TORONTO – While calling for other Canadian companies to follow his lead and grow abroad, Cogeco Inc. CEO Louis Audet added that recent changes to certain tax rules make it far more difficult for Canadian companies to consider expanding beyond Canada.
In 2006, Cogeco acquired Portuguese cable company Cabovisao and turned it into a fine, EBITDA-producing piece of the company. Audet also added he has traveled to a total of 15 countries looking for more buys.
In a speech Monday to the Canadian Club at the Royal York hotel in Toronto, Audet targeted the federal government’s March 2007 announcement that Canadian companies could no longer deduct, for income tax purposes, the interest on money borrowed to complete foreign acquisitions. Audet said finance minister Jim Flaherty made the move in part to try and stem the tide of people moving money offshore to certain tax havens, and to try and halt jobs leaving the country when companies build operations outside Canada.
This new rule, however, is “contrary to Canadian business interests,” said Audet and provides a disincentive to grow abroad for Canadian companies – not to mention a disincentive for Canadian banks to follow their clients around the world, lending them capital for expansion.
“We’re the only country in the world doing this and we’re disadvantaging ourselves,” said Audet. “Why are we adopting the very behaviour that countries in Eastern Europe quickly jettisoned after the demise of the communist system?”
Audet then pointed out that business leaders and media types alike often decry the “hollowing out” of business in Canada and criticize Canadians for too often being sellers instead of global acquirers. He pointed at the likes of Alcan, Inco, Falconbridge and others who are now all owned by foreign companies.
And this new change in the tax rules will only ensure further Canadian companies won’t expand internationally and may instead decide to be sold, as so many others have.
The loss of those companies, said Audet, “are a tremendous loss to this country. We have already witnessed the disappearance of high-value decision-making executives.
“Are we advocating interventionism?” he asked rhetorically. “No definitely not. Quite the contrary. It will take many more companies like Cogeco Cable just to take up the slack. What we really need is a balance… between companies lost due to free market forces and companies baked here in Canada encouraged to build and radiate abroad.”
What the Canadian government “must do,” he added, is “encourage and support companies with the will and dedication to build abroad and this is not what we are getting from the finance department today and I urge the minister to reconsider his department’s position.”
– Greg O’Brien
