Where You Live--The Conrad Black Tax Case

An article today in the Financial Post by Vern Krishna (a venerable tax lawyer, professor and writer) points out how arbitrary the courts can be in dealing with tax issues.  As pointed out by Prof. Krishna tax treaties are negotiated and enacted so that a person or corporation is not taxed twice on the same income by the treaty partners.  That is, if a person lives in two places, or more, there are rules as to who will b e the main taxing authority.  In this case it was a question as to whether Canada or the UK was the main taxing authority.  We all know that residency usually is the hallmark of where taxes are levied.  Mr. Black stated that he was a resident of two countries--Canada and the UK.  By the terms of the treaty he claimed that he was a domiciled non resident of the UK.  He claimed that, while he was willing to pay tax on income earned in Canada he was not willing to pay tax on his non resident income--some $5.1.  A tidy sum.  Canada claimed tax on the $5.1 million and the tax court agreed.  Notwithstanding the treaty that has tie breaking rules and notwithstanding that most observers believe that Mr. Black withstood the test of being a non resident of Canada, the tax court disagreed.  The tax court took a very liberal view of the tie breaking rules of the treaty.  I trust that Mr. Black will appeal and be successful in that appeal.

The arbitrariness of the CRA and now some of the courts indicates that any tax planning on an international level needs a further component:  asset protection.  While many business cannot benefit from asset protection (that is they have assets such as land, buildings, physical plants and accounts receivable in Canada that is open to seizure), many individuals and businesses who operate internationally have assets that are mainly in cash or cash equivalents.   Those individuals might be wise to secure these assets in jurisdictions where tax authorities would have difficulty in collecting on a tax judgement.  We have heard about some of these jurisdictions.  Cook Islands, Belize, Nevis, etc.  They are usually mentioned in a pejorative way.  However, since the object of business or individuals is keep their savings and wealth intact, the use of these jurisdictions is not only not pejorative but fiscally responsible.  That is practical tax planning.