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Foreign Investment in Canada

23/10/2012


​Over the last 12 months, foreign investors have made a few significant proposed investments into Canada. Interestingly, a few days ago, the federal government blocked a Malaysian state-owned company’s $6 billion attempt to take over a Canadian natural gas firm. The government is set to hand down their decision on a Chinese state-owned company’s $15 billion proposed acquisition of Nexen by November 10th. Both these deals garnered a lot of press. What is interesting is that the big overall issues relating to acquisitions, both large and small ones, sometimes have a similar thread.

For instance, some of the issues faced by foreign investors who are looking at integration of their businesses into a Canadian acquisition are as follows:

  • The optimal mixture of debt versus equity allowed under Canadian law to ensure the interest used to finance the acquisition is fully deductible for Canadian income tax purposes;
  • The appropriate share structure into Canada in light of minimizing the tax on repatriating profit back to the home country;
  • In light of the Supreme Court of Canada decision on GlaxoSmithKline (2012 SCC 52), the type of services that could arguable be borne by the Canadian entity related to the business flows contemplated in Canada; and,
  • The compensation and other potential tax issues of sending home office staff to Canada as part of the business integration team.

This is only a short listing of some of the considerations when determining the financial and business modelling of expansion plans into Canada. Depending on the size and complexity of the businesses, other issues will need to be considered.