[ Offshore Tax ] What are Canada's Controlled Foreign Corporation rules like?

[ Offshore Tax ] What are Canada's Controlled Foreign Corporation rules like?
   • [ Offshore Tax ] What are Canada's Co...  

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DERREN JOSEPH:
What is Canada’s control foreign corp rules like?

ROSLYNNE FLACKS:
Okay, well, that's an interesting question. There are two, when you're talking about CFC rules, there are, there are two different streams here. One is the CFC rules, which are being brought in all over the world and where something about what we already about a little bit as to what's happening in the world. So the reason for CFC wrote rules are to prevent, they really targeted at multinationals, who with a lot of subsidiaries were making, who were taking advantage of the lowest tax or no tax, and, you know, not paying tax in their home countries. And you can think about all the big ones, your Facebook, all of them are they, and legally, this is not illegal. There's nothing improper about what they're doing. This is they're doing what they're, they're being aggressive, but they're not crossing the line. They just have to change the roles. So, they're completely in compliance, all the big ones, Facebook, all of them. What's the Amazon, all of these guys, they're all that. And that's what the world is bringing in these rules. So that basically they can't do this. And that they'll that their home countries will get actually not just their home countries, but all the world will get a share of their taxes instead of them just paying, you know, creating some, some, some subsidiary somewhere. So, the CFC rules in Canada is the same now where you, so it's, it's focused. It really was focused on the, on the, the big movers in the world of which there are tremendous, tremendous inequities and taxes, but it captured the small guys too, because it's still the same rules. If you're a Canadian company, I'm sorry. If you're an offshore company with subsidiaries, sorry, if you're a Canadian company with subsidiaries, you could have one subsidiary that just does a little bit of business, but you're still going to get caught by the same rules. So, and the rules are that they were going to want to get their fair share of the tax. Now, there is another issue to look at when you're talking about foreign controlled corporations and that's, you can have a foreign corporation, let's say a Panama corporation. That is the heart and mind is in Canada. So, Canada looks at heart and mind of the management of the corporation. If heart and mind is determined to be in Canada, that company will be taxed as a non-resident Canadian corporation. That means it gets the highest tax rate. It doesn't get, which is about 35%, as opposed to the small business tax rate, which is less than half of that. So, if you get caught in that, and they really, they push that really hard. They'll look at whether the, where the heart and mind is that's one. And so that's one test where it's heart and mind of the control of the corporation. The other test is permanent establishment. Do you have a physical presence in Canada? Is there an office? Is there a building? Is there a warehouse? And interestingly enough, or e-commerce businesses, digital businesses that are completely digital, which is an interesting thing. If the servers are in Canada, that's enough to get to, to make your taxable. And most, most digital businesses don't realize that they don't really think about where their physical servers are. I, I don't know what if the us does that too. There's a lot of the servers for these businesses and less, I don't know if they pull it, but they also do the same thing, but Canada does. They'll look at physically, you know, if you're selling online, where's your, where do you have warehouses in Canada? Where's the fulfillment, where's the logistics. A lot of the warehouses that are here because it's because of our dollar and because it's much cheaper here than anywhere else. So that's quite a question when you're talking about foreign control and taxation. And again, we have to look at the specifics, but you have to really look at it because you can be caught on awareness and you know, the government can come at you four years later and you know, all this interest in, you know, if they come after you, you have to fight them. You have to pay the lawyer. They don't, if they lose, they don't pay your legal fees. So, you have to, you have to really look into that carefully, really examine your business, to see if there's anywhere where you're going to get caught in the Canadian tax or U us tax or anywhere else that you don't want to be.