Canada: Business income taxation changes in Budget 2016

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The Finance Ministry presented the Budget for 2016 on 22nd March 2016. Details regarding business income taxation are summarized below:

  • New incentives have been proposed in the Budget 2016 in relation to electric vehicle charging stations, electrical energy storage and emissions trading programs; and
  • The dividend tax credit rate (21/29) applicable to non-eligible dividends will be retained. Generally, this budget proposes that the small business tax rate remains at 10.5% after 2016.

Canada is also introducing measures to comply with the recommendations of the OECD reports in relation to base erosion and profit shifting (BEPS). The measures include a requirement for country by country (CbC) reporting by multinational groups with group revenue of EUR 750 million or more. The report must be prepared by the Canadian parent company (or in some cases a Canadian surrogate).

The report must contain information on group activities in the jurisdictions where it is operating including revenue, profit, tax, stated capital, accumulated earnings, employee numbers and tangible assets. A description of the main activities of the group’s subsidiaries is also required. The report must be filed within one year of the end of the period to which it relates and applies to periods from 2016 onwards.

The revisions to the OECD transfer pricing guidelines resulting from the BEPS reports are to be applied in practice in Canada on an ongoing basis. Some work on risk-free and risk-adjusted returns for minimally functional entities is still ongoing in the OECD and the Canadian authorities will decide on their approach on these matters when the OECD has finalized its work on them.

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