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Tax Update
2© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
With you today…
Nunzio Tedesco
Partner
+1 416 777 3679
Simon Proulx
Partner, Indirect Tax
+1 647 777 5318
Paul Lynch
Partner, National Leader, Tax Litigation & Dispute Resolution
+1 416 777 3914
Martine Lim
Senior Manager, Tax
+1 416 777 8659
3© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Agenda• FinTech
• Due diligence
• Tax disputes
• Other current issues – income and indirect
FinTech
5© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
FinTech2016 Q3 Fintech investment hit US$2.9B over 410 deals
• US$17.8B and 1,309 deals YTD (US$1.4B and 71 deals YTD on InsurTech)1
• Lion’s share in payments and lending, but three of the 20 largest deals in 2016Q3were in InsurTech
1) US Business offering auto coverage based on mileage
2) US Business doing economic modelling of cyber risk
3) Swiss-based consumer app to manage for insurance need
Complex interaction with tax and regulatory framework
• RegTech is a thing now – technologies that reduce cost of regulatory compliance
• CRA trying to tie GST/HST treatment to regulatory treatment
• Interesting indirect tax challenges – are Fintech supplies taxable or exempt?
1Source: KPMG’s The Pulse on Fintech, Q3 2016 Edition
6© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
FinTech – different focus & business models
Fronting
the risk
Insuring
the risk
Brokering
a policy
Matching
insured and
carrier
Underwriting
the policy
Best efforts
deal
Underwritten
deal
Brokering
securitiesAdvisory
Discretionary
asset
management
Traditional FIs are
capital-intensive and
heavily regulated…
Fintech focusing on lower-risk
intermediation or specific
functions; technology-based
7© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Fintech and in-house tax expertsYou will get Fintech-related tax questions sooner than you
think (especially in indirect tax and transfer pricing)…
• Contracts with new providers
• Tax paid in error claims
• Drafting and structuring questions
• New product launches and queries from business
• Why is Fintech competitor ABC’s product cheaper than ours?
• How come they charge GST and we don’t (or vice-versa)?
• Acquisitions
• We bought a Fintech!
Due Diligence
9© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax due diligencePurpose: identify significant tax issues which will impact
purchase price
Buy/Sell consideration:
– Historic tax exposures (hidden liabilities)
– Uncover tax function weaknesses (tax non-compliance)
– Future tax consequences (reversal of timing differences)
– Post-closing opportunities/restructuring
10© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax due diligence (cont’d)Historic tax exposures
Inquire/review for all open years:
• Tax returns
• Notice of objection and waivers
• Aggressive filing positions
• Major transactions & reorganization
• Results of tax audits in open years
• Non-arm’s length transactions
• Correspondence re significant matters from Canadian tax authorities
11© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax due diligence (cont’d)Tax function weakness and future tax consequences
Request/review for all open years:
• Tax provision working papers
• Nature of systems to ensure compliance with tax laws
• Notice of assessment & reassessment
12© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax due diligence (cont’d)Tax due diligence – common exposures
• Restricted losses
• Debt forgiveness
• International financing structures
• Transfer pricing
• PE in foreign jurisdiction
• Employees working across borders (Reg 105/102)
• Thin-cap, section 17 / subsection 15(2)
• Inter-corporate dividends
• Mark to market – review of OCI
• Reserves
• DPAC
• Valuation of goodwill
• GST, HST & PST
Tax disputes
14© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax disputesRisk assessment for income tax and HST
– Insurance companies are higher risk
– Large dollars
– Cross-border transactions
– Capital flows and financial instruments
– Industry complexity (regulatory, accounting, tax)
– HST complexity
– Retail products
– “Project” approach for certain issues
– Less administrative discretion
– More “transparency” and “compliance” forthcoming?
15© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax disputesProactive and reactive considerations
– If lobbying – frame arguments from the perspective of the “middle
class”
– Canada Revenue Agency audit activity appears to be more “results
oriented”
– Maintaining adequate documentation is extremely important
– Increasing “exchanges of information” with other tax jurisdictions
– Expect continuing push of expanded information demands
16© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax disputesGlobal Tax Benchmarking Survey
– Tax Disputes Module
– Over the past 3 years – more frequent requests for information, more
frequent contact, more audit queries, more aggressiveness in raising
assessments
– More than half of respondents say disputes are getting harder to resolve
– About half of respondents say tax authorities are taking a harder line and
one third of respondents say tax authorities have less appetite for
settlement, resulting in more litigation
– Increased areas of focus are international activity, indirect taxes and direct
taxes respectively
– Trend for global tax departments to centralize management and resources
to improve efficiency and effectiveness and add more value
Other current issues
18© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
2016 federal budget highlightsFederal (selected items)
Business tax measures
• Eligible capital property
• Intercompany dividends – Subsection 55(2)
• Common Reporting Standard
• Country by Country reporting
• E-filing insurance tax returns
19© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Eligible capital property• Repeal of the ECP regime and replacement with a new CCA class for depreciable
capital property.
• New rules apply as of January 1, 2017
• Property acquired on or after January 1, 2017 will be added to new Class 14.1
• 5% CCA depreciation rate
• Transitional rules
• Tax consequences for sale transactions that close after 2016.
20© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Tax-free inter-corporate dividends - 55(2) anti-avoidance
• Confirmed the Government’s intention to proceed with the amendments toSection 55
• Draft legislation and technical notes released March 2016
• essentially the same as previous draft but with one furtheramendment
- 55(5)(f) designation now “automatic”
• The new regime applies to dividends received after April 20, 2015
• Consider determining safe income prior to any dividend payments
21© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Country-by-country reporting – it’s here!• Department of Finance intent to implement Country-by-Country (“CbyC”)
Reporting announced in Federal Budget in March 2016
• Draft Canadian legislation released in July 2016
• Applies for fiscal years commencing on or after January 1, 2016 where
consolidated group revenue in prior fiscal year is at least € 750 million
• Closely follows OECD recommendations in BEPS Action 13
• No announcement on implementation of Masterfile documentation – could be
implemented through administrative practice
22© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Common Reporting Standard (CRS) The Common Reporting Standard (CRS) for the automatic exchange of information
will:
• impose higher standards in customer due diligence and reporting obligations for
financial institutions
• “Canadian financial institutions” will be required to provide the CRA with
information on accounts held by non-residents of Canada, beginning in 2018, and
must have procedures in place by July 1, 2017.
23© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Substantively enacted rates at September 30, 2016
1The Quebec 2015 budget (introduced
March 26, 2015) will gradually reduce from
11.9% to 11.5% by 0.1% per year from 2017
to 2020. These rate reductions will apply on
January 1 of each of these years (not
substantively enacted as at September 30,
2016).
2New Brunswick’s 2016 budget increased
the general corporate income tax rate to
14% (from 12%) effective April 1, 2016.
3Newfoundland and Labrador’s 2016 budget
increased the general corporate income tax
rate to 15% (from 14%), retroactive to
January 1, 2016.
Provincial rates Active Business Income
2016 and Beyond
British Columbia 26%
Alberta 27
Saskatchewan 27
Manitoba 27
Ontario 26.5
Quebec1 26.9
New Brunswick2 27/29
Nova Scotia 31
Prince Edward Island 31
Newfoundland and Labrador3 30
Territorials rates
Yukon 30
Northwest Territories 26.5
Nunavut 27
Source: KPMG Tax Facts 2016-2017. Tax rates are substantively enacted as at
September 30, 2016.
24© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks o f KPMG International.
Questions?
kpmg.ca
The information contained herein is of a general nature and is not intended to address the circumstances of
any particular individual or entity. Although we endeavour to provide accurate and timely information, there
can be no guarantee that such information is accurate as of the date it is received or that it will continue to be
accurate in the future. No one should act on such information without appropriate professional advice after a
thorough examination of the particular situation.
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG
International.