Module 7

Question 1

What are the three main key tax deductions?

Answer 1

Depreciation / CCA

Goodwill / Intangibles - in asset purchases, goodwill tax-deductible whilst share purchase, step up value is not

Accrued Interest - some jurisdictions will not allow acccrued interest not paid within a year to be deducted. also canada and USA, arms-length rules and capitalization rules apply

Question 2

what are two primary considerations to take into consideration when evaluating shareholder loans?

Answer 2

quantum - amount could be deemed as equity and auditors could force refund of any tax benefits of loans

interest deductibility - key risk of shareholder loans is the deductibility of interest, and could be moved to a dividend subject to withholding

Question 3

what are the 3 key factors that go into assessing reasonability of shareholder loans?

Answer 3

commercial reasonableness (supportable from from arm lengths perspective)
capacity, characteristics (ie. covenants, reporting)
third party evidence or support for both the quantum and interest

Question 4

what is a super holding company?

Answer 4

where substance can be proven in a single scalable entity, rather than across many entities - these are used to work towards avoiding issues in taxation issues regarding “business substance “ and commercially viable

Question 5

what is permanent establishment (PE) risk?

Answer 5

the risk that a taxing authority could deem a fund to have a taxable presence, either because it conducts business in a fixed place, or through a dependent agent) - this risk occurs in funds that operate overseas and it may expose investors to this

Question 6

what is a statutory tax act that has been brought forward for investors that have investments in the US?

Answer 6

the Foreign Account Tax Compliance Act (FATCA)

Question 7

what have some countries done to attract foreign investment / capital?

Answer 7

provided tax-friendly legislature to enable more capital to come their way whether it be investment or safe-harbored accounts

Question 8

What can investee companies seek to counter potential transfer pricing taxation ?

Answer 8

Advance Pricing Agreements (APAs)

Question 9

how often must investee companies assess their tax deductibility of interest payments ?

Answer 9

annual as this resides under corporate tax, which is an annual self-assessed practice