doing international business in british columbia: the competitive advantage october 2006
TRANSCRIPT
Doing International Business In British Columbia:
The Competitive Advantage
October 2006
October 2006 Slide #2
Robert Fairweather, President
Chris Gimpel, Associate Partner
October 2006 Slide #3
Overview And HistoryEligible Activities
What British Columbia Offers
Starting An International Financial Business
October 2006 Slide #4
What Are The Tax Benefits?
Corporations carrying on a registered International Financial Business are eligible for a refund of up to 100% of their provincial corporate income tax.
Consider a company with $750,000 in qualifying income…
Pr/StateTax
Federal Tax
Total Tax
Effective Rate
British Columbia British Columbia (IFC)(IFC) 00 165,900165,900 165,900165,900 22.12%22.12%
Alberta 75,000 165,900 240,900 32.12%
Quebec 74,250 165,900 240,150 32.02%
Ontario 105,000 165,900 270,900 36.12%
Oregon 49,500 238,170 287,670 38.36%
California 66,300 232,460 298,760 39.83%
OVERVIEW AND HISTORY
October 2006 Slide #5
The International Financial Activities Act (IFA Act)
The IFA Act, administered through the International Financial Activities program, provides eligible corporations with a refund of British Columbia corporate taxes paid on income derived from a qualifying international financial business.
In general, qualifying activities are financially based and one side of the transaction is with a non-resident of Canada.
On January 1, 2006, the IFA Act was amended to include refunds on British Columbia corporate taxes paid on income derived from life science patents.
OVERVIEW AND HISTORY
October 2006 Slide #6
Fund and asset managementFinancial researchFactoringLeasingExport and import financingAdministrative support for financial activitiesForeign exchangeLife Science Patents (new)
Loans and depositsTrade financeTrust businessDealing in securitiesInsurance coverage of non-residentsFinancial adviceUnderwriting foreign securitiesFilm distributionData back up
What Activities Are Eligible?
In general, qualifying activities are financially based and one part of the transaction is with a non-resident.
OVERVIEW AND HISTORY
October 2006 Slide #7
History Of The International Financial Centre BC
Provincial
British Columbia passed legislation to allow profits
from international financial businesses to be eligible for
a refund from provincial taxes.
British Columbia passed legislation to allow profits
from international financial businesses to be eligible for
a refund from provincial taxes.
In 1986, an amendment to the Income Tax Act of Canada
allowed for the establishment of international banking
centres in Canada.
In 1986, an amendment to the Income Tax Act of Canada
allowed for the establishment of international banking
centres in Canada.
Federal
International Financial Centres
OVERVIEW AND HISTORY
October 2006 Slide #8
Provincial Initiatives
OVERVIEW AND HISTORY
International Financial Centre Vancouver
International Financial Business Act
(1988)
International Financial Business Act
(1988)
International Business (Tax Refund) Act
(1988)
International Business (Tax Refund) Act
(1988)
October 2006 Slide #9
Early Issues
2. Allow non-arms-length transactions.
1. Expand the opportunity to the entire corporate community, not only financial institutions.
3. Extend locations to the entire province, not only Vancouver.
It became evident that certain restrictions had to be lifted.
OVERVIEW AND HISTORY
October 2006 Slide #10
Pressing For Change
OVERVIEW AND HISTORY
Business Council of BCBusiness Council of BC
MLA’sCorporations
Vancouver Board of Trade
Vancouver Board of Trade
Investment Dealers Association
Investment Dealers Association
Vancouver Economic Development
Council
Changes to the
Legislation
Changes to the
Legislation
October 2006 Slide #11
All companies are eligible.The financial institution requirement was eliminated and eligibility based on qualifying activities.
The International Financial Activities Act of 2004
Non-arm’s length transactions are allowed.Companies benefit from qualifying activities with affiliates and related parties.
Companies located anywhere in the Province can register.
There are no restrictions on where a company can locate in British Columbia.
