WELCOME

V A N C O U V E R C A L G A R Y E D M O N T O N S A S K A T O O N R E G I N A L O N D O N K I T C H E N E R - W A T E R L O O G U E L P H T O R O N T O V A U G H A N M A R K H A M M O N T R É A L

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Law and Bilateral Trade: North America-EuropeJune 5-9, 2017, Università degli Studi di Milano

International Summer School

Doing Business in Canada

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• Second largest country in the world– 10 million square km

• Population: 36 Million• 50% of the population lives in

the Quebec-Windsor corridor• Quebec and Ontario account for

roughly half of that population• Vast majority of the population

lives along the US border• Population mostly urban• Population expected to grow

over the next years due to theImmigration policy

• 10 Provinces and 3 Territories

• Languages – English & French

Canada

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• Legal system based on Britishparliamentary system

• Civil Law system in the province ofQuebec and Common Law in the otherprovinces

• Two levels of government – Federaland Provincial

• Constitution Act of 1867 – exclusivelegislative control toboth levels of government

• Limitations imposed by CanadianCharter of Freedoms and ConstitutionAct,1982

Canada’s Legal System

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• Canada current GDP is estimatedat CAD $1.983 trillion

• The GDP per capita is CAD$55,319

• Canada’s employment growth forthe period 2006-2015 ended at1.08% just behind Germany at1.17% but ahead of the U.S. at0.51%

• The Government net debt at theend of 2016 reached 27.6% of theGDP

Canada’s Economy

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Of the G20 countries, Canada isranked 2nd by Forbes in 2017 forits good business environmentjust behind the U.K.

According to Doing Business2017 edited by the World Bank,Canada ranks first among the G7countries for the lowest number ofprocedures to establish a newbusiness

*Invest in Canada; Think Canada; the Office of the Chief Economist Global Affairs Canada; April 2017

Canada’s Economy Business Climate*

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Investing in Canada1. Market similar to the U.S. but on a

smaller scale• Population 10 times smaller• Currency exchange rate 5-10%

more advantageous• Lower energy costs• Lower workforce costs

2. The capital costs to invest inCanada vs the U.S. is lower, hencethe risk of investment is lower.

3. The recent signing of the CETA• Trade with Europe expected to

grow

• Canada is likely to play a strategicrole in the Europe-North AmericaTrade relationship

The Potential of Investing in CanadaRisk Assessment

1. Knowing the market2. Return on Investment

• Delays dictated by yoursources of financing

3. Territory• Political, financial and

economic stability

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Legislative Jurisdictions for Key Industries

Federal Provincial Municipal Trade and commerce Real and personal

propertyEnact their respective bylaws based on powers delegated to them on certain aspects by provincial governments

Banking and currency Civil Rights Bankruptcy and Insolvency Education Intellectual Property Health care Criminal Law Intra-provincial trade

and commerce National defense

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The Potential, (Cont’d)

Infrastructure Projects• New Building Canada Plan – Approx. CAD $50 billion (Infrastructure Canada)

• Building roads, bridges, subways, commuter rail, and other public infrastructure

• Federal Infrastructure Assets – Approx. CAD $10 billion• Building a bridge-causeway for the Island of Montreal; advancing the Windsor-

Detroit International Crossing project; strengthening Canada’s meteorologicalservices; improving highways and associated bridges in Canada’s nationalparks

• Heavy Construction Sector – Approx. CAD $220 billion• Canada’s construction sector employs 1.2 million workers — 6% of the total

Canadian workforce — and generates more than 12% of the country’s GDP

• Quebec infrastructures Plan – Approx. CAD $88 billion (2016-2026)• Roads, airports, railways, villages, ports, etc.

