Investor Presentaiton
CORPORATE LAW
BY ALAIN RANGER
BRAZIL - CANADA COMPARATIVE LAW
(C) Losses
Non-capital losses incurred by either a branch or a subsidiary may
generally be carried forward for Canadian income tax purposes for twenty
years, and deducted in computing taxable income earned in Canada.
There is no statutory authority to permit the consolidation of income or
losses of corporations in related groups.
Taxable capital losses incurred in a taxation year may be carried back to
the three preceding taxation years and may be carried forward indefinitely,
but they can only be used to offset taxable capital gains. Further, since
only half of capital gains are included in income, and only one-half of
capital losses may be off-set.
(D) Tax Treaties
Canada has an extensive network of international tax treaties, including
comprehensive treaties with Brazil and most of its other major trading
partners. Canada generally follows the OECD Model Convention for the
Avoidance of Double Taxation and the Commentary thereon in negotiating
its tax treaties. These treaties generally reduce the rates of withholding
taxes applicable to various types of income, and contain other provisions
that impact on the tax treatment of non-residents' Canadian-source
income. Canada supports most of the OECD BEPS' recommendations
and will likely be a party to the Multilateral Convention.
The statutory withholding rate in Canada is 25%, which may be
lowered pursuant to the applicable treaty. Withholding taxes apply
to various sources of income paid to non-residents, including
certain interest (generally only interest paid to related parties or
"participating interest"), rent, royalties and dividends, and reflect
the source country's right to be first in taxing a stream of income.
(E) Branch Tax
The purpose of the branch tax is to achieve tax neutrality between carrying
on business in Canada through a branch or a subsidiary. To the extent
that branch profits are repatriated, they are subject to a tax comparable
to the dividend withholding rate under the applicable treaty.
(F) Thin Capitalization Rules
Generally, interest paid by a corporation is a deductible expense.
However, the thin capitalization rules impose a limit on the amount of
interest paid to certain non-residents that may be deducted in computing
the income of a Canadian corporation. The acceptable ratio of debt to
equity is 1.5 to 1. If the average amount of a subsidiary's outstanding
debt exceeds one and a half times its equity, a prorated portion of the
interest paid or payable in the year to certain non-residents will not
be deductible in computing the income of the Canadian corporation
subsidiary and will be treated as a dividend paid.
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