OVERVIEW AND HISTORY
October 2006 Slide #12
Treasury OperationsTreasury Operations
Trade FinanceTrade Finance
Foreign ExchangeForeign Exchange Captive InsuranceCaptive Insurance
Administrative Support•Back Office
•Data Storage & Back up
Administrative Support•Back Office
•Data Storage & Back up
Life Science PatentsLife Science Patents
Financial ActivitiesFinancial Activities Film DistributionFilm Distribution
OVERVIEW AND HISTORY
The International Financial Activities Act of 2004
Eligible ActivitiesEligible Activities
October 2006 Slide #13
The International Financial Centre BC has existed through three different governments, four leaders, and five elections.
Stable Through Various Governments
May-05 Liberal Gordon Campbell Centre-right
May-01 Liberal Gordon Campbell Centre-right
Oct-96 New Democratic Glen Clark Left
Oct-91 New Democratic Mike Harcourt Left
Oct-86 Social Credit Bill Vander ZalmConservativ
e
Party Leader Policies
OVERVIEW AND HISTORY
October 2006 Slide #14
Overview And History
Eligible Activities
What British Columbia Offers
Starting An International Financial Business
October 2006 Slide #15
Loans and deposits to non-residents.
Cash management.
Certain hedging transactions.
Managing foreign exchange activities of non-resident persons.
Managing investments for non-resident persons.
Treasury Operations
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #16
Factoring Receivables
Collecting trade accounts receivable.
Must be receivable from a non-resident person.
Must be purchased outright and without recourse from the seller.
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #17
Administrative support services directly related to a financial activity of a non-resident financial business.
Excludes call centres, marketing, and advertising.
Internal support, such as a computer help-desk.
Back-up office services, equipment, and premises to continue the business operations of a non-resident in case their primary business becomes temporarily unusable qualifies.
Administrative Support Services
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #18
Making loans in any currency.
Borrowing in any currency.
Guaranteeing the payment of debts where non-resident debtors and creditors.
Accepting deposits or making deposits with a non-resident or prescribed business.
Loans and Deposits
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #19
Providing financial advice to non-resident persons (except prescribed financial advice).
Managing investments for a non-resident for a fee or commission.
Managing investments in securities for resident Canadians where the issuer is a non-resident and securities are not listed on Canadian stock exchange.
Eligible activities include:
Asset Management
ELIGIBLE ACTIVITIES
October 2006 Slide #20
Selling, assigning, or licensing rights to distribute a film or television production outside Canada;
To exploit outside Canada anything related to a production.
Film Distribution
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #21
On January 1, 2006, the IFA Act was expanded to include activity related to certain Life Science patents. Activities are eligible for a refund of Provincial tax for up to 75% of net income to a maximum of $8 million.
Eligibility is defined according to the IPC patent class and includes patents for:
Certain medical treatment and diagnostic processesDrugs and pharmaceuticals Certain agricultural productsBiological treatments of water and sewageMedical devices.
Life Science Patents
ELIGIBLE ACTIVITIES
October 2006 Slide #22
Selling, assigning, or licensing a prescribed patent to a non-resident.
The sale of a good or service derived from an invention for which a prescribed life sciences patent is owned by the corporation. The sale must be to a non-resident.
The non-resident may be at arm’s length or non arm’s length.
Life Science Patents
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #23
Insurance and reinsurance qualifies.
Must be prescribed risk of a non-resident.
Arms-length rule applies except for a captive insurance company.
Captive Insurance
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #24
Leasing property to non-residents by way of a direct financing lease.
Any other prescribed financial activity conducted exclusively for non-residents, where the corporation earns a fee or commission income.
Other International Financial Activities
ELIGIBLE ACTIVITIES
Eligible activities include:
October 2006 Slide #25
How Does an IFC Operate?
ELIGIBLE ACTIVITIES
October 2006 Slide #26
Profits are eligibleFor
Provincial tax refund
Profits are eligibleFor
Provincial tax refund
$ Remitted to Parent
$ Remitted to Parent
Treasury
Multinational Inc.
Provides Treasury Services
Asian Subsidiary
US Subsidiary
European Subsidiary
IFC BC Multinational, Inc.
Treasury Operation•Located in BC
•Registered under the IFA Act
IFC BC Multinational, Inc.
Treasury Operation•Located in BC
•Registered under the IFA Act
Fees
ELIGIBLE ACTIVITIES
October 2006 Slide #27
Profits are eligibleFor
Provincial tax refund
Profits are eligibleFor
Provincial tax refund
$ Remitted to Parent
$ Remitted to Parent
Factoring Receivables
Multinational Inc.