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The Potential, (Cont’d)

Oil & Gas and other Energy Projects• Alberta (Western Canada) – Approx. CAD $214 billion (Government of Alberta)

• Major Oil & Gas projects

Cleantech Projects• Sustainable Development Technology Fund – CAD $915 million

invested by the Government of Canada• Agriculture• Mining• Energy• Transportation

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International Trade• Member of the World Trade Organization (WTO)• Party to the North American Free Trade Agreement (NAFTA)• Party to Free Trade Agreements with Chile, Panama, Colombia, Peru,

Costa Rica• Party to the Trans-Pacific Partnership (TPP)• Party to the Comprehensive Economic and Trade Agreement (CETA)

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• Proximity to U.S. creates constant pressure for novelty, high-tech, quality and after sale services

• The Canada-U.S. relationship allows Canadian companies to have a deep knowledge of the U.S. market

• Bilateral trade of approx. USD $627.8 billion in 2016

• Canada is the U.S. largest customer with nearly USD $320.1 billion in goods and services purchased in 2016

• Canada exported to the U.S. USD $307.6 billion in goods and services in 2016

• USD $2 billion worth of goods and services crossing the border every day

• In 2015, 75% of Canada’s exports were to the U.S.

• 35 out of the 50 states in the U.S. regard Canada as their top export market

(Data from the Office of the United States Trade Representative)

Canada-U.S. Trade Relations

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• “Reshoring” or “ Nearshoring ” ofmanufacturing jobs to the U.S.

• The new U.S. administration vows the creationof sustainable manufacturing jobs as thecornerstone of its economic policy (BuyAmerican-Hire American / Executive order datedApril 18, 2017)

• 15-20% increase of total production costs inAsia (wages, energy costs, raw material)

• In 2005, the average salary of an Americanworker was 23x higher than a Chineseworker’s salary vs 6x higher in 2013

• Up to 3 million jobs and an estimated USD$100 billion in annual output by 2020

• Ex.: Caterpillar, Ford, Rolls-Royce, Siemens,GE, Google, Apple

Canada-U.S. Trade Relations, (Cont’d)

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Canada-U.S. trade corridors• Each NAFTA corridor has the capacity to reach between 25 to 75 million

people along its path by rails, roads and airlines

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Canadian Exports to the U.S.Canada exported approx. USD

$307.6 billion to the U.S. in 2016

Energy Non-Energy

Foreign oil Vehicles

Nuclear fuel Machinery

Electricity Electrical and electronic equipment

Natural Gas Paper / paperboard

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Canadian Imports from the U.S.In 2016 Canada imported from the U.S.

approx. USD $320.1 billion

Energy Non-Energy

Mineral fuels and oil Vehicles

Machinery

Electrical and electronic equipment

Plastics

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• Elimination of tariff barriers between Canada, U.S.and Mexico (Preferential tariffs)

• Different from EU customs union arrangement

• Each NAFTA country retains its own external tariffsvis-à-vis non-members' goods

• Rules of Origin specify how much production mustoccur in a NAFTA-member country for a product tobe considered as originating from such country

NAFTA Rules

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• Goods wholly produced or obtained in Canada, Mexico or the UnitedStates, or all 3

• Goods incorporating non-NAFTA components that undergo aprescribed change in tariff classification and satisfy prescribed valueadded tests (e.g. components incorporated in final product)

• Implication: Investors from non-NAFTA countries may establishmanufacturing plants in Canada through which non-NAFTA productsand components may be further processed and exported duty-freeor at a preferential tariff treatment to the United States or Mexico

• Subject to inspection by NAFTA country ’ s customs (visit ofproduction plant, proof of prescribed modification of the component,etc.)

Preferential Tariff under NAFTA

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• The new U.S. administration called for a review of theNAFTA

• Certain rules provided within the NAFTA are subject torenegotiation and modification

NAFTA in the years to come

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• In 2015, Canada was EU’s 12th most important trading partner accounting for1.8% of EU’s external trade

• EU was Canada’ second most important trading partner after the U.S. with9.5% of Canada’s external trade

• Bilateral trade in goods of approx. €63.5 billion (2015)• Machinery, transport equipment and chemicals

• Bilateral trade in services of approx. €27.2 billion (2014)• Transportation, travel, insurance and communication

• Bilateral investments (2014)• Europe to Canada: approx. €274.7 billion• Canada to Europe: approx. €166.6 billion

(Data from the European Commission)

