Blogs
Our blogs are intended to inform, enlighten and engage you on recent developments in the world of tax + business law. If we find it interesting and relevant, you’re likely to find us blogging about it.
Yesterday, the U.S. Department of Justice announced in a press release that a federal court in San Francisco entered an order authorizing the IRS to serve a John Doe summons seeking information about U.S. taxpayers who may hold offshore accounts at CIBC First Caribbean International Bank (FCIB).
In its 2013 Budget, the Canadian Government indicated that it is in negotiations with the United States for an agreement in support of The Foreign Account Tax Compliance Act (FATCA). So how will this effect U.S. taxpayers residing in Canada?
Insider Reporting Requirements (Updated)
The Alberta Securities Commission (“ASC”) announced that effective May 13, 2013 it will charge a fee of $100 for each insider report that is not filed within the prescribed period of time under National Instrument 55-104. As such, the ASC joins the British Columbia Securities Commission (“BCSC”) and the Ontario Securities Commission (“OSC”) in charging fees for the filing of late insider reports. While at first blush this might seem like bad news (i.e. another potential fee for making an honest mistake), for some it actually offers relief from the very punitive penalties that would have otherwise been charged by the OSC (see the sections below entitled “Summary - Penalties” and the “The Law - Penalties” for further details on the interaction of the potential penalties that could be imposed by the ASC, BCSC and the OSC).
Ensuring the enforceability of non-competition/non-solicitation covenants is an important consideration for both employers and the purchasers of businesses. The Ontario Court of Appeal recently provided valuable guidance regarding the reasonableness and enforceability of non-competition/non-solicitation covenants in Martin v. ConCreate USL Ltd. Partnership.
On March 21, 2013, Canadian Finance Minister Jim Flaherty announced the 2013 Budget. The budget focused on closing perceived loopholes in the tax system. So what does this mean? What are tax loopholes? How does this affect the government, citizens, and entities?
If you provide services through a corporation, or employ such persons, you should be aware that recent legislative changes have dramatically increased the tax risks of such arrangements. According to these legislative changes, the tax payable by Personal Services Businesses (PSB) has been significantly increased. In addition to losing the ability to deduct most business expenses, if a worker’s corporation is considered to be a PSB, then the corporate tax rate will increase from 14% to 38%.
Last week, I was having a meeting with a client when she asked me what is a licensed foreign legal consultant (FLC)? As I am asked this question frequently, I decided to write a blog on what is an FLC and why it is important.
If you are a U.S. citizen living in Canada and apply to renew your U.S. passport, make sure you are fully compliant with your U.S. income tax filing requirements. Section 6039E of the Internal Revenue Code requires you to provide your Social Security Number (SSN), if you have one, when you apply for a U.S. passport or renewal of a U.S. passport. If you live abroad, you must also provide the name of the foreign country (i.e. Canada) in which you are residing. The Department of State must provide your SSN and foreign residence information to the Department of Treasury.
If you are a U.S. person (U.S. citizen or resident) who has contributed money to an RESP or a TFSA, you may or may not be aware that these plans are treated as foreign grantor trusts for U.S. federal income tax purposes. In short, the treatment as foreign grantor trusts is based on your control over the plan assets and the relationship between you and the financial institution maintaining the plan. As a U.S. person with ownership of a foreign grantor trust, certain U.S. tax filings must be made annually.
The purpose of this Blog is to highlight the responsibilities and liabilities under Canadian securities laws of the directors and officers of a Canadian public company for that company’s secondary market disclosure.
The purpose of this Blog is to highlight the responsibilities and liabilities under Canadian securities laws of the directors and officers of a Canadian public company when the company is conducting an offering of securities of the company by way of a prospectus.
CSA Adopts “Notice-and-Access Rules” as an Alternative Method of Delivery
This blog is relevant to Canadian public companies (i.e. reporting issuers) as they prepare for the upcoming proxy season in the first part of 2013.
Last week, the Canadian Securities Administrators (“CSA”) adopted new rules that provide Canadian public companies (i.e. reporting issuers) with an alternative method (known as the “notice-and-access” system) for delivering to their shareholders (i) proxy-related materials and/or (ii) financial statements and related MD&A.
The purpose of this blog is to provide a brief checklist of the most common continuous disclosure obligations of reporting issuers pursuant to Canadian securities laws.