Payment
Sales to Unrelated Companie
s
Asian Company Inc.
US Company Inc.
European Company Inc.
ELIGIBLE ACTIVITIES
Sells Receivables to IFC Co.
IFC BC Factoring Company, Inc.
•Located in BC•Registered under the IFA Act
IFC BC Factoring Company, Inc.
•Located in BC•Registered under the IFA Act
Payment for Receivables
October 2006 Slide #28
Specialists are entitled to receive up to 75% refund of BC tax on IFA eligible employment income for a maximum of five years.
At least 70% of time must be devoted to qualifying activities.
The individual must be a non-resident immediately before commencing employment. A written contract with the registered corporation must exist to govern the terms of the contract.
The individual must be resident of BC on last day of taxation year.
Individuals Can Qualify as Specialists
ELIGIBLE ACTIVITIES
A registered corporation can apply to register an employee as an IFA Specialist.
October 2006 Slide #29
Overview And History
Eligible Activities
What British Columbia Offers
Starting An International Financial Business
October 2006 Slide #30
Source: Institute of Chartered Accountants, 2005; Ministry of Finance, Government of BC, 2006; Statistics Canada 2006.
The BC Government is committed to balancing the budget on an ongoing basis. The 2005/06 surplus was $3.1 billion, $1.8 billion higher than originally estimated.
A surplus of $600 million is expected in 2006/07. Once again, Standard & Poor’s boosted British Columbia’s credit rating to AA+ from AA as a result of sound fiscal management.
WHAT BC CAN OFFER
Responsible Fiscal Management
October 2006 Slide #31
The World Bank ranked Canada 4th out of 175 countries for ease of doing business.
The corporate surtax will be eliminated for all corporations, effective January 1, 2008.
The federal capital tax on the taxable capital employed in Canada by large corporations is zero, effective January 1, 2006—two years ahead of schedule.
For corporations, the net tax rate of 22.12% will be reduced to 19% by 2010.
The GST was reduced by 1% in 2006.
Source: Department of Finance, Canada 2006, CBC News 2006
A Supportive Federal Government
WHAT BC CAN OFFER
October 2006 Slide #32
Since 2001, BC has made dramatic changes designed to strengthen the economy and make it the best place to invest in North America.
Implementing 31 provincial tax relief measures, including a 20 per cent cut in the corporate income tax rate, elimination of the general capital tax, and a 25 per cent cut in personal income tax rates;
New or enhanced tax credits and exemptions for software development, manufacturing, mining, oil and gas, film and TV production, new media, and international financial activities.
Source: Government of BC
A Supportive Provincial Government
WHAT BC CAN OFFER
October 2006 Slide #33
Real GDP Per Capita in BC has outperformed Canada.
Source: Statistics BC
A Strong Economy
WHAT BC CAN OFFER
October 2006 Slide #34
Source: Government of BC, sourced from 2001 Census, Statistics Canada
Languages Spoken in British Columbia
A Multi-Lingual Environment
Chinese 16.93
%
French 12.22
%
Punjabi 6.43%
German 5.37%
Spanish 3.48%
Hindi 2.87%
Tagalog (Filipino) 2.37%
Italian 1.93%
Dutch 1.46%
Japanese 1.41%
Vietnamese 1.34%
WHAT BC CAN OFFER
October 2006 Slide #35
25,000 new student spaces at colleges, university-colleges, universities, and institutes.
$90 million for a new tax credit program to expand training opportunities in trades.
$39 million to increase apprenticeship training.
$50 million to support economic development and diversification through research in sciences and engineering through grants and fellowships.
Source: Government of BC
British Columbia’s Commitment to the Future
WHAT BC CAN OFFER
October 2006 Slide #36
The Mercer Group’s 2006 Quality of Life Survey ranks Vancouver third worldwide--first in North America.
Mercer’s 2006 Cost of Living Survey shows Vancouver ranks behind 55 other cities.
A study by New Media found that the top reason for locating in BC was the desirable west coast lifestyle. 152 companies ranked lifestyle as extremely important, compared to the large talent pool, which was ranked as extremely important by 107 companies.
British Columbia is a magnet for skilled and creative people.
