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The Canadian government has ratified a Tax Information Exchange Agreement (TIEA) with the British Virgin Islands (the “BVI”), paving the way for significant tax benefits for Canadian companies that establish subsidiaries in this jurisdiction.
The Canada-BVI TIEA came into force on 11 March 2014.
The TIEA will allow actual or deemed active business income earned by a BVI subsidiary of a Canadian corporation to be repatriated to the Canadian parent company as an “exempt surplus” dividend, which is received free of Canadian tax. Deemed active business income includes certain forms of passive income, such as interest or royalties, paid to a company in the BVI by another foreign subsidiary of the Canadian parent company that is resident and carrying on active business in a third jurisdiction (which is also a TIEA or treaty jurisdiction), provided the amount is deductible in computing active business income of the third-country subsidiary. In either case, the Canada-BVI TIEA allows the Canadian parent company to use a BVI subsidiary to earn active business income (actual or deemed) while benefitting from the favourable tax regime in the BVI.
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Canada Ratifies TIEA with BVI