A discretionary family trust is a common estate and tax planning tool, particularly for shareholders of private companies. A business owner can utilize a trust to split income among his or her family members. Subject to the attribution rules in the Income Tax Act and certain other rules, including “kiddie tax”, distributions made via a trust can create tax efficiencies by using the lower marginal tax rates of lower-income family members.
I recently attended the 1st annual International Tax Enforcement Conference in New York, NY where a variety of topics where discussed. Below is a summary from my discussions with high ranking IRS officials:
1. The new streamlined filing procedure was designed for US citizens living in Canada to come into compliance with their US tax obligations.
2. You can opt-out of OVDI and enter into the new streamlined procedure.
3. Furthermore, if you do not meet the requirements of the new streamlined filing procedure you can opt-out and submit reasonable cause arguments under FS 2011-13.
4. The 2012 OVDP FAQs questions 51.1 and 52 provide examples of favorable opt-out situations under FS 2011-13 and the ability to enter the streamlined procedure.
This blog provides a quick summary of certain of the most common insider reporting requirements applicable to “reporting insiders” of Canadian public companies (i.e. reporting issuers) under Canadian securities law including a summary of the applicable filing deadlines and the potential penalties for late filings or failures to file. Please note that it is a summary only and is not intended to be exhaustive.
The “early warning” reporting requirements under Canadian securities law are an often missed and misunderstood reporting requirement. The early warning reporting requirements are designed to inform the marketplace immediately of (i) any person who has reached a 10% ownership position in a Canadian public company and (ii) each subsequent 2% increase in that position. The early warning reporting requirements are satisfied by (i) the immediate issue and filing of a press release and (ii) the filing of a report within two business days, in each case containing prescribed information. With this information, the investment community can then make assessments about the investor’s intentions with respect to ownership and control of the company. This blog summarizes (i) the filing deadlines associated with the early warning reporting requirements, (ii) the length of time in which there are restrictions on further acquisitions by persons required to file early warning reports and (iii) the formula for calculating whether the ownership and control thresholds triggering the reporting requirements have been met.
Every now and then, it is prudent for directors and officers of Canadian public companies to review the timely disclosure obligations applicable to such companies to make sure they are following good practices and not getting into bad habits.
Significant Risk Allocation Addressed in These Often Ignored Clauses
A purchaser will usually conduct extensive due diligence on a target company prior to signing a definitive agreement to purchase that target company with the goal of both validating the value of the business to be acquired and uncovering any previously unknown risks associated with that business. The parties will then usually negotiate an M&A agreement including both (i) the amount and type of consideration payable and (ii) vendor representations, warranties, covenants and indemnities regarding the target company and its business. If the purchaser learns, prior to closing, that the vendor has breached one of these negotiated representations, warranties or covenants but goes ahead and closes the deal anyway with the intention of making a claim for indemnification (referred to as “sandbagging”), can it still make such a claim for indemnification? That will depend on what the M&A agreement says including the “sandbagging” clause (if one is included), the “knowledge qualification” clause (if one is included) and the “governing law” clause.
The Toronto Stock Exchange (the “TSX”) has recently amended its rules to require issuers listed on TSX to meet certain new requirements with respect to the election of directors.
The Short Story:
In a decision released on August 1, 2012, the Ontario Securities Commission (“OSC”) determined that Paul Donald (“Donald”), a former officer and employee of Research in Motion Ltd. (“RIM”), engaged in the trading of shares of Certicom Corp. (“Certicom”) that was “contrary to the public interest”, and therefore illegal, despite the fact that Donald was not in technical breach of the insider trading restrictions contained in the Ontario Securities Act.
The IRS recently released a series of taxpayer friendly FAQ’s for U.S. citizens who are residents of Canada that are either already participating in or considering enrolling in the 2011 OVDI/2012 OVDP. Specifically, FAQ 54 provides a process whereby a participating taxpayer can elect to defer income accruing within his or her RRSP/RRIF. If the election to defer income is granted, the RRSP/RRIF balance will not be included in the taxpayer’s offshore penalty base.
