Concurrent Session 2B: Tax Developments

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

[email protected]

Simon Proulx

Partner, Indirect Tax

+1 647 777 5318

[email protected]

Paul Lynch

Partner, National Leader, Tax Litigation & Dispute Resolution

+1 416 777 3914

[email protected]

Martine Lim

Senior Manager, Tax

+1 416 777 8659

[email protected]



Agenda• FinTech

• Due diligence

• Tax disputes

• Other current issues – income and indirect

FinTech



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



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



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



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



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



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



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



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?



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



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



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



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.



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



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



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.



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.



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© 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.

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Concurrent Session 2B: Tax Developments

Economy & Finance

Transcript of Concurrent Session 2B: Tax Developments