Where will a Canadian company with foreign income pay tax?

Watch a short video to learn more about the tax rules for Canadian companies that have operations and revenue streams from outside the country, and to find out where tax may be payable.

Our series of International Tax video blogs look at tax rules around the world which affect how companies with international operations will be taxed. In this first video blog, we turn our focus to Canada - Valérie Ménard, a partner at Montréal accounting firm Hardy Normand et Associés explains that when a Canadian business sets up in another country, when it comes to paying tax, much will depend on the type of structure the company uses.

Ménard, a member of the alliance's International Tax Services Group, explains that "If a branch is used, Canadian tax residents will be taxed on their worldwide income, so their income will indeed be taxed in Canada."

Watch the video

The importance of active versus passive revenue

Ménard explains however that businesses need to tread carefully: "One might assume that if a business is started offshore using a separate corporate entity, it is only going to be taxed in the offshore country. While this may be the case if there is “active business” (taking transfer pricing issues into consideration), if the revenue is “passive”, the FAPI rules come into play (Foreign Accrual Property Income)."

The implications

The implications of this, as Ménard explains, are that "this passive income (e.g. interest, royalties, etc.) will be liable for taxes on an accrual basis in Canada because even though the corporation is outside of Canada, these passive income streams remain under the control of the Canadian corporation."

For advice on international tax rules for Canadian companies

Please contact Valérie Ménard at Hardy Normand et Associés in Montreal, Canada.