The concepts of corporate taxation

	Corporations are recognized as individuals with many of the same right and privileges there of. The taxation of corporations isn’t much different than the taxation on individuals; they both account for the payment of rights and privileges granted by the country’s government. As in any sale, the trade should be seen as equal by both sides, otherwise the buyer will move on to find a better deal. For corporations, this means movement across borders, be it national or international. With the implementation of NAFTA in 1989, this has become an important factor, if not the important factor, in determining the taxation rate in Canada and the US. A common belief is that US corporations pay more taxes than their Canadian counterparts, and Canadian citizens receive higher public goods in exchange. However, depending on the status, origin, and production of the company the rates can be massively in the favor of a Canadian base. A New York City based corporation which receives non-earned income can be taxed at 40-49% while an Albertan based company can pay as little as 14%. (1988) Canadian law treats all companies incorporated in Canada as resident for tax purposes and taxable on worldwide income. In addition any company, whosesoever incorporated, which is controlled and managed from Canada is also treated as Canadian tax resident and taxable on worldwide income.
	
Corporate taxation 
The rational of corporate tax is seen as a necessary evil. Businesses, naturally, prefer lower rates; however the governments cannot allow corporations to unfairly receive the benefits of society, national land, and the use of natural resources (not including labour) or allow corporations to create tax shelters for personal income tax of the shareholders.  Within both Canadian and US law, Corporations are distinct entities, recognized as equal to a tax paying citizen and receiving the same benefits of society. Again, the tax occurs to pay for the benefits the corporation receives from society, while acting as a withholding tax to prevent local income from leaving the country with little return. In the macroeconomic scheme, taxation can also promote counter cyclical growth, increasing revenue during growth periods and taking less during recessions. 

Canadian Federal Taxation 
	The Canadian Federal Taxation system is based on a flat tax theory. However, very seldom is there equality in the rates charged. Corporations filing in Canada are subject to a series of laws, regulations and deductions that very quickly creates recessive taxation, and an unequal treatment of businesses based on geographic placement, production and political issues. 
	
The Canadian flat tax is quickly broken up into three brackets for small, medium and large corporations. The terminology in Canada is unlike the US model, in that instead of brackets, Canadian corporations are focused into categories, each with their own tax rate. Small rate companies, defined as $100,000 or less, are taxed at 23.2%, mid range, or CCPC companies are taxed at 32.12% and large, non-Canadian companies are taxed at a full 38.12% (Earnst and Young / December 2001). Canadian controlled, private corporations are called CCPCs. These companies are eligible for extra tax credits and deductions over non-CCPCs, in an attempt to make Canadian firms more competitive in their own country. CCPCs enjoy the advantage of an overall lower rate of taxation, as well as tax credits including a 16% tax break on the first $200,000. 

	These rates by themselves can be a bit misleading. The rates charged on corporations by the federal government are creditied to provincial taxes up to 10 %( as of 1996), it should be noted that in 2004, Alberta’s general corporate tax rates are pinned at 8% - down from 10% in 2003. This projected rate will not cause a decrease in corporate tax because the three percent drop will no longer be federally deducible, and simply go to the federal government. 

 	This 10% tax credit is only available to when computing provincial tax. A corporation that is not based in a province is not considered a CCPC company. Provincial taxation can be written off on federal taxation up to 10% of taxable income, some thing a non-CCPC corporation can not do. This leads back to the CCPC issue for Canadian growth. However, this is cut down by the Federal surtax which incorporates four percent taxation after provincial tax dedications.

Within deductions there are also a number of investment and capital which can be deducted for income purposes; this is ITC or investment tax credit. Federally, there are different rates on property, expenditures transportation equipment which change according to geographic location. Further tax deductions can be used on items such as research and development, labor (wages) and depreciation. Depreciation is calculated as the rate that is allowed to be written off against the cost of the machine as the machine’s value drops from year to year. If the rate of deduction is greater than the re-sale value of the machine, it can make investment sense for a corporation to seek out these corporate tax shelters. It is not uncommon to find corporations buying strange and unrelated items based on this maneuver.

