

Yet, there were a number of trade and investment barriers that must be resolved by mutual understanding and cooperation on a priority basis, Prof Krishna who teaches law at the University of Ottawa opined.

Prof Krishna said the complexity of withholding tax arrangements under relevant provisions of the treaty has led to call by Canadian companies to rationalize if not totally elimination of the taxes. As investment and financing grows between the two countries, this was an area which industry felt where streamlining and simplification was desirable.

If the import and export were equal, or nearly equal, there was no point in having withholding tax. India and Canada could learn from experience of Netherlands, Prof Krishna in his 382 page book published by Lexis Nexis said, and added that the country provided high levels of investment freedom, trade freedom, financial freedom, property rights, business freedom, freedom from corruption, and monetary freedom.

Therefore, there was an urgent need that both countries should have new tax regime that was investor friendly and sensitive to the legitimate demands of the foreign companies who wanted to set up business in the country, Prof Krishna said, and remarked: "the investors do not like uncertainties; more is the uncertainty, greater is the barrier for trade and investment."

Besides, India should also made efforts to improve institutional quality; infrastructure, and governance as they were important determinants of foreign direct investment, Prof Krishna said.

The first ever book on the Canada-India Tax Treaty, jointly written by Prof Krishna and Pamela Cross has not only captured the essence of the evolutionary steps involved in the formulation of the treaty but also brought out its strengths and weaknesses.