Limiting tax breaks for state-owned entities would even playing field for Canadian investors in takeover bids

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

SOURCE: The School of Public Policy - University of Calgary

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Morten Paulsen
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The School of Public Policy - University of Calgary

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