What Happens to ‘Exempt Surplus’ if Canada’s TIEAs Fail…

…to deliver access to tax-payer information according to standards set out in its new Tax Information Exchange Agreements (TIEAs) with ‘zero-tax’ havens?

Perhaps the answer depends on the real motivation behind Canada’s abandonment of its longstanding ‘exempt-surplus’ policy which provides for the tax-free repatriation of profits (in the form of dividends) from the foreign affiliates of its multinationals involved in ‘active’ business in Canada’s tax treaty partners.

Did Canada extend this significant benefit to ‘zero-tax’ havens as the agreed ‘market price’ to secure their compliance with the new global standards on tax information exchange as set out in TIEAs or was it simply a means of increasing  Canada’s international competitiveness  by allowing its companies to escape both ‘onshore’ and ‘offshore’ taxation?

With Canada’s ‘zero-tax’ TIEA partners due to undergo their OECD Global Forum Phase II Assessments later this year to decide whether ‘in practice’ these countries are able to deliver on the ‘promises’ set out it their TIEAs, it remains to seen how Canada will react if the ‘practice’ falls short of OECD GF expectations.

If these countries fail to satisfy their peers in the OECD GF about their ability to collect and exchange tax-payer information will Canada suspend or revoke the benefit of the ‘exempt surplus’ regime until such time as their TIEA-partners are compliant?

How will Canada reconcile its position as member of the OECD Global Forum in the event that its TIEA partners are adjudged non-compliant and its undertaking as a member of the G-20 to ‘blacklist’ these countries for non-compliance?

Surely it will make for uncomfortable headlines if Canadian companies with operations in countries with a tested inability to honour the terms of their TIEAs can continue to generate tax-free profits.

With Canada’s ‘vested’ interests  in the outcome of the Phase II Assessments of its TIEA-partners, aside from ensuring that countries are committed to the global standards ‘in word and in deed’, there is much value in the monitoring of the ‘form and substance’ of the Phase II process by OECD GF members and Canadian multinationals over the coming months.

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23 thoughts on “What Happens to ‘Exempt Surplus’ if Canada’s TIEAs Fail…

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