CALGARY, Feb. 5, 2013 /CNW/ - Foreign state-owned entities have a
distinct advantage over Canadian investors when it comes to takeover
bids and this could be harming the Canadian economy. That is the focus
of a report released today by The School of Public Policy and authored
by Jack Mintz and Vijay Jog.
The authors' work centres on the "30-per-cent rule," which stipulates
that Canadian registered pension funds can only hold up to a 30 per
cent stake in Canadian firms. Meanwhile, foreign sovereign wealth funds
or pension funds are not subject to this rule.
As a consequence, Canadian pension funds cannot compete in takeover bids
for Canadian companies. Instead, government-backed firms from abroad
can target these firms even if they aren't necessarily best-suited to
run them, the authors argue. A scenario where Canadian firms are
operating at less than optimal efficiency is damaging to the economy.
Besides abolishing the 30-per-cent rule on Canadian pension funds, the
authors look to the tax system as a means for leveling the playing
field with foreign entities.
"The most appealing remedy is a tax solution: limiting the corporate
deductions on interest, fees, royalties, rents, and the like, that so
often factor in to the takeover calculation," the authors write.
This would not only put pension funds and sovereign wealth funds on
equal footing, but it could also be applied to investors operating from
low- or zero-tax jurisdictions.
The report can be found at www.policyschool.ucalgary.ca/publications
SOURCE: The School of Public Policy - University of Calgary
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