Backtracking On Tax Deductions
Summary
"We're putting an end to the practice of corporations borrowing in Canada to fund business operations abroad, then using the interest deductions to offset Canadian income," [Jim Flaherty] said at the time. "No more. The interest expense on debt incurred to acquire shares of a foreign affiliate will no longer be deductible."
The country's tax department presents the following example of what Flaherty is talking about: Canadian insurance company CanCo borrows money from a bank and invests the money - i.e. by buying shares - in its U.S. affiliate, USCo. USCo then uses the money to make an equity injection into HavenCo, an insurance company in a low-tax jurisdiction such as the Caymen Islands. CanCo claims an investment tax deduction for the interest paid on its original loan from the bank. Similarly, HavenCo claims an expense deduction for the interest payments it pays on the money it received from USCo."What we are talking about here is: one investment [i.e. CanCo to USCo], some transfer of funds [USCo to HavenCo] and two deductions," Flaherty said. "The 'double dip,' seen here, is where we need to draw the line. It simply goes too far."Canada's financial services sector generally -- and Canada's insurance industry in particular -- is no doubt keeping a careful eye on where the federal finance ministry is going to go next with its Anti-Tax-Haven initiative. You may recall Finance Minister Jim Flaherty's 2007 budget speech on Mar 19,2007, in which he took a tough line on the issue of Canadian companies being able to claim tax deductions for the interest they paid on loans. Many such loans were arranged for the purpose of Canadian companies investing in their foreign affiliates. Flaherty said he expects to have the Anti-Tax-Haven Initiative implemented by 2012. That is time for Canadian insurers to ponder on how the proposed new rules would affect them as an industry, if at all, going forward in the future.See the full content of this document
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Backtracking On Tax Deductions
Canada's financial services sector generally - and Canada's insurance industry in particular - is no doubt keeping a careful eye on where the federal finance ministry is going to go next with its Anti-Tax-...
See the full content of this document
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