December 9, 1998 (3:45 p.m. EST) No. 290

CANADIAN COMPANIES WIN REPRIEVE FROM

MICHIGAN STATE TAX

International Trade Minister Sergio Marchi today welcomed the State of Michigan's decision not to pursue for the time being any tax discovery programs aimed at foreign-based businesses potentially liable under the Single Business Tax.

The decision means that Michigan will take no new actions requiring Canadian companies to disclose potential tax liabilities until a mutual understanding of the situation is reached.

"There is no doubt that the extended tax measures would create a burden on Canadian companies and could harm Michigan companies as well," said Minister Marchi. "With Canada-Michigan trade reaching C$82 billion in 1997, it is clear that we must work hand in hand to keep our trade and investment relationship healthy and prosperous."

The assurance will allow Canada to pursue discussions with Michigan on the extension of its tax jurisdiction and the retroactive application of its state business tax, an issue that has raised much concern among Canadian businesses.

Michigan's Single Business Tax was originally enacted in 1976 as a tax on the basic revenue of Michigan companies. In February 1998, as a result of court decisions, the State of Michigan broadened its tax jurisdiction in a way that made more foreign companies liable and made taxes payable retroactively.

"The understanding between Canada and the State of Michigan provides timely assurance to Canadian companies that have been caught off guard by these significant tax changes," said Mr. Marchi.

Since the fall, the Canadian government has made a number of representations to the Michigan government. These efforts have taken the form of representations by Minister Marchi and his officials with the Governor, the State Treasury Department and the state's business community.

Before this reprieve, Canadian companies could have faced from four years of back taxes and interest to a full 10 years in back taxes and interest, plus a 50 percent penalty.

The Government of Canada realizes that this issue is not fully resolved. It will continue to defend Canadian companies' interests in Michigan. The Canadian and Michigan governments are co-operating to keep Canadian industry informed of further developments.

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For further information, media representatives may contact:

Leslie Swartman

Office of the Minister for International Trade

(613) 992-7332

Media Relations Office

Department of Foreign Affairs and International Trade

(613) 995-1874

This document is also available on the Department's Internet site: http://www.dfait-maeci.gc.ca