Canada-EU Trade Relations

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• Elimination of tariff and non-tariff barriers to trade in goods andservices between Canada and the EU

• Implementation of protection for investors

• Opening of public procurement markets

• Introducing new rules in areas such as intellectual property,competition, telecommunication and electronic commerce

• Implementation of a specific tribunal to address issues arisingbetween States and Investors, the whole according to the principlesof Investors State Dispute Settlement (ISDS)

• Once the ratification process is completed, certain provisions arelikely to enter into force by the end of 2017

CETA – An overview

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• Elimination of 98% of tariff barriers (all non-agricultural tariffs willimmediately be abolished and 94% of the agricultural tariffs willbe eliminated)

• Another 1% of tariff barriers will gradually be phased out over theensuing seven years

• Elimination of non-tariff barriers such as difference in regulatorystandards, labelling and packaging requirements or technical andsafety standards

CETA – Facilitating the flow of goods and services

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• Entrenching of international investors’ rights

• Non-discriminatory and fair and equitable treatment ofinvestors and investments

• Prohibition of expropriation without compensation

• By 2019, the threshold for review under the Investment CanadaAct will be raised to CAD $1 billion

CETA – Facilitating cross-border Investments

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• Ability of EU companies to access government procurementmarkets at the federal, provincial and municipal levels

• In Canada, the government contracting market is well over $100billion annually

• Thresholds established by the WTO Agreement on GovernmentProcurement

CETA – Access to government procurement markets

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• Canada will allow pharmaceutical patent holders to apply forpatent restoration of up to two years

• Canada will increase its list of protected geographical indicators(GIs)

• Goods recognized as coming from specific regions and withnames carrying special geographical connotations

• Ex.: Grappa and Prosciutto di Parma

CETA – Intellectual Property

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• Rules of origin adopted in the final version of the CETA and willhelp to determine effective access to markets

• Rules of origins provide the extent to which a manufacture shalloccur inside of the EU or Canada and benefit from preferentialtreatment

• Given the NAFTA, favourable CETA rules of origin could result ina situation whereby an EU company established in Canadawould import materials in Canada from the EU duty free tomanufacture a product in Canada and then apply NAFTA rules oforigin to export the finished product to the United States or toMexico on a duty-free basis

CETA – Rules of origin

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• Canada and Italy have a strong commercial relationship based on two-way investment

• In 2015 total Canada’s exports to Italy reached CAD $2.27 billion

• Canada’s imports from Italy marked a 15% increase in 2015 totaling CAD $7.4 billion

• Italy ranks 3rd largest in Europe, as source of total imports to Canada

• In 2015, Italy was Canada’s 7th largest export destination in the world and 2nd in Europe

Canada – Italy Relationship

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• Canada Border Services Agency – compliance with Canadian laws, customs taxes and excise taxes

• Export and Import Permits Act – obtaining permits on selected products• Import permit: military goods, firearms, prescribed chemicals,

steel products, agricultural products, food products

• Export permit: nuclear products, military products, firearms, softwood lumber, logs, food products

• Canadian Food Inspection Agency – legislative requirements

Import Export Controls

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• Marking of Imported Goods Regulations – listing country of origin for certain prescribed goods

• Federal Consumer Packaging and Labelling Act – English and French labels required on all imports

• Generally applies to consumer goods

• Spanish packaging and labelling often included

Marketing and Labelling of Imported Goods

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• Investment Canada Act (ICA) – encourages foreign investment in Canada

• Foreign investments are notifiable or reviewable depending on the relevant threshold under the Investment Canada Act

• Thresholds:• Acquisition of Canco with a book value exceeding CAD $800 million

(for WTO investors). Expected to reach CAD $1 billion by 2019• Acquisition of Canadian Cultural business with assets of $5 million or

more (e.g. telecommunications, radio, printing house, etc.)