Source: Mercer Report 2006, New Media, 2003
The Ability to Attract Talent
WHAT BC CAN OFFER
October 2006 Slide #37
Figures are for Average Compensation. Source: WSJ.com, Salary Expert.com, Dow Jones and Company, 2006.
Salary BenefitsTotal
Compensation
Vancouver, BC 38,666 5.9% 45,238
Seattle, WA 64,708 14.1% 80,979
Newark, NJ 62,145 13.1% 77,152
San Diego, CA 55,212 15.3% 69,758
Portland, OR 57,874 14.7% 72,775
Annual Salary: Accounts Receivable Manager (US$)
Low Labour Costs
WHAT BC CAN OFFER
October 2006 Slide #38
Utilities Facility LeaseVancouver, BC 448 460Newark, NJ 510 608San Diego, CA 551 702Seattle, WA 429 450Portland, OR 445 394
Source: 2006 KPMG Competitive Alternatives. (C$1.174)
Average Annual Costs (US$000)for 145 Employees in a Back Office/Administration Facility
22,500 sq.ft (2,090 sq.m) facility
Monthly Consumption 125,000 kWh
Low Energy & Property Costs
WHAT BC CAN OFFER
October 2006 Slide #39
Average Annual Costs (US$000)for 145 Employees in a Back Office/Administration Facility
Notes: •22,500 sq.ft (2,090 sq.m) facility•Exchange Rates: C$1.174, €0.841, £.572•Monthly Electricity Consumption: 125,000 kWh
City Vancouver Lyon Frankfu
rt Amsterda
m Manchester
Labor 7,863 8,162 11,295 9,161 9,588
Facility Lease 460 373 440 435 590
Utilities 448 527 428 580 391
Operating costs 8,771 9,062 12,163 10,176 10,569
Low Operating Costs
WHAT BC CAN OFFER
Source: 2006 KPMG Competitive Alternatives.
October 2006 Slide #40
To reduce corporate income taxes.
Taxes on Registered International Financial Income of $750,000
Pr/State Federal Total Tax
British Columbia (IFC BC) 0 165,900 165,900
Quebec 74,250 165,900 240,150
Ontario 105,000 165,900 270,900
Oregon 49,500 238,170 287,670
New York 56,250 235,875 292,125
California 66,300 232,460 298,760
New Jersey 67,500 232,050 299,550
…And A Final Reason to Locate In British Columbia
WHAT BC CAN OFFER
October 2006 Slide #41
Overview And History
Eligible Activities
What British Columbia Offers
Starting An International Financial Business
October 2006 Slide #42
If you transact international business…
If your company conducts one or more eligible activities…
If the idea of opening an office in British Columbia appeals to you…
And if you’re interested in saving money on taxes…
…Registering under the IFA Act may be the right decision for your company.
STARTING AN IFB
How Does the IFC BC Apply To My Company?
October 2006 Slide #43
Internal AnalysisWhat activities qualify?
Is an IFB cost effective for my company?
Internal AnalysisWhat activities qualify?
Is an IFB cost effective for my company?
External AnalysisRequest that the BC Ministry of Small Business and Revenue
issue an advance Ruling or technical interpretation.
External AnalysisRequest that the BC Ministry of Small Business and Revenue
issue an advance Ruling or technical interpretation.
Register with the Income Tax Branch, BC Ministry of Small Business and Revenue
Register with the Income Tax Branch, BC Ministry of Small Business and Revenue
Become a member of the IFC BC
Become a member of the IFC BC
Begin doing business in British Columbia
Begin doing business in British Columbia
STARTING AN IFB
How Does A Company Establish an International Financial Business?
October 2006 Slide #44
Incorporation in Canada.The corporation is not exempt from income tax under the Income Tax Act.The corporation must establish and carry out the prescribed financial business within 90 days of registration.Become a member of the International Financial Centre BC.
STARTING AN IFB
What Are the Requirements for Registration?
October 2006 Slide #45
STARTING AN IFB
How Much Does It Cost?
One-time registration fee of $5,000, payable to the Province of British Columbia.
An annual Membership Fee of $1,000, payable to the IFC BC.
Annual Participation Fee of 0.70% on the pre-tax income of the registered international financial business payable to the IFC BC.
October 2006 Slide #46
Angiotech Pharmaceuticals, Inc.
