What companies need to know when expanding their business beyond Canada

Ryan Ayre specializes in delivering assurance, tax and business advisory services to both private and publicly traded Canadian and US companies, many with international operations.

Ryan Ayre, partner at Manning Elliott and an expert in the areas of assurance, tax and business advisory services, discusses what companies need to consider when expanding internationally

What are some of the important considerations for Canadian companies planning to expand business overseas?
I think it is vital that management consider the business practices, political risk and potential for unexpected changes in laws and regulations in the foreign jurisdiction along with the security environment. From a tax perspective, structuring your corporate entities to optimize Canadian and foreign taxes and properly documenting your transfer pricing policy should be made a priority. Management should also consider proactively establishing relationships with foreign service providers.

Of the considerations you’ve mentioned, which one is the hardest to overcome?
Political risk and foreign business practices. These are out of the control of the company and its management. Many countries have business practices that differ significantly from those in Canada and some have a reputation for corruption. A company may encounter difficulties obtaining the licenses and permits required to conduct its business, and may face demands for irregular fees or concessions, cash payments and expectations of gifts by officials. The Corruption of Foreign Public Officials Act (Canada) prohibits giving or offering a bribe of any kind to a foreign public official, either as consideration for an act or omission on the part of the official in connection with the performance of his or her duties, or to induce the official to use his influence to affect any acts or decisions of his government or employer. A violation of the Act may result in a fine or imprisonment.

Which business risk should get more attention?
Transfer pricing. Several large U.S. corporations, including Apple and Starbucks, have made the news in recent years for pushing profits into low tax jurisdictions. However, transfer pricing is as much of an issue for Canadian small- and medium-sized enterprises conducting business abroad. Due to the economic crisis and high government debt levels, countries have become aggressive in protecting their share of tax revenues, and that will affect any Canadian companies planning to expand internationally. This area is complex and serious consideration should be made to engage a specialist to document or review the policy.

What are some things a company can do to make the expansion process as smooth as possible?
Engage Canadian and foreign professionals in advance of expansion. We assist our clients with introductions to local accountants through our strong international affiliation with PrimeGlobal. Establishing a relationship with a local accountant and lawyer up front will be helpful in avoiding issues that can be costly to remediate later. We also work with our clients to structure their corporate entities to ensure a tax-efficient way to repatriate earnings to the parent company. For Canadian-controlled private companies, corporate structure and proper planning are important if their owners intend on claiming the $825,000 (approximate) lifetime capital gains exemption upon the disposition of their shares.

Is Canada, as a brand, well recognized overseas?
Yes, Canada is well recognized in foreign business communities and continues to benefit from the reputation of our country and its people. In a 24-country poll conducted by the BBC World Service in 2014, Canada had mainly positive views and was ranked second only to Germany, but held top spot for the least negative views. For the past three years, Canada has also scored among the top two countries in a 70-country poll conducted by the Reputation Institute, a reputation-management consulting firm based in Boston.

Ryan Ayre is a partner with Manning Elliott LLP, Manning Elliott LLP , one of the province’s largest independent regional accounting and business advisory firms with offices in downtown Vancouver (604-714-3600), Burnaby (604-421-2591), Surrey (604-538-1611), and Abbotsford (1-604-557-5750). The firm has been around for more than 60 years and employs over 200 professionals and staff.