Are you seeking ways to lower your tax rates? - Kanada

The responsibility of the tax director is to manage an organization's tax costs with the goal of high compliance and minimal taxes payable. One way of managing a company's effective tax rate is to enhance operations in jurisdictions with more competitive tax rates. Numerous governments offer special tax incentives to attract companies. But the goal of lowering taxes must be balanced against the long-term business objectives of the organization.

In the current regulatory environment, some organizations shy away from legitimate transactions that could enable them to minimize their taxes payable. An increased emphasis on regulatory compliance and the heightened importance of public perception have made companies less likely to take advantage of a wide range of tax strategies designed to reduce their corporate tax burden.

Yet, as most tax directors know, governments are keen to attract business, and they continue to offer tax incentives to compete with other jurisdictions. In this competitive climate, it becomes more challenging for tax directors to weigh the benefits of lower taxes against long-term business objectives and regulatory compliance. Whether an organization is a large corporation, a multinational, or a private company, it remains incumbent upon the tax director to take constructive steps to minimize tax rates. After all, a company's effective tax rate can have a significant impact on profitability.

One method of reducing your company's effective tax rate, or ETR, is to "shop around" for the most competitive tax rates. Governments at both the federal and provincial levels use tax incentives to attract companies to operate in their jurisdictions. "In order to maintain their competitive edge, tax directors must consider if their business is strategically placed to take advantage of the lower tax rates prevailing in different jurisdictions," says Peter Corcoran, a tax partner in Toronto and co-leader of Deloitte's international tax practice in Canada. The key is to consider the tax consequences within the broader context of your business goals and strategies — and to align the two in a way that creates value while mitigating risk.

Tax rate management starts with an analysis of current operations
"Organizations considering positioning their income streams in low tax jurisdictions must begin by reviewing their business operations and their current transaction flows," says Albert Baker, a Vancouver-based tax partner and co-leader of the international tax practice. After all, as tax rules and business operations change and evolve, corporate structures that worked in the past may no longer be appropriate. The key is to involve your tax group in the business planning process at the earliest possible stage. That way, your company can make an informed assessment of the risks associated with various tax options, and filter each transaction to ensure it makes sense within the context of your business practices.

A corporation that is contemplating national expansion may want to begin by examining each province's current tax regime. In Canada, for example, business income earned in the province of Quebec is currently taxed at a lower rate than any other province. British Columbia offers special tax incentives to certain types of financial services businesses considering operating in that province. And corporate tax rates in Alberta are also more favourable than in some other locations.

Numerous low-tax regimes exist inside and outside of our borders, and they aren't simply limited to the traditional tax havens and offshore centres. Canada offers attractive tax incentives for research and development activities. Certain U.S. states offer incentives to different types of businesses in order to attract more companies to their jurisdictions. Ultimately, selecting the most appropriate jurisdictions for your organization will depend on the functions your company performs, the assets you own and develop — as well as the risks you underwrite in performing those functions and owning those assets. By gaining a clear understanding of those dynamics, you can begin to devise strategies for mobilizing your earnings in an effort to reduce taxes.

Adopting a systematic approach to managing tax rates
Although shopping for lower tax rates is a sound business practice, it must align with your overall business operations and your company's particular profile. A shift to a lower tax jurisdiction that fails to take into account your specific industry, the countries in which you operate, your business goals and objectives, and your corporate culture will simply raise red flags and open you up to risk.

However, in cases where a shift of jurisdiction makes good sense, there is a range of business structures and strategies you may want to consider. These include strategies such as cost sharing, contract manufacturing, commissioned agent sales activities, high value information technology initiatives, and shared service facilities, among others. Similarly, a thorough examination of various business structures, such as trusts, representative offices or subsidiaries, may yield a more effective tax management approach.

In the end, the decision on how to position your organization's income stream will hinge on your ability to gain a clear understanding of the nuances that prevail in the national and international jurisdictions you may be considering. Deloitte's tax specialists can help you fully assess the tax advantages — or drawbacks — of shopping around for lower tax rates.