Funny how Ottawa in completely silent on the debt leveraged buyout of BCE.
Actually that’s not completely true, since Jim Flaherty actually enthusiastically supports it. This proves that the income trust issue was never about the uproven allegation that income trusts cause tax leakage. That concept is simply what Dan Miles (Flaherty’s Rasputin of Communications) calls “developing an event”......also known as manufacturing an argument.
You see, if the income trust tax had been advanced in the public on its true underpinnings and rationale, Flaherty would have been laughed at and scorned. Instead a reason that would resonate with the public had to be manufactured, namely tax leakage.
Proof of tax leakage has never been tabled by the Government for peer review. Tax leakage is a contrived outcome that is manufactured by assigning zero value to the taxes collected from pension funds and RRSPs. And yet now BCE will be owned 50% by a pension funds and 50% by three US firms. If tax leakage were the true issue behind income trusts, then the BCE LBO is the worst outcome possible.
Instead Jim Flaherty chooses to completely contradict himself and in the process lay bare the false nature of this assumptions that underpins the tax leakage argument, when he said:
"The purpose of the pension funds, ultimately, is to ensure they can honour their pension obligations. And there is taxation, of course, when pensions are paid out," the Minister said.
So why are deferred taxes ignored by Ottawa in the context where BCE was to have become an income trust, but they are included when BCE becomes an LBO?
Total contradiction in terms, which proves one thing. The income trust tax was never about tax leakage. The following quote from the 2006 CGA study captures what the trust tax’s true underpinnings were all about:
"Investors decide how best to reinvest cash flows as opposed to leaving them in the hands of the management of the [business]."
That’s right, this battle is all about who has control of the discretionary cash flow of a business. The owners or the managers.
The thing that managers find completely unattractive about the income trust model, is the very fact that to qualify as an income trust, as with any tax flow through entity, 95% of the discretionary cash flow HAS to be paid to the owners.
This is against the personal preference of the managers. This is why Dominic D’Alessandro (CEO of Manulife Financial) is so opposed to the income trust model. He testified as such, at the public hearings on income trusts. No mystery there. Do you really think he cares about the taxes Ottawa collects? If he does, he should have said so, but he did not. Wise move, because any claims of tax leakage are a total crock. Just so that you are sure about how Dominic D'Alessandro views himself in this great dichotomy between owners and management, I will quote him:
So there you have it. Income trusts let the owners control the destiny of the owners’ cash flow. The corporate model lets the management control the destiny of the owners’ cash flow.
On that basis, how many Canadians would support the income trust tax that has imposed major losses on Canadians? How many Canadians would support the income trust tax if they knew that it actually causes the loss of taxes? I think this process of elimination means that we are now down to a small group of Canadians consisting of about 100 CEOs, Dominic included, whose interests are served by this trust tax.
These are people whose personal interests this trust tax serves. No one else. They are unwilling to bow to the pressure of the capital markets. They want to preserve the silent movie business, and the market wants talking movies. The government has sided with the past, and condemned the future.
Here’s John McCallum’s take on BCE:
“John McCallum, the Liberal finance critic, said Canadians are starting to see the consequences of the trust tax.
"The effect of what he is doing is exactly the opposite of what he intended, because the holders of income trusts pay lots of tax," Mr. McCallum said. "All of these trusts are now being taken over in such a way so that the new owners will pay no tax.
"So, instead of a situation where a lot of personal taxes were being paid, you are having these induced takeovers by highly leveraged private-equity companies that will pay no tax."
Friday, July 25, 2008
Posted by Fillibluster at 3:44 PM