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Surveying the Scene: Canadian Mining Businesses & International Holding Companies

17/10/2013


Our national mining industry has quite the presence abroad; over 1,000 mining businesses based in Canada have assets in 100 countries, many through the use of international holding companies.

Why such a strong international showing? The benefits and applications of holding companies are multi-dimensional. In a mining context, international holding companies can attract investment partners, protect assets from expropriation and isolate riskier investments. With a properly set up holding company structure, organizations can also take profits generated from foreign operations in one country and transfer them with minimal tax implications to another country, without Canadian tax. Plus, holding companies can also function as a tax-effective way to finance business activities abroad by loaning out operating capital at a reduced foreign tax rate, without immediate Canadian tax implications.

Current Considerations

If you’re planning on incorporating a foreign holding company into your business structure, there are several items to take into account. For one, the jurisdiction you’re looking at needs to have a wide tax treaty network for a tax-efficient flow of capital. Canadian mining companies have typically gravitated toward Luxembourg and the Netherlands because of their stable tax environment and wide tax treaty networks. However, with both nations renegotiating or eliminating tax treaties with popular mining countries, the relevance of these regions is currently in flux.

Another key consideration in selecting where to set up your holding company is whether the country is considered a ‘tax haven’ by other countries where your organization has operations. In addition, you’ll want to take a closer look at the intricate conditions embedded into many tax treaties to ensure you’re not violating rules related to setting up holding companies primarily for the purposes of accessing tax advantages.

On The Horizon

With an increased level of uncertainty in traditionally favoured international tax arenas, it’s time to look at emerging favourable markets. For example, the international tax policies of Belgium, South Africa and the Barbados are changing in ways that align well with the key considerations I outlined above.

That being said, with a constantly fluctuating and increasingly complex international tax market, taking a casual approach to international holdings is no longer an option. With one of the most favourable outbound investment tax regimes in the world, Canadian mining operations should invest in proactive tax planning to improve global tax efficiency and enhance the capital, treasury and cash flow objectives of the business.