Carbon Tax – Interpretation of the Supreme Court of Canada


introduction

Main aspects of the GGPP law

Comparative analysis of the Brazilian tax system

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introduction

On March 25, 2020, the Supreme Court of Canada ruled that the federal government has the power to set a minimum price on carbon emissions and impose a pricing system in provinces that do not adopt their own regimes because climate change is a matter of national concern. .

The unsuccessful court challenges brought before the courts by some provinces were based on the fact that the federal government had exceeded provincial jurisdiction. In addition, they argued that the Greenhouse Gas Price Pollution Act (GGPP) infringed on provincial tax legislation and control of the production of natural resources.

Putting aside the heated political debate and the urgent demand from all nations of the world to reduce greenhouse gas emissions, the consequences of the Supreme Court of Canada decision go far beyond. beyond the measures taken by the government to fight against climate change. The decision also involves relevant remarks concerning all taxpayers and requires further discussion.

Main aspects of the GGPP law

Despite many environmental scenarios available to the legislator, the wording of the GGPP law, voted in 2018, squarely chose the fuel sectors and major polluters for the collection of the carbon tax on the following categories:

  • fuel charge – on gasoline and other fuels, including diesel, propane, coal and fuel oil (payable only by the end user);
  • pricing system – for heavy industry producers, including coal-fired power plants and factories.

As a reminder, the GGPP law also establishes a structured tax allowance (Climate Action Incentive) aimed primarily at minimizing the financial setback caused by the increase in household taxation. In addition, it provides that a shared percentage of the tax collected will be allocated to the affected provinces as well as to help the programs of small and medium enterprises (universities, hospitals, municipalities and schools).

It is therefore not surprising that individuals and businesses confronted with the new system have many questions about it. For most taxpayers, it will always be essential to compare several situations to arrive at an appropriate decision; for example, when choosing between investing in the regional industries most taxed and qualified as polluters or in the least taxed renewable energy companies and their tax breaks abroad.

Notwithstanding the above, it is imperative to stress that the minimum carbon price tax will undoubtedly require future adjustments as its duration must be primarily linked to the government’s objective of reducing greenhouse gas emissions.

In addition, the federal government should advise end-users whether the amount of the tax rebate would only be applicable for a short period of time or if it would be permanent to the extent that it would mean considerable relief for taxpayers to cut significantly. unexpected.

And finally, the carbon price tax will soon certainly and profoundly interfere in tax treaties between nations since it indirectly affects profits, dividends and royalties; it will also affect import taxes from countries with weaker climate policies. The Organization for Economic Co-operation and Development (OECD) will therefore be proposing renewed guidelines for transfer pricing rules.

Comparative analysis of the Brazilian tax system

While constitutional disputes may arise from the adoption of a carbon pricing tax policy in Brazil, which has long embraced oddities in tax interpretation, many lasting benefits would also be easily obtained by balancing the political aspects. , economic, social and environmental.

In the broader context of endless domestic tax reform, transforming a tiny fraction of state taxes into carbon prices, such as those already levied on fuel (VAT), or even proposing an increase in the minimum rate of excise tax existing (IPI, the Brazilian acronym), does not appear to be an inconsistent justification with regard to the constitutional provisions adopted, which could perhaps raise concerns regarding non-constitutional issues.

Naturally, the consequences on tax revenues, even those relating to the public surplus or deficit, should be put aside by governments at first. Obviously, current or even future tax breaks should not be politicized by states to encourage companies to invest locally, which could lead to a long-standing dispute between jurisdictions. And also, exceptional attention to dealing with seasonal political subsidies requires strict hindsight.

Given this, competitiveness plays a vital role in doing business wherever it takes place. To do this, changing certain aspects of the taxation of renewable energy companies does not necessarily mean choosing to abandon it. Therefore, the implementation of the carbon pricing policy alongside the production of renewable energy practices on fair tax terms would undoubtedly provide a favorable scenario for investments and, at the same time, reduction of costs. broadly defined greenhouse gas emissions.

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It should be noted that Canada has the most ambitious carbon pricing system in the world for a solid legal foundation. The recent landmark decision of the Supreme Court of Canada shed light on the theoretical conflict between taxes and jurisdictions. In conclusion, all parties interested in embracing a meaningful new mindset should follow the same direction and engage with each other, working together to tackle climate change while prescribing a fair tax system.

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