The Limits of Sovereign Immunity: A Study and Analysis of the Canadian Income Taxation of Sovereign Wealth Funds

By Podolny, Michael | University of Toronto Faculty of Law Review, Spring 2012 | Go to article overview

The Limits of Sovereign Immunity: A Study and Analysis of the Canadian Income Taxation of Sovereign Wealth Funds


Podolny, Michael, University of Toronto Faculty of Law Review


I. INTRODUCTION II. DEFINING SOVEREIGN WEALTH FUNDS       i. The Question of Pension Funds III. CURRENT CANADIAN TAX TREATMENT OF SWFS       i. What Could be Taxed? IV. CURRENT TAX TREATMENT IN U.S. AND OECD PRONOUNCEMENTS       i. The United States       ii. Integral Part vs. Controlled Entity       iii. What Could be Taxed       iv. OECD V. TAX TREATIES       i. Why are Treaties Important? VI. POLICIES UNDERLYING CURRENT RULES       i. Comity and the Doctrine of Sovereign Immunity       ii. Reciprocity       iii. Economics VII. POPULAR CRITIQUES AND CALLS FOR REFORM        i. Removing Tax Exemptions       ii. Maintaining the Status Quo VIII. EVALUATION AND RECOMMENDATIONS       i. Equity       ii. Neutrality       iii. Administrative Efficiency        iv. International Competitiveness        v. Recommendations IX. CONCLUSION 

I. INTRODUCTION

As news of deep government deficits occupies major headlines in North America, it becomes easy to forget that not all public entities are deep in debt and in dire need of financing. In fact, several countries around the world are flush with excess cash and continuously seek out profitable investment opportunities. Be it due to the desire for diversification, political influence, or profit Sovereign Wealth Funds (SWFs) have become the investment tool of choice for several cash-rich governments. Although, due to the obvious lack of transparency associated with foreign government financial dealings, exact figures are difficult to compute, estimates have placed the global amount of assets under management by SWFs between $2 trillion and $3.7 trillion at the end of 2007. (1) Naturally, today some of the largest SWFs are controlled by governments of 'developing' nations in Asia, Middle East and South America, while their investments reside in the more stable 'developed' economies of North America and Europe. Canada, much like the United States, thus finds itself in the interesting position of providing an attractive investment environment for SWFs. (2) Canada now faces the burden of configuring an effective taxation scheme--one which addresses direct investment in private assets by foreign government-owned investment vehicles.

While a variety of difficult issues confront tax policy makers with regards to multi-national corporations, their complexity is compounded by the additional considerations of interjurisdictional immunity and comity which accompany dealings with foreign governments. Although guidelines for the management and operation of SFWs, the Santiago Principles, have been compiled through international cooperation, no equivalent principles have yet come to fruition regarding the appropriate taxation of these investment vehicles. (3) Instead, as the situation stands right now, each country has adopted a unique method of confronting the taxation of foreign government investments. Consequently, under the domestic laws of most developed countries, including Canada and the United States, SWFs enjoy preferential tax treatment over private multinationals with regard to certain investments. (4) Furthermore, tax treaties between nations may address the taxation of public entities and, accordingly, allow for a different set of perks to be enjoyed by SWFs. (5) As a result of such a complex mosaic of tax laws found in each country, few are able to effectively navigate and decipher the relevant tax rules and their underlying policy considerations regarding SWFs.

This paper therefore aims to inform professionals and lawmakers, and fill a void in the current academic literature, by summarizing, critically assessing and making recommendations regarding the future of the Canadian taxation regime for Sovereign Wealth Funds.

SWFs are introduced and defined in Part II. Their current treatment under Canadian tax law is described in Part III. Part IV surveys the equivalent tax rules pertaining to SWFs in the United States of America and the relevant pronouncements by the Organisation for Economic Co-operation and Development (OECD). …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Limits of Sovereign Immunity: A Study and Analysis of the Canadian Income Taxation of Sovereign Wealth Funds
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.