Structuring investments in the Canadian resource industry

A report on a panel session from the IBA Annual Conference held in Toronto on 3 November 2025

Session Co-Chairs

Ana Lucía Ferreyra  Pluspetrol, Uruguay

Randy Morphy  BLG, Vancouver

Speakers

Michael Colborne  PwC Law, Toronto

Robert Gaut  Proskauer Rose, London

Sam K Kaywood Jr  Alston & Bird, Atlanta

Thomas Meister  Walder Wyss, Zürich

Reporter

Monica Carinci  Aird & Berlis, Toronto

Introduction

This panel session included a discussion of considerations for inbound investments into Canadian resource companies, challenges associated with Canada’s foreign affiliate dumping regime, repatriation strategies and Canada’s unique flow-through share financing regime for early stage capital.

Panel discussion

The panel began by highlighting Canada’s prominence in the global resource industry. Michael Colborne provided a historical overview of M&A activity in the Canadian mining sector, noting that most of the industry is foreign-owned. Colborne discussed debt and equity considerations when structuring investments. He emphasised the importance of ‘paid-up capital’ (PUC), as it enables the distribution of cash free from withholding tax (subject to certain exceptions), limits the effect of Canada’s foreign affiliate dumping rules and provides entities with an opportunity to opt for thin capitalisation.

Colborne also discussed the significance of the business property exemption under Article 13 of the Organisation for Economic Cooperation and Development’s (OECD) Model Tax Convention on Income and Capital and the Supreme Court of Canada’s judgment in Canada v Alta Energy Luxembourg S.A.R.L., 2021 SCC 49.

Robert Gaut discussed the tax considerations in the United Kingdom when investing into Canada, including the business property exemption under the Canada–UK tax treaty. He noted that, as in other jurisdictions, only businesses engaged in the active development of mines will qualify for such an exemption.

Gaut stated that the UK corporate tax rate is 25 per cent and that there is a broad exemption for dividends received and no withholding tax on dividends paid. Investors from the UK benefit from a substantial shareholding exemption and qualifying asset holding companies enjoy further exemptions, including no withholding tax on interest paid. Gaut also noted that while the UK has a controlled foreign company (CFC) regime, there are exemptions available, making the system relatively flexible in regard to cross-border investments.

Sam K Kaywood Jr provided his perspective on the situation in the United States. He noted that investing into Canada involves a 21 per cent corporate tax and complex CFC rules. Subpart F of the US Tax Code taxes passive income and certain intercompany trading at 21 per cent, including gains from land and mineral rights. The Global Intangible Low-Taxed Income (GILTI) regime will tax most other foreign income at 12.6 per cent starting in 2026, with the Qualified Business Asset Investment (QBAI) reduction having been repealed. Exemptions are limited to high-taxed income and certain dividends, interest and royalties from other CFCs. While a 100 per cent dividends-received deduction exists, most income is still taxed under GILTI, and capital gains remain fully subject to the 21 per cent corporate tax.

Thomas Meister provided the Swiss perspective. He stated that Swiss entities disposing of Canadian real estate or permanent establishments are not taxed in Switzerland, leaving only Canada to tax the gain. He also discussed the participation relief available on dividends from qualifying participations and on capital gains realised on the disposal of qualifying participations.

Ana Lucía Ferreyra discussed the Canada–Peru tax treaty, which previously allowed beneficial structuring to avoid the indirect transfer tax. However, Peru’s ratification of the OECD’s Multilateral Instrument (MLI) has modified what is required in order to gain protection from the indirect transfer tax and has made planning for Peruvian investors less attractive. Randy Morphy also commented that the favourable rollover treatment that was once available under the Canada–Peru tax treaty will no longer be available, once the practical effects of the MLI with respect to the Canada–Peru tax treaty begin on 1 January 2026.

On the subject of valuations, Ferreyra raised the issue of how value is determined for treaty purposes, questioning whether fair market value (FMV) or accounting records should be used. Colborne noted that Canada uses FMV, while other jurisdictions may use book value. He discussed the treatment of goodwill in mineral concessions, noting that inbound transactions in Canada are straightforward, but outbound investments involve different legal systems. He referenced an Australian case, Commissioner of State Revenue v Placer Dome Inc [2018] HCA 59, which distinguished between the concept of ‘commercial goodwill’ and ‘going concern value’, suggesting that in mining, the exploration potential is more appropriately viewed as the going concern value. Kaywood added that valuation positions must be carefully considered, especially regarding goodwill and purchase accounting when allocating the purchase price.

The panellists used three case studies to illustrate possible practical structuring challenges. The first involved acquiring a Canadian public company with domestic resource properties, focusing on optimising paid-up capital (PUC), introducing debt and managing a tax deferral. The second examined a Canadian public company investing in foreign resource properties. The speakers addressed the foreign affiliate dumping rules, amalgamation strategies and indirect transfer tax risks in Peru and Argentina. The third case study dealt with Canadian targets holding both domestic and foreign subsidiaries, emphasising the relevant treaty implications, migration planning and creative structuring to ensure compliance across multiple jurisdictions. These examples highlighted the complexity of cross-border investments and the need for tailored tax planning.

Conclusion and final remarks

During the case studies and Q&A period, the concept of a ‘surviving’ corporation following an amalgamation was discussed. Under Canadian law, there is no ‘surviving’ corporation in an amalgamation, as none of the amalgamated entities cease to exist upon amalgamation; rather, the two or more entities continue as a single corporate entity, which possesses all of the property, assets, rights and liabilities of each of the amalgamated entities. This treatment differs from situation in the US, where upon amalgamation, one of the amalgamated entities is the surviving corporation.

This distinction underscores the importance of understanding jurisdictional differences when planning cross-border investment in the resource industry. Careful attention to these nuances can prevent unintended tax consequences and ensure compliance with both Canadian and foreign legal frameworks.