Also within ITCs is the first-in, last-out (FILO) inflation tax credit. This process can adjust prices for inflation by having annual costs be reflected in the value of the last item sold. Meaning, if an item that sells for $15 and costs $10 to produce at the beginning of the year, but at the end of the year costs $12 to make because of inflation, the corporation can claim just the $3 in taxable income, even though they have truly made $5. Corporations in both Canada and the US have abandoned this advantage for the sake of increasing the “profitability” of the firm. This profitability leads to a higher taxation, but will also increase the corporation’s rating in the eyes of stockholders. 

	Within Canada, the threat of Canadian goods leaving the country without adequate compensation is treated very seriously.  This is one of the main ideas of corporate taxation. Therefore, there are specific international regulations that must be abided by, and a higher rate of taxation to face than their CCPC counterparts. Likewise, Canadian corporations operating internationally are subject to the laws and practices of the lands they operate in. Canadian corporations operating internationally are taxed on the revenue created minus the local tax paid. In this, Canadian firms use foreign taxes as a tax credit – much in the same way that gross-up tax allowances avoid double taxes. The exception is “active” business income, which is income earned from legally incorporated businesses. This “active” income is considered part of the foreign country, and therefore is not under Canadian law. The other situation is branch corporations and countries that Canada does not have a tax treaty with. In both cases income is subject to both Canadian and local laws and tax. 

	At the same time that Canada and the US want to tax corporations, the shareholders should not be taxed twice as a penalty for having corporate interests. To avoid the double-tax of first corporate tax then (in the form of dividends) personal income tax, Canada implements partial imputation. In this, part of the tax on dividends is creditable to income tax. Canadians receive corporate dividends, which are taxed at the general rate, this amount is then creditable against their personal income tax.   

e. international regulations (to limit amount of Canadian goods shipped out of the country without proper penalties)
-  Tax treaty countries - foreign tax payment, income NOT subject to tax.
- otherwise – regular fed tax (no prov.) on all dividends minus local tax paid.
- FAPI, Foreign Actual Property Income “Passive growth” taxed.
- CCPC laws (CCPC, Public companies, other or international)
- “large business” tax - $10,000+)
f. Double taxation of dividends and gross-up payments

Within the specific jurisdiction of Alberta, corporate taxation is treated a bit differently than in other provinces. Québec, Ontario and Alberta each have a separate income tax act in which provisions vary from the federal basic tax base. So long as the corporation was incorporated outside Alberta, then only capital gained in Canada is taxed, as for corporations inside of Alberta, they are bound to the Alberta Corporate Tax Act (1981) which accounts for;
•	the Alberta corporate income tax for corporations with "permanent establishment" in Alberta, including Alberta deductions and credits such as the Alberta Royalty Tax Deduction, the Alberta Small Business Deduction (revised April 1, 2002), the Alberta Manufacturing and Processing Credits Deduction (eliminated April 1, 2001), the Alberta Foreign Investment Income Tax Credit and the Alberta Political Contributions Tax Credit; 
•	the Alberta Royalty Tax Credit for corporations that pay eligible Alberta crown royalties; 
•	the Alberta Royalty Credit for Individuals and Trusts that pay eligible Alberta crown royalties; 
•	the Insurance Corporations Tax payable by corporations carrying on the business of insurance in Alberta; and 
•	the Financial Institutions Capital Tax payable by banks, loan and trust corporations and credit unions (eliminated as of April 1, 2001). 
Alberta, while maintaining one of the lowest corporate taxes in Canada (again, depending on size, location and manufacturing) also has levied its own tax variations since the 1940’s. Alberta allows for a 5% small business tax deduction for CCPC business income under $300,000. Another Alberta feature is the Alberta Royalty Tax Deduction which allows corporations to deduct the difference between crown royalties paid and the resource allowance claimed. This is not to be confused with the Alberta Royalty Tax Credit, which is a refund on a set percentage of the total amount paid over a year on Alberta crown royalties. The credit back is only applicable to oil and gas, and has a maximum refund amount of between $500,000 and $1.5 million. This amount is directly co-related to the selling price of oil and gas. 
	Like the Government of Canada, Alberta has additional taxes on certain sectors of the economy. There is an Insurance corporation tax, which places extra 2-3% taxation on all insurance forms, and Financial Institutions Capital Tax which placed a 0.7 to 2% tax on an capital holdings of financial institutions, and a $100 fee for Credit Unions. There are also separate tax issues on Tobacco sales, hotels, fuel costs and a host of others. In addition to these “extras”, Alberta also has laws dealing with the taxation of corporations that work with or are owned by natives living on reserves.
	In comparison with Canada, the US federal system has some significant similarities. The US also has a federal tax system in which state taxation can be deducted from the cost of Federal taxes. As well, the US sports 50 different state taxation systems with vastly different tax rates. In 2000, the taxation rates in the top corporate tax bracket ranged from15% in Iowa to 4% in Kansas. Like Canada, these rates are subject to change based on size, location, ownership and items produced. Loopholes and incentives in the states’ tax codes, often in the form of tax credits, allow corporations to pay much less in taxes than the application of the tax rate would indicate. These loopholes exist in an attempt by the federal and state governments as an attempt to direct business in certain fields. It is also in these loopholes that there are the most significant difference between the US and Canada. 

