Bombardier Case Study
Bombardier’s five top executives and the chairman of the board saw their compensation rise by nearly 50 per cent to $32.6 million US in 2016 according to reports in newspapers from spring 2017. These payments sparked a backlash among the public, including protest in Montreal, because Bombardier has received a $1-billion US investment from the Quebec government in exchange for a 49.5 per cent stake. In addition, the company is in the midst of a five-year turnaround plan that involves the elimination of 14,500 jobs around the world by the end of 2018. This plan is an attempt to regain financial stability.
The public anger over the executive payment eventually prompted Bombardier to delay – but not reduce – the payout to its executives provided …show more content…
What tax avoidance plan does Bombardier use? (6 marks)
Proposed by consultants from Ernst & Young, Bombardier’s tax avoidance plan involved the financial restructuring of the company’s financing activities which included sending $500 million from Bombardier’s U.S. unit to a Luxembourg subsidiary in exchange for mandatory redeemable preferred shares which are treated as debt. The Luxembourg-based company, which has only one part-time employee who is a Luxembourg resident, then made the payments. All these payments were treaded as interest payments and therefore deductible and subject to low tax rates in Luxembourg.
Eventually, Bombardier was able to transfer the money to Canada in form of dividends, which are not taxable under a tax deal between Canada and Luxembourg.
These types of complex fiscal manoeuvers are called “hybrid mismatch arrangements,” which are used to play off different tax regimes in different countries in order to pay low or even zero taxes. By using these types of dealings, Bombardier was able to reduce its tax bill in Canada and the U.S..
3. Why is this: tax avoidance and not tax …show more content…
What grants did Bombardier get from the federal and provincial governments?
In early 2017, Bombardier received a cash infusion of $372.5 million from the federal government. Most of the money was indented to help the company’s aerospace programs and the research and development for Bombardier’s Global 7000 business jet, as well as, to support the C Series aircraft program.
In addition to federal grants, the province of Quebec provided a bailout of $1-billion to Bombardier in 2016. The provincial support for the company was needed because the Bombardier C Series aircraft was two years behind schedule and had incurred cost overruns of approximately US$ 2-billion. In return of the bailout, the government of Quebec would own 49.5 per cent of a new limited partnership all the assets liabilities and obligations of the C-Series program.
5. What solution can you propose to restrict executive pay at Bombardier?
The fact that Bombardier received federal and provincial support in form of a cash infusion and a bailout was an opportunity for federal and the Quebec government to use their leverage to restrict executive payments. There are multiple suggestions to do
The public anger over the executive payment eventually prompted Bombardier to delay – but not reduce – the payout to its executives provided …show more content…
What tax avoidance plan does Bombardier use? (6 marks)
Proposed by consultants from Ernst & Young, Bombardier’s tax avoidance plan involved the financial restructuring of the company’s financing activities which included sending $500 million from Bombardier’s U.S. unit to a Luxembourg subsidiary in exchange for mandatory redeemable preferred shares which are treated as debt. The Luxembourg-based company, which has only one part-time employee who is a Luxembourg resident, then made the payments. All these payments were treaded as interest payments and therefore deductible and subject to low tax rates in Luxembourg.
Eventually, Bombardier was able to transfer the money to Canada in form of dividends, which are not taxable under a tax deal between Canada and Luxembourg.
These types of complex fiscal manoeuvers are called “hybrid mismatch arrangements,” which are used to play off different tax regimes in different countries in order to pay low or even zero taxes. By using these types of dealings, Bombardier was able to reduce its tax bill in Canada and the U.S..
3. Why is this: tax avoidance and not tax …show more content…
What grants did Bombardier get from the federal and provincial governments?
In early 2017, Bombardier received a cash infusion of $372.5 million from the federal government. Most of the money was indented to help the company’s aerospace programs and the research and development for Bombardier’s Global 7000 business jet, as well as, to support the C Series aircraft program.
In addition to federal grants, the province of Quebec provided a bailout of $1-billion to Bombardier in 2016. The provincial support for the company was needed because the Bombardier C Series aircraft was two years behind schedule and had incurred cost overruns of approximately US$ 2-billion. In return of the bailout, the government of Quebec would own 49.5 per cent of a new limited partnership all the assets liabilities and obligations of the C-Series program.
5. What solution can you propose to restrict executive pay at Bombardier?
The fact that Bombardier received federal and provincial support in form of a cash infusion and a bailout was an opportunity for federal and the Quebec government to use their leverage to restrict executive payments. There are multiple suggestions to do