Bank of Montreal
BASF Finance Canada Inc.
Canaccord Capital Corporation
CIBC
CIBC World Markets Inc
Coast Capital Ltd.
Connor, Clark & Lunn Financial Group
Cundill Investment Research Ltd.
Custom House Global Foreign Exchange
Data Base File Tech Group
Ecowaste Industries Ltd.
Ethical Funds Company
First Resolution Management Corporation
Global Securities Corporation
Global Futures Corporation
Haywood Securities (US) Inc.
Haywood Securities Inc.
HSBC Bank (Canada)
HSBC Capital (Canada) Inc.
HSBC Investments (Canada) Ltd.
HSBC Investment Funds (Canada)
Insight Film Studios Ltd.
International Tracing Search Inc.
J.P. Morgan Fleming
Kodak Graphic Communications Group
Mondiale Asset Management Ltd.
Neuromed Technologies, Inc.
Northstar Trade Finance Inc.
North Growth Management Ltd.
Oakridge Accounting Services
Pacific International Securities (U.S.) Inc.
Pacific International Securities Inc.
Pacific Network Services
Phillips, Hager & North Investment Management Ltd.
QLT Inc.
Raymond James Ltd.
RBC Capital Markets
Royal Bank of Canada
Salman Partners (USA) Inc.
Salman Partners Inc.
Scotiabank
Scotia Capital
TD Bank Financial Group
Teck Cominco
Tolko Finance Ltd.
UBS Bank (Canada)
Vancouver City Savings Credit Union
Vantage Online Foreign Exchange
West Fraser International Ltd.
Wolverton Securities Ltd.
STARTING AN IFB
Core Members
October 2006 Slide #47
Odlum Brown
Pacific Corridor Enterprise Council
Pacific Northwest Economic Region
PricewaterhouseCoopers LLP
SME Bancorp.
Smythe Ratcliffe LLP
State Bank of India
Thorsteinssons, Tax Lawyers
Union Securities Ltd.
Van Arbor Asset Management Ltd.
Vancouver Board of Trade
Vancouver Economic Development Commission
Vanderluit & Associates, Inc.
Aon Insurance Managers
Bank Vontobel AG
Baring Asset Management
BC Film Commission
BC Investment Management
Bellin Treasury Services
Borden Ladner Gervais LLP
Canada Pacific Russia Trade Centre
Canadian Manufacturers & Exporters
Chamber of Shipping of BC
Computershare
Credit Union Central of BC
Deloitte & Touche LLP
Ernst & Young
Farris, Vaughn, Wills & Murphy
Fasken Martineau DuMoulin LLP
Gowling Lafleur Henderson LLP
Grant Thornton LLP
ICICI Bank Canada
Investment Dealers Association of Canada
Jardine Lloyd Thompson Canada
KCS Fund Strategies
KPMG
Marsh Canada Ltd.
McCarthy Tetrault
Mitsubishi Canada Ltd.
STARTING AN IFB
Associate Members
October 2006 Slide #48
Talk to your accountant.
Cost/benefit analysis.
Investigate intra-company issues, such as pricing, allocation, and control.
Talk to your lawyer.
Structuring the subsidiary or office.
Assistance with the registration process.
STARTING AN IFB
What Are the Next Steps?
October 2006 Slide #49
Confirm your eligibility by obtaining a ruling.
Ensure all aspects required for registration have been considered.
Discuss the mechanics of the refund process.
Talk to the Taxation Branch of the British Columbia Ministry of Provincial Revenue.
STARTING AN IFB
What Are the Next Steps?
October 2006 Slide #50
Talk to us. The International Financial Centre British Columbia is a resource to assist you through the registration process.
STARTING AN IFB
What Are the Next Steps?
October 2006 Slide #51
Promotion of British Columbia as a location for international investment.
Advocacy by introducing public policy initiatives and working with policy makers to strengthen the range of international business in BC.
Representing and supporting members through consultation and direction on maximizing specialist and corporate tax benefits.
STARTING AN IFB
Strategic Initiatives of the IFC BC
October 2006 Slide #52
Thank you for Joining Us Today
Suite 1170 – Park Place, 666 Burrard StreetVancouver, BC Canada V6C 2X8
www.ifcbc.com