In America, especially the east, states are much smaller are geographically accessible than their Canadian counterparts. Because of this, there is always a fear and ability to have companies move from one state to another – weather this is through competitive tax rates, credits or, in the case of Kentucky, manufacturers would have their entire investment reimbursed by the state. There is little merit to most of these cuts and divisions – a corporate paid state tax can be used against the US federal taxation rate. Thus the corporation ends up paying a general rate regardless of the state its in, so long as the state’s taxes are lower than the federal rate. 

With the creation of NAFTA, Canadian and American tax structures took on parallel routes. Although the technicalities of the tax regimes are significantly different, there are many similarities in the two systems. An example is American Research and development credit laws, which account for a pre-set percentage to be credited from all branch and main offices, even though most of the research (most likely) takes place at one site.  This is very similar to the Canadian version; however the Canadian R & D tax credit sits at about 21.9%, while the US is closer to 38.2%. Overall, the US allows for more lenient legislation on multinational corporations than does Canada, and has fewer local incentive tax loop holes for small business, other than the pre-set tax brackets. This reflects America’s $373 billion dollar foreign investment in 1989, as compared to Canada’s 125 billion in 1994. 

American corporations lack the ITC benefits of their Canadian counterparts. This is counter balanced with the ability for US firms to find and use tax havens and subsidiaries. Subsidiaries are owned by a US corporation, but incorporated in a different country. These companies are exempt from all US tax regulations, unless the money is repatriated back to the US, in which case it is taxed the year it brought over. If the foreign country has low, or no corporate taxes, this creates the tax havens, where investments can grow unimpeded by government regulation in select countries around the world. All other international American investment is seen as shared profit and cost, and all branches are taxed on their revenue minus costs. It should be little surprise that only a small fraction (16 percent in 1984) of the foreign branches of  US corporations repatriate profits each year, those that do tending to have particularly tax advantaged situations. There is also a “royalty” tax exemption for using foreign natural resources; however this is being shut down by the US government.

	Canadian, US tax war for corporations plays some part in determining where any corporation might stay for it headquarters to be based. Both have their advantages for the types of business that the governments want to have there. The US tends to shrug off the money earned by US corporations internationally; making it unlikely those profitable international American corporations will leave the country. Canada attempts to give out tax shelters and tax breaks to the industries and geographical locations that they want to see grow. Federally, the US uses corporate tax as recessive revenue generator. There are some incentives for specific manufactures, but not near the Canadian level. US corporate tax does not infer weather the elasticity of the tax falls on the consumers or the producers, nor does it offer ITCs. This creates an environment where established, international firms have a superior advantage, and explains why more of them are located in the USA than in Canada, even though the tax-for-government-services rate is relatively equal.

Canadian Tax rate - 
NYC
http://www.ci.nyc.ny.us/html/dof/pdf/01pdf/nyc3a_01i.pdf
	NYC general corporation  tax 
http://www.ci.nyc.ny.us/html/dof/html/taxfrm01.html