Question Period Note: 2022-2023 SUPPLEMENTARY ESTIMATES (C) – LIMITATIONS ON EXCESSIVE INTEREST DEDUCTIONS

Why is the Canada Revenue Agency seeking funding in the Supplementary Estimates (C) to administer the limitations on excessive interest deductions?

• Among its goals, the Canada Revenue Agency has two underlying goals—to make it easier for the vast majority of taxpayers who want to pay their taxes and more difficult for the small minority who do not.
• The CRA is seeking $2.7M in funding to implement required modifications to its systems as well as make any publication and procedural changes necessary for the administration of the Excessive Interest and Financing Expense Limitation.
• This funding will allow the CRA to address base erosion and profit sharing concerns to produce exempt or deferred income especially in the context of multinational enterprises and cross border investments.
• The strengthening of the rules on interest deductibility will ensure that multinational enterprises pay their fair share and brings Canada in line with other tax jurisdictions.

Through the 2022-2023 Supplementary Estimates (C), the Canada Revenue Agency (CRA) is seeking $2.7M to administer the limitations on excessive interest deductions as announced in Budget 2021.

Over the past decades, taxpayers, especially multinational enterprises, have been able to shift profits offshore by taking on disproportionally excessive debt in Canada and deducting interest and financing expenses. This means that the profits and revenues are in foreign companies and are being taxed at low or nil tax rates in foreign jurisdictions, while the interest expenses are being claimed in Canada thus eroding the Canadian tax base.

With the introduction of the Excessive Interest and Financing Expense Limitation (EIFEL) regime, Canada follows other jurisdictions in implementing a regime that is consistent with recommendations in the Base Erosion and Profit Sharing Action Plan developed by the Organization for Economic Co operation and Development. The strengthening of the rules on interest deductibility is expected to bring Canada in line with other foreign jurisdictions, including all of our G7 peers to ensure that taxpayers pay their fair share of taxes.

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