dave@lsuc.UUCP (03/19/87)
In article <3139@watdcsu.UUCP> brewster@watdcsu.UUCP writes: > One possible solution to this is political. Canada could pass > laws making it illegal for foreign countries to repatriate profits, The only law that could make it "illegal" would be currency controls, and we sure don't want currency controls. Canada is one of the very very few countries in the world with no currency control, and it should stay that way. > but require that profits remain in Canada, which would lead to > increased R&D in Canada. This is not the same as FIRA, which > worries about foreign control. Under a repatriation scheme, > foreigners could own as many or as large a portion of Canadian > companies as they choose, the only limit being that any profits that > they make from these Canadian operations must be used in Canada. > The law could even be implemented in such a way that big brother > in Ottawa need not constantly monitor your operations; ie if your > profit remains in Canada tax occurs at the normal rate, every dollar > of profit you decide to take out of Canada is taxed at twice the > normal rate; you choose what you want to do with your profits. Surprise! Something very much like this is ALREADY in place. You can look it up in the Income Tax Act, ss.212(2) and 219(1). Dividends paid to non-residents are subject to withholding tax of 25% (reduced by treaty to 10%-15% for many countries, including the US), and income earned by non-resident corporations operating here is subject to a parallel "branch tax", except to the extent it's reinvested in Canada. > This is related to the situation in the U.S. where some states try > to levy taxes on companies registered in their state, based on the > companies world-wide profits. I am not sure, but I believe that > this has been declared illegal, presumably because of the logic > that you should be taxed in the area where profits are made. That's an entirely different concept. It's called unitary taxation. As far as I know, it is still being challenged in US courts (by certain corporations including Shell, which is Dutch-owned; the court challenges are supported by both the Canadian and US governments, I believe). California and some other states impose tax on this basis. Essentially they say "take your worldwide profit, multiply it by the fraction of you worldwide labour (or capital) which is spent in our state, and we'll tax you on that". The reason for corporations to object to this is that (a) the compliance costs can be horrendous; (b) is may be none of California's business what a corporation is doing outside California; and (c) a given state will define its unitary taxation to be based on either labour or capital, depending on which one will result in relatively more income (the unitary tax thus becomes more burdensome than a straight income tax on profits earned in the state). End of lecture (for today :-). David Sherman The Law Society of Upper Canada Toronto -- { seismo!mnetor cbosgd!utgpu watmath decvax!utcsri ihnp4!utzoo } !lsuc!dave