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Date: 20 Jun, 2016
Source: Alison R. Manzer, Cassels Brock & Blackwell LLP

International investment is currently caught in the “interesting times.” Canadians seeking to make international investments, particularly multi-jurisdiction structured international investments, for tax, corporate or other planning purposes, face the increasing dichotomy between the political encouragement and business facts requiring globalization and the push back from the base erosion profit sharing agenda which is now being globally implemented global status. This seems to create uncertainty as to the ability to structure an international group of companies, with ongoing strategic investments, using the most treaty and tax effective basis.

The situation is perhaps not so uncertain, results of recent economic studies are clear that international investment using the benefits of lower tax jurisdictions is positive for both the base country and the investee countries. The base erosion profit sharing agenda does not eliminate the ability to structure using tax effective jurisdictions, or tiered multi-jurisdiction investment routes. The base erosion profit sharing has incited changes to tax and related law in many countries but these are designed to increase transparency with information sharing between countries as to the extent and nature of investment between higher taxation and lower taxation countries and then to provide the means of assuring that there is an alignment between revenue generation and the taxing jurisdiction not to prevent structuring. The concepts behind base erosion profit sharing are to ensure that taxation generally will occur in the jurisdiction where the revenue is generated, this accords with the political concepts of fairness underlying the recommended tax changes, and is not intended to hamper the ability to expand globally by corporate groups. What this means is that investment can be made into and through lower tax jurisdictions, provided that it is a real investment; the investment in the jurisdiction where the lower tax is to be imposed must constitute a real business enterprise, actual presence, actual production, actual business activity.

It is submitted that Barbados and its ongoing requirements for investment and access to its international tax, lower tax, regime requires the active business involvements and activities which should avoid the tax sanctions of base erosion profit sharing tax rules which are emerging. The requirement for a real, economic, producing investment in Barbados in order to access the lower tax rates, provides an underpinning which will support the validity of a multi-jurisdiction structure.

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