Canadian Lawyer

46 A P R I L 2 0 1 8 w w w . C A N A D I A N L a w y e r m a g . c o m He predicts "a more level playing field," yet Seraganian also notes that the most important international market for Can- adian companies is the U.S., and their ability to compete against U.S. businesses is now "significantly downgraded" owing to the higher corporate income tax that Canada imposes. "A lot of the long-stand- ing tax-planning advantages Canada has enjoyed over the past 20 years were signifi- cantly scaled back in this tax reform." For clients that have U.S. operations or are thinking of expanding into the U.S., the lower tax rates are a benefit, says Jef- frey Shafer, a partner at Blake Cassels & Graydon LLP in Toronto. "Many of the changes are helpful [in] reducing corporate income tax; it allows a lot more flexibility. Historically, we would have avoided certain structures that included corporate entities in [the] U.S. because of high taxes." "It's too soon to tell" whether Canada will be less competitive owing to the new American tax rules, Shafer adds. "We have a very different business case and economy. I don't think that will change just by virtue of these new rules." Along with the lower corporate tax pay- able under the new act comes diminished value of accrued losses, says Kandev. If a company operating in the U.S. has loss "carry-forwards," those will now be valued at the 21-per-cent and not the 35-per-cent rate, he says. "So, the value of your losses has gone down." This makes "any accrued losses . . . much less valuable. Companies will take significant writeoffs on their finan- cials to reflect the fact that their losses have lost value." Also, Kandev says, the new act intro- duced the Base Erosion Alternative Tax, otherwise known as BEAT — a minimum tax that ensures that the U.S. gets a min- imum cut of base-eroding payments to related parties. Base erosion payments are any amounts paid or accrued by a taxpayer to a related foreign person and for which a deduction is allowable, including interest but generally excluding cost of goods sold. BEAT applies to most U.S. and non-U.S. corporations with average annual gross receipts of at least US$500 million for the prior three-year period that have a "base erosion percentage" of three per cent or higher for the taxable year. BEAT effect- ively disallows a portion of deductions for payments made from U.S. businesses to entities with foreign ownership and the disallowance of corporate interest deduc- tions that exceed 30 per cent of earnings before interest and taxes. Changes from the new U.S. tax legis- lation will unfold over time, says Sera- ganian. "But it's clear that a lot of the norms of tax planning are back on the table and subject to discussion again," he says. For example, when considering M&A trans- actions, should the combined company be U.S. or Canadian? "Under the old tax-plan- ning norms, you would almost always choose a non-U.S.-based company. Now, it's not clearly reversed, but you're having longer, more protracted discussions." When you factor in U.S. taxes at the state and local levels, "Canada is still pretty competitive," Shafer says, adding that "it's too soon to tell" what, if any, the effects of the Tax Cuts and Jobs Act will be. "We have a very different business case and economy [in Canada]." W L E G A L R E P O RT \ TA X L AW CALGARY 5000 Suncor Energy Centre 150 - 6 Avenue SW Calgary, AB T2P 3Y7 Tel: (403) 260-3300 Fax: (403) 263-9649 E-mail: felesky@felesky.com EDMONTON 2610 Edmonton Tower 10111 – 104 Avenue NW Edmonton, AB T5J 0J4 Tel: (780) 428-8310 Fax: (780) 421-8820 E-mail: edmonton@felesky.com SASKATOON Suite 100 728 Spadina Crescent East Saskatoon, SK S7K 3H2 Tel: (306) 952-0894 Fax: (306) 952-2439 E-mail: saskatoon@felesky.com Celebrating Years 40 2018 Focused Collaborative Creative www.felesky.com ntitled-2 1 2018-03-14 10:43 AM Order your copy today. Visit www.store.thomsonreuters.ca or call 1-800-387-5164 for a 30-day, no risk evaluation Your instant connection to ONTARIO'S LEGAL NETWORK ONTARIO LAWYER'S PHONE BOOK 2018 Ontario Lawyer's Phone Book is your best connection to legal services in Ontario with more than 1,400 pages of essential legal references. More detail and a wider scope of legal contact information for Ontario: • Over 26,800 lawyers listed • Over 8,500 law firms and corporate offices listed • Fax and telephone numbers, e-mail addresses, office locations and postal codes Perfectbound Published December each year On subscription $85 One time purchase $88.50 L7798-7858 Multiple copy discounts available Plus applicable taxes and shipping & handling. (prices subject to change without notice) ntitled-2 1 2018-03-14 10:46 AM

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