• Notice of investment – simple process

• Ministerial approval – application for review should demonstrate foreign investment = “net benefit to Canada”

Foreign Investment

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• Operations conducted through subsidiary or branch

• Investment vehicles – branch, corporation, limited liability partnership, partnership

• Selection of corporate arrangement dependent on nature of the activities, method of financing, fiscal advantages, liability related to the activity

Business Organization

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• Business corporation – distinct legal entity, shareholders agreement, limited liability of shareholder

• Jurisdiction of Incorporation – federal or provincial

• Canadian residency of directors (federal requirements)

• Place of head office

• Incorporation fees:• Federal: CAD $250• Quebec: CAD $300

• In addition to the incorporation fees, there are other fees related to the search of name and registration

Business Organization, (Cont’d)

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• A foreign enterprise with commercial activities in Canada may be deemed to have a Permanent Establishment, and therefore subject to the regulation of Canadian (Federal and Provincial) tax authorities and Canadian rules applicable to Canadian entities

• Multiple factors based on a subjective assessment to determine if a foreign enterprise has a Permanent Establishment:• Salaried commissioned sales representatives residing in

Canada;• Existence of a sale office, showroom in Canada;• Sales made in Canada in accordance with Incoterms

definitions;• After sales services conducted by Canadian residents

• This concept of Permanent Establishment is similarly applicable in the U.S.

• Therefore, precautions must be taken

The Concept of Permanent Establishment

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• Income Tax

• Income Tax Act (ITA) – administered by Canada Revenue Agency

• Non-resident Canadians subject to Income Tax on Canadian source of income

Canadian Tax System

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• Canada-Italy Tax treaty

• Non-residents are taxed on their Canadian sources of income subject to reduction under the Canada-Italy Tax Treaty

• Limited withholding taxes on amount paid or credited to non-residents after January, 2011. Withholding rates limited to: • 5% for dividends between affiliated companies (15% for other

dividends)• 10% for interest• 5% for royalties in respect of certain computer software,

patents and know-how and 10% for other royalty payments

Canadian Tax System, (Cont’d)

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• Federal tax rate – 15% for corporate income

• Provincial tax rate – 10% to 16% depending on the province (for instance, corporate tax rate in Quebec is 11.9%)

• Small business tax deductions available to Canadian Controlled Private Corporations (CCPCs) – combined rate of 10% to 19% depending on the province• CCPC: de facto control and majority of shares with voting

rights not controlled by non-resident shareholders of Canco

• Only applicable on CAD $500,000 (CAD $400,000 in certain provinces) taxable business income

Canadian Tax System, (Cont’d)

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• Reporting operating losses – 3 years back and 20 years forward

• Income tax deductions of employee social contribution – 12% to 17%

• Thin capitalization rules: 1.5-to-1 debt-to-equity ratio (arm’s length)

• Limits the amount of deductibility of interest or interest expenses on cross border loans made by non residents (the lender) not dealing at arm’s length or that are related to Canco (the borrower)

• Refundable consumption taxes

Canadian Tax System, (Cont’d)

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• Scientific Research and Experimental Development (“SR&ED”) program expenditure incentives to encourage R&D in Canada:• Expenses are 100% deductible from income• Generate investment tax credit of 15% that may be applied

against tax owing• Canadian controlled small to medium private corporations-

35% fully refundable tax credit for the first $3 million of current SR&ED expenditures

• Investment tax credits carried forward for up to 20 years

• Other provinces provide for similar incentive program by way of refundable tax credits

Research and Development

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• What constitutes Research and Development?

• Advancement of Science & Technology

• Scientific or technological uncertainty

• Scientific and technical content

Research & Development, (Cont’d)

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Research & Development, (Cont’d)

Research & Development Activities Non-Research & Development Activities

developing a prototype or modifying the production equipment to increase performance, reliability or precision

creating automated decision-making operations using software

making changes to a manufacturing process that goes beyond the current practice of the field of activity of the company

adapting technology used in another field or designing one for a different application

activities relating to market research and sales promotions

quality control or the carrying out of routine testing of materials, devices, products or processes

research pertaining to social sciences or humanities

exploration or drilling for the discovery of minerals, oil and natural gas and their production process

commercial production of a material, a device or a new or improved product and the commercial use of a new or improved process

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• Federal statutes• Patent Act• Trade-marks Act (e.g. brands)• Copyright Act • Industrial Design Act • Integrated Circuit Topography Act

• Plant Breeders’ Rights Act Canadian Food Inspection Agency

Intellectual Property

Administered bythe Federal AgencyCanadian Intellectual Property Organization(CIPO)

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• Patents – patent protection up to 20 years

• Trademarks – protection for up to 15 years, renewable for additional 15 years

• Copyright – protection under the Copyright Act lasts during the life of the author, plus 50 years.