Much has been written about U.S. taxpayers residing in Canada who have, for various reasons, failed to file necessary U.S. income tax and information returns. The principle explanations offered by these taxpayers are (1) “I was unaware of my obligation to file” or (2) “I was unaware I was a U.S. citizen.” Although these persons haven’t knowingly violated the law, they could be subjected to tens of thousands of dollars in penalties for not complying with them. In order to correct their oversight, these taxpayers have basically had to choose between (1) filing returns without notifying the IRS (“quiet disclosure”), (2) enrolling in the Offshore Voluntary Disclosure Program (“OVDP”), or (3) filing 6 years of returns along with a request for reasonable cause relief (“noisy disclosure”). As discussed below, each option has its costs, in terms of time gathering information and money paying professional fees, risks of civil and criminal penalties, as well as benefits. However, recent guidance from the IRS, called by some an “amnesty,” may provide a simplified and streamlined process whereby these taxpayers can become compliant.
Similar to the recent Ontario Superior Court of Justice decision in RIM v. Certicom, on May 4, 2012 the Delaware Court of Chancery issued an injunction against a hostile take-over bid by Martin Marietta Materials, Inc. for Vulcan Materials Company after finding that the making of the offer by Martin Marietta breached the terms of a confidentiality agreement between the two companies; this despite the absence of a “standstill” provision in the confidentiality agreement.
On January 9, 2012 the United States Internal Revenue Service (“IRS”) announced the indefinite extension of the 2011 Offshore Voluntary Disclosure Initiative (“OVDI”). Because Canada is the great neighbour to the north and home to many U.S. taxpayers, many residents here find themselves with unmet U.S. tax filing obligations. The good news is that the extension of the 2011 OVDI may afford these individuals the opportunity to file delinquent U.S. returns pay reduced penalties.
Trusts are often utilized in tax minimization planning. A Canadian trust may provide some benefit to a Canadian resident; however, the trust will remain subject to Canadian income tax on its worldwide income much the same as the individual. Offshore trusts, on the other hand, are advantageous for tax planning purposes as they are able take advantage of lower tax rates found in other jurisdictions as well as benefits afforded by applicable tax treaties.
The Tax Court of Canada decision in Velcro Canada Inc v The Queen, 2012 TCC 57 (“Velcro Canada”), is the first case to further the reasoning laid down by the Federal Court of Appeal in the case of Prévost Car Inc. v The Queen (“Prévost”). The Velcro Canada decision is important for two reasons. Firstly, the decision expands and clarifies the circumstances under which taxpayers may structure payments to a company resident in a tax treaty jurisdiction so to preserve treaty relief. Secondly, the decision advances the legal understanding of “beneficial ownership” in relation to the receipt of payments through a holding company.
Increased volatility in the financial markets and overall economic uncertainty continue to affect corporate planning and go-forward strategies. The drive to increase shareholder value may cause management to seek out and assess a broader range of enhancement and maximization alternatives. Current market conditions have created opportunities for both the hunter and hunted.
While Canadian securities legislation only requires Canadian public companies to send their annual financial statements to those shareholders (both registered and beneficial) who have responded to an annual request form sent by the company indicating that they would like to receive such statements, applicable Canadian corporate law (i.e. the ABCA and the CBCA) requires those companies to send their annual financial statements to their registered shareholders (but not their beneficial shareholders) not less than 21 days prior to the company’s AGM.
Therefore, technically, Canadian public companies should include an “opt out” provision on the financial statement request form sent to registered shareholders (i.e. “I do not wish to receive such statements”) and an “opt in” provision on the financial statement request form sent to beneficial shareholders (i.e. “I wish to receive such statements”).
Copthorne Holdings Ltd. v Canada, 2011 SCC 63, is a decision of the Supreme Court of Canada which provides additional clarification on the applicability of the General Anti-Avoidance Rule (“GAAR”). In this case the Court was asked to decide whether the actions of the taxpayer, in directing a “series of transactions” to occur which ultimately resulted in substantial tax savings, amounted to abusive tax avoidance to which the GAAR should apply. The Court, in arriving at its decision, explored the “series of transactions” concept discussed previously in the ruling in Canada Trust Co Mortgages Co. v Canada, 2005 SCC 54 (“Canada Trust Co”), and articulated the framework to be utilized in order to determine whether the GAAR applies to a “series of transactions”.
Canadian public companies need to be aware of the new executive compensation disclosure requirements that will impact the preparation of proxy material for the upcoming AGM season.
The CSA recently published for comment proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers.