SOFT DRINK TAXATION: LEGAL CONSIDERATIONS IN INTERNATIONAL AND DOMESTIC LAW Barbara von Tigerstrom College of Law University of Saskatchewan

What are the legal considerations?  Domestic law  Constitutional law  Legislative framework  International law  Human rights  Trade and investment

Whether to implement a tax  Policy considerations  Effectiveness – predicted impact, substitution effects, etc.  Equity – regressive effects, differences in impact  What is informing those considerations?  Economics, epidemiology, policy analysis, etc.  Law? Right to health and an obligation to promote health Compare legal position for tax v. other measures

How to implement a tax  Policy considerations  Effectiveness – what design and implementation strategy will have the greatest effectiveness?  Equity – what design and implementation strategy will minimize or mitigate regressive effects, promote equitable benefit?  What is informing those considerations?  Economics, epidemiology, policy analysis, etc.  Law… National/provincial: jurisdiction, legislation International: trade and investment

Legal considerations in design and implementation  What does the government have authority to do?  What types of measures are within / outside the authority of the Quebec government?  What is the legal framework for implementing the measure?  Legal basis for imposing tax, use of funds  What legal issues might influence the design of a tax measure?  What models would be more / less vulnerable to legal challenge

Jurisdiction to impose taxes  Federal government jurisdiction:  Constitution Act, 1867, s. 91(3): “The raising of Money by any Mode or System of Taxation”  [«Le prélèvement de deniers par tous modes ou systèmes de taxation»]  Provincial government jurisdiction:  Constitution Act, 1867, s. 92(2): “Direct taxation within the province in order to the raising of a Revenue for Provincial Purposes”  [«La taxation directe dans les limites de la province, dans le but de prélèver un revenu pour les objets provinciaux»]

What does this include?  Federal government  Income tax (personal and corporate)  Excise tax (manufacturer)  Customs duties  Sales tax (simple or VAT)  Provincial government  Income tax (personal and corporate)  Sales tax (simple or VAT)

Limits on provincial tax jurisdiction  “Direct taxation within the province in order to the raising of a Revenue for Provincial Purposes”  Direct taxation  Within the province  To raise revenue for provincial purposes

Direct v. indirect taxation  Direct taxation: tax is collected from the person who is intended to bear the burden of it  Income tax  Sales tax  Both federal and provincial government  Indirect taxation: tax is collected from an intermediate person (e.g. importer, distributor, manufacturer) who will pass it on to another person (consumer)  Customs duties  Excise taxes (on manufacturer)  Federal government only

What about taxes on beverages?  Retail sales tax paid by consumer? – yes  Special tax paid by consumer? – yes  Special tax paid by wholesaler or distributor? – maybe  Special (excise) tax paid by manufacturer or importer? – probably not  Limits on jurisdiction narrows range of options for provincial government

Legislative framework  Tax legislation  Legislation on use of funds

Tax legislation  Retail Sales Tax Act  General sales tax: % of value, “value-added tax”  “basic groceries” zero rated  Alcoholic beverages: fixed amount / ml  Tobacco Tax Act  Cigarettes, etc: fixed amount / item or / gram  Cigars: % of value (minimum taxable price)  Minimum price for tobacco products

Existing categories  Zero rated: “sales of food or beverages for human consumption” – except…  Taxable:  Alcoholic beverages  Non-alcoholic malt beverages  Carbonated beverages  “Non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of” a natural fruit juice or combination of natural fruit juices (including reconstituted)

Legislation on use of funds  Act to Establish the Fund for the Promotion of a Healthy Lifestyle  Defined amount of proceeds of tobacco tax paid into the fund each year  Funds used for specific purposes (“activities, programs and projects that foster healthy eating and physical activity, to promote social norms that encourage a healthy lifestyle, to improve services to persons with a weight problem, and to support innovation and the acquisition and transfer of knowledge in those areas”)

Possible international trade issues  “Most-favoured nation” (MFN) obligation: equal treatment of similar products from all countries (GATT, NAFTA)  “National treatment” (NT) obligation: equal treatment of similar products from domestic or foreign suppliers (GATT, NAFTA)  Treatment of foreign investment (NAFTA)  Example: Mexico tax on HFCS-sweetened beverages

Non-discrimination (MFN and NT)  Taxation of foreign v. domestic products  Internal taxes must be applied equally to like foreign and domestic products, and not so as to “afford protection to domestic production”  Will the tax disproportionately affect foreign v. domestic products, and/or products of particular country?  If so, can you argue that they are not “like” products?  If not, can you argue public health justification

Trade and investment  National treatment  Expropriation of investment  Includes direct or indirect expropriation, measures “tantamount to” expropriation  Can include some regulatory measures, possibly tax  But… high threshold for finding impact = expropriation

Risk of a challenge?  MFN and NT: probably low, but depends on design of measures (especially impact on foreign v. domestic products)  Expropriation: low  Compared to other measures…  Labelling, product characteristics etc.  GATT, NAFTA; also Technical Barriers to Trade

To conclude…  Issues of jurisdiction need to be taken into account in the design of a provincial measure  Direct v. indirect tax  Legislation already exists to provide a framework and models  Legislation to implement the tax  Legislation on the use of funds  Legal challenges are not a serious risk but should be taken into account in the design of a measure