Intellectual Property, (Cont’d)

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• Federally regulated industries- banking, telecommunications, airlines, railways, interprovincial enterprises

• Provincial jurisdiction covers most industries’ employment and labourmatters

Type of Legislations

Employment and Labour Legislation

Employment Labour

employment standards

labour relations

human rights

occupational health and safety

federal and provincial privacy legislation

pension and benefits

employment insurance

worker’s compensation

Unionized – 1/3 of full-time Canadian employees

Formation and selecting of unions

Collective bargaining procedure between employers and unions after certification of the union

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Examples of employment standards

Employment Standards

Minimum Wage Hours of Work Overtime Vacation

Holidays Mass layoffs Notice of

Termination Pregnancy and

parental leave of absence

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• Unionized carpenters hourly rates 2016 (Basic rate + supplement in CAD $)

Employment Standards, (Cont’d)

City CarpenterSt. John,New Brunswick

Montreal,Quebec

Toronto,Ontario

Calgary,Alberta

Vancouver,British Colombia

$36.49(24.55€)

$50.01(33.65€)

$55.60(37.41€)

$54.87(36.92€)

$50.46(33.95€)

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• Minimal Wage 2016-2017

Employment Standards, (Cont’d)

Province Minimum Wage

Quebec

Ontario

Alberta

$11.25(7.57€)

$11.40(7.67€)

$12.20(8.21€)

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• Business Visits – temporary work in Canada without work permit for up to 90 days

• Intra-company transfers• transfer of executives, senior management or specialized

workers• work permits – 6 to 24 months (extendable)

• CETA will facilitate the mobility of certain skilled workers

Business Immigration

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• Construction costs of office buildings in major cities (price per square foo) 2015

Source: Altus Group

Real Estate

Toronto (GTA) Calgary Vancouver

5-10 storeys $170-$235(115-158€)

$210-$250(141-168€)

$195-$255(131-172€)

10-20 storeys $185-$265(125-178€)

$235-$275(158-185€)

$225-$280(151-205€)

20-30 storeys $235-$295(158-199€)

$255-$315(172-212€)

$235-$320(158-215€)

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E. Paul LegaultPartnerMontréal514.879.1124plegault@millerthomson.comwww.millerthomson.com

This presentation was prepared with the assistance of Amadou Barry of Miller ThomsonAssociateMontréal514.879.4071www.millerthomson.com

Miller Thomson, your business partner in Canada

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• This presentation was created as part of a seminar entitled Law and Bilateral Trade: North America – Europe organized by the University degli Studi di Milano and Université de Montréal on June 5 – 9, 2017, for the International Summer School.

• This presentation shall be considered as a general summary of Canadian law discussing subjects in relation with the seminar. However, there are other elements that are not discussed in this presentation with regard to doing business in Canada.

• This presentation does not constitute a legal or other professional advice and is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.

• All numbers provided in this presentation are as of May 2017.

M I L L E R T H O M S O N . C O M

© 2017 Miller Thomson LLP. All Rights Reserved. All Intellectual Property Rights includingcopyright in this presentation are owned by Miller Thomson LLP. This presentation may bereproduced and distributed in its entirety provided no alterations are made to the form orcontent. Any other form of reproduction or distribution requires the prior written consent ofMiller Thomson LLP which may be requested from the presenter(s).

This presentation is provided as an information service and is a summary of current legalissues. This information is not meant as legal opinion and viewers are cautioned not to act oninformation provided in this publication without seeking specific legal advice with respect totheir unique circumstances.

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