With globalization and open markets, governments have been concerned about maintaining and enhancing their position within global supply chains and attracting inward foreign direct investment (FDI). While changing fundamental business environment factors can be difficult and takes time, governments can quickly and easily change the tax incentives they offer to influence the location decisions of investors. With economic globalization and the increasing mobility of capital, a small, open economy like Canada’s cannot act in isolation at the risk of seeing corporations shift their investment to low-tax jurisdictions.
This briefing, Canadian Corporate Dividend Withholding Tax: Holding Back Inbound Investment?, indicates that eliminating the Canadian withholding tax on dividend payments to non-residents would generate a lift in inbound FDI of $2.6 billion per year. Canada must follow the trend of other countries, such as the United Kingdom, and continue to reform its business-tax regime to attract its share of FDI.