Statement on international taxation
The following statement is intended to explain CDPQ’s tax obligations and practices. It describes CDPQ’s approach to working with companies and investors to adapt their practices and to fostering the adoption of effective and standard rules on a global scale.
CDPQ’s tax status
As an international investor, CDPQ is subject to the tax laws of Québec, Canada and the jurisdictions where it has offices or holds investments.
CDPQ is exempt from Québec and Canadian income tax. Most pension funds around the world are similarly exempt of income tax, as they operate according to the EET system. Much like the tax treatment of Registered Retirement Savings Plans, under this system:
- contributions are exempt (E);
- returns are generally exempt (E); and
- benefits are taxed when paid to beneficiaries (T).
Under various bilateral treaties or agreements with foreign tax authorities, CDPQ is also exempt from income tax in several other countries, including the U.S., France, the U.K. and Australia.
In jurisdictions where exemptions are not available, CDPQ seeks to structure its investments so that investment income is not taxed twice:
- The first time abroad;
- The second time when benefits are paid to recipients.
CDPQ’s exemptions in no way reduce the tax obligations of the companies in which it invests, which still have to pay all income taxes owed.
CDPQ’s presence in low-tax jurisdictions
The growth in CDPQ’s international investments has expanded its presence in certain low-tax jurisdictions. Investments in these jurisdictions fall under three categories:
1 – Direct investments in operating companies
Most of these companies operate and employ a large number of people in the countries where they are domiciled and pay taxes on their profits. For example, CDPQ’s investments in Nestlé, a multinational corporation domiciled in Switzerland, fall into this category.
2 – Interests in investment funds
These funds comprise hundreds of international investors and are sometimes constituted in low-tax jurisdictions. These structures exist for legitimate business purposes. They make it possible to share expertise, better manage risk and obtain economies of scale.
Due to the large number of co-investors, CDPQ has very little influence on the choice of jurisdictions in which these investment funds are incorporated. The use of these funds in no way affects the obligation of each investor and company to comply with the tax laws applicable to them.
3 – Investments in companies that use low-tax jurisdictions to structure certain investments
There are legitimate business reasons that support the use of these structures. However, given that the number of investors is limited, CDPQ may sometimes have influence over its partners and foster the achievement of its business objectives by locating structures in Canada or other countries where it benefits from tax exemptions.
Meeting tax obligations
Whether it is through its investments in operating companies, its interest in investment funds, or its use of holding subsidiaries, CDPQ abides by all tax laws and pays all taxes due in the jurisdictions where it operates.truePleine largeurfalse
Adopting effective, standardized rules
The use of “tax havens” and the related tax planning strategies is a worldwide phenomenon. While legitimate, these practices are sometimes called into question, as some jurisdictions have a reputation for facilitating tax evasion.
But it is important to make the distinction between using a low-tax jurisdiction for business reasons and using one as a component of tax planning for tax evasion purposes.
The use of low-tax jurisdictions must be governed rigorously at the international level through effective and standardized rules that support the fight against tax evasion.
Major initiatives to counter this phenomenon are under way, starting with the OECD’s Base Erosion and Profit Sharing initiative (BEPS). The OECD is proposing a concerted and ambitious approach to counter the abusive structures that allow certain taxpayers to unfairly reduce their tax obligations.
This project will fundamentally change international tax practices. Some of these changes have already come into effect. Others will be implemented over the coming years, as countries ratify the international agreements and adopt new laws.
CDPQ supports the various OECD and government initiatives to combat tax evasion. As of 2017, in accordance with the BEPS initiative, CDPQ now produces country-by-country filings that provide more detailed information to facilitate the tax authorities’ audit work.
Influence over companies and investors
Even though tax planning remains the responsibility of company management, CDPQ believes it can help evolve the business practices of its portfolio companies by encouraging engagement.
Depending on the circumstances, CDPQ may use its status as a shareholder to influence companies and voice its concerns.
CDPQ uses its votes at public companies’ shareholders’ meetings, or discussions with management teams, to understand the companies’ tax practices and insists on full transparency on this matter.
As part of its investment activities, CDPQ also helps fight tax abuse by performing background checks and by excluding from its private investments all companies which have been found guilty of tax evasion and have not modified their practices.
Despite its efforts, CDPQ is aware that the different tax regimes in place around the world continue to allow certain taxpayers and multinationals to unduly reduce the taxes they should be paying. While numerous low-tax jurisdictions have committed in recent years to showing greater transparency and collaboration, there is still room for improvement.
No investor or country can single-handedly eradicate abusive tax practices. The solution must include international co-operation and greater harmonization of laws.
As this entails agreement among many governments, and the adoption of new laws around the world, the evolution of company practices will not happen overnight.
This is why CDPQ is committed to playing an active role, both privately and publicly, to advance fair tax practices. This is a major, long-term undertaking that is essential to maintaining citizens’ trust in companies and governments, and to preserving fairness in our societies.
CDPQ’s approach to tax planning, risk management, compliance, governance and relations with tax authorities applies to all jurisdictions, including the United Kingdom. CDPQ’s tax strategy has been approved by its audit committee and its Board of Directors and is revised periodically.
CDPQ considers that this statement meets the requirements of Annex 19 of the United Kingdom’s Finance Bill 2016, which requires publication of an investor’s tax strategy for the current financial year.