Canada could be about to lose its tax competitive advantage it currently enjoys in attracting investment to its oil sector: its low corporate tax and royalty rates compared to the U.S. While we will start to know better the details of a U.S. tax reform package in the next month or so, two reform plans provide a basis to analyze potential impacts: the tax-reform “Blueprint” put forward last year by the Republican-controlled House of Representatives, and President Donald Trump’s own reform proposals. Either one, or even a hybrid version of the two, would make tax and royalty effective tax rates on new investment in the U.S. oil industry significantly more attractive to investors. Combined with the lack of any plans for a U.S. carbon tax and the lightening U.S. regulatory environment, investing in American oil might soon look more compelling than investing in Canadian oil. And when the price of oil eventually rises again, the attractiveness of Canada to international investors will diminish even more. As an investment destination, Canada’s popularity has already been fading. One key index, measuring foreign-direct-investment confidence, shows the U.S. at the top, while Canada has slid from third place to fifth place, behind even Britain, despite so much Brexit uncertainty. Amid Canada’s rising tax burden and its growing regulatory load, however, oil-producing provinces have nevertheless managed to retain a competitive advantage against oil-producing U.S. states in attracting international capital. That is primarily due to a lower corporate tax rate in Canada, as well as competitive royalty regimes and, in most oil-producing provinces, the absence of a retail sales tax on capital equipment. Alberta, for example, which currently offers the lowest marginal effective tax and royalty rate (METRR) on conventional oil investments of all the Canadian provinces based on a $50 per barrel West Texas Intermediate price, also offers a lower METRR than nearly all comparable U.S. states measured (except Pennsylvania). But if the Republicans succeed in passing a version of their tax-reform proposals — and as a major campaign promise, they are facing great pressure to do so — Alberta will slide quickly from one of the best North American destinations for oil investments to somewhere in the middle of the pack, and Saskatchewan will become one of the highest-taxed oil-producing jurisdictions. Should rising oil prices trigger higher royalty rates in both provinces, they will become even less competitive. Even though the House plan proposes a less drastic cut to corporate income tax rates, it will actually do more than the president’s proposed tax reforms to eliminate Canada’s competitive edge and put the two countries METRRs virtually on par, due to the immediate deduction of capital expenditures. While the prospect of the two countries ending up with roughly equal METRRs might sound less than worrisome, if it happens, Canada will lose the most significant advantages it has over the U.S. in attracting investment to its oil sector. The U.S. already enjoys the advantage of being a much larger market, and having a faster-growing economy, which is why it ranks as the most-preferred destination for foreign investment intentions. Investors also enjoy more regulatory certainty in the U.S., where the sector is being aggressively deregulated (as opposed to in Canada, where new and sometimes unexpected twists in the regulatory environment are becoming more common). And the U.S. still has no plans to implement a national carbon tax, while in Canada carbon taxes are expected to escalate over the next few years. With all these challenges to overcome, Canada's oil industry enjoyed one key edge to attract business - its lower tax burden, which soon it might lose as well