Tax exemptions to foreign pension funds could pave way for major infrastructure investment

CALGARY, Nov. 6, 2014 /CNW/ - Canada has been scratching its head for quite a while over how it will fund its urgent infrastructure needs. A report published today by The School of Public Policy, written by Jack Mintz and Stephen Richardson, suggests offering tax exemptions to foreign pension funds could help get these projects off the ground.

Mintz and Richardson's work 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 U.S. exempting these taxes. But the authors argue that isn't enough.

"If Canada could negotiate broadening these exemptions to countries beyond the United States, it would realize important advantages with little cost," they write.

Infrastructure would be one area that Canada would benefit from this tax policy measure. Providing tax exemptions to foreign pension plans would make Canada a more appealing destination to these investors, who look for long-term projects with steady returns. P3 infrastructure projects would be a prime candidate for foreign capital.

Many politicians have decried the lack of funding for infrastructure. Presumably those same politicians would then support a treaty that would exempt pension funds, and attract that capital towards infrastructure.

Mintz and Richardson also argue that establishing more bi-lateral 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.

The report can be found at www.policyschool.ucalgary.ca/publications.

SOURCE: The School of Public Policy - University of Calgary

Media Contact: Morten Paulsen, Phone: [phone], Email: [email protected]