One of the initial considerations will be to deal with the issue of the business purpose for which the IBC is established. Unless it is possible to establish that there are valid business reasons for the existence of the IBC, it remains open to attack under the GAAR rules.
Obviously the simple definition of GAAR is that if a transaction is only for the purposes of reducing tax, then it can be set aside. However, it is not quite that simple when dealing with the international marketplace.
In many instances, the reduction of tax will lead to desired economic effects that impact on the company's ability to compete internationally. More than one of my clients have found that they needed the greater cost-efficiency that arose out of the use of an IBC to be able to deliver price points that allowed them to sell in the US market.
It is always advisable for the IBC to have a well-developed business plan. This should address a number of issues including the GAAR issues. Some of the considerations are:
- Margin issues in pricing for the international marketplace.
- The need for retained earnings for Canadian and international growth.
- Financing of international transactions.
- Supervision of international marketing and logistical operations.
- Prospects for international joint ventures/strategic alliances.
- New marketing ventures internationally.
- New agents or marketing territories.
- New international initiatives.
- Risk management considerations for the international market
- Acquiring, holding and licensing of intellectual property to the international marketplace.
- Trade treaties or special market access arrangements between the IBC jurisdiction and various markets.
It is always more difficult to transfer an existing contract that is with the Canadian company to the IBC. The further the contract has advanced, the greater the capital gains issues. It is therefore essential that the planning take place as early as possible so that the international structure can be put in place at an appropriate time. "Sooner is better than later" is always the best strategy for international business planning. |
