March – April 2016
a publication of CANCHAM Thailand
Ron Livingston 2015/2016 CANCHAM Thailand Executives
H.E. Philip Calvert Ambassador of Canada to Thailand
Officers: President – Ron Livingston Vice President – Derek van Pelt Vice President – John Stevens Treasurer – John Casella Secretary – Dean Outerson Executive Board:
Peter Bessey Surachit (Art) Chanovan Joseph Henry Andrew Kloosterhuis David A. F. Macdonald James MacDonald James McCracken Angus Mitchell Michael White
Embassy Representative: Yvonne Chin
Sean Brady Sam Cohen Kobsak Duangdee Don Lavoie Peter van Haren Picharn Sukparangsee
Thai-Canadian Chamber of Commerce 139 Pan Road, Sethiwan Tower 9th floor, Bangkok 10500 Tel: +66(0) 2266-6085-6 Fax: +66(0) 2266-6087 Email: email@example.com Website: www.tccc.or.th
The Voyageur is the monthly magazine of the Thai-Canadian Chamber of Commerce, covering all Thai-Canadian business, legal and social news of interest to the members and others who are active in expanding Thai-Canadian bilateral trade. Editor: CANCHAM Thailand Publisher: Scandinavian Publishing Co., Ltd. 211 Soi Prasert-Manukitch 29, Prasert-Manukitch Rd., Chorakeabua, Ladprao Bangkok 10230 Tel: +66(0) 2943-7166-8 Fax: +66(0) 2943-7169 Design: Disraporn Yatprom Email: firstname.lastname@example.org Advertising Contact: Mr. Finn Balslev, Marketing Director Scandinavian Publishing Co., Ltd. Tel: +66(0) 2943-7166 ext.116 or 08-1866-2577 Email: email@example.com
Message from CanCham President Ron Livingston The Canadian Chamber of Commerce in Thailand recently honoured one of our co-founders Sam Cohen at Bistro 33. Friends, family and CanCham members came together to give Sam an Honorary CanCham Membership and used this opportunity to look back at his many accomplishments and contributions to Canadian-Thai relations. It was an honour and a privilege to say a few words about the important contributions that Sam has made to our CanCham and Canadian business relations here in Thailand. Other key figures in the CanCham community, including Sean Brady, Peter van Haren and Ambassador Philip Calvert, also reflected on Sam’s many accomplishments over the years. On April 1-2, we will host our annual Beaver Golf Tournament, at the Phoenix Golf & Country Club in Pattaya. This is a great fun weekend and starts with a Joint Chambers Eastern Seaboard Networking Event at Tavern by the Sea on Friday April, 1, and finishes with the Beaver Dinner Party and Award Ceremony at the Amari Orchid Pattaya on Saturday April, 2. We will have our 25th Annual General Meeting in early April. All CanCham members are urged to attend and vote for the 2016-17 CanCham board of directors. The new board will look forward to working with new Executive Director Kelly Cailes and his staff in building a stronger and better CanCham.
CANCHAM Thailand News
How to get it right in Thailand Most Canadians think of Thailand as a vacation destination, an out-of-the-way country that is still developing, with perhaps the most rudimentary infrastructure and industry. Think again.
Thailand is a place of progress and innovation, of improving lifestyles and burgeoning wealth, with a strategic location and key trade connections, says Canadian Peter van Haren, a founding partner of XPC – Cross Pacific Connections, a consulting and advisory firm in Bangkok that helps companies set up there. The country is a surprisingly good place for Canadians to do business, he says. Although it’s important to avoid many mistakes and pitfalls there, the opportunities and rewards are many. “You’ve got to get it right in Thailand,” says van Haren, former president of the ThaiCanadian Chamber of Commerce. Some of the country’s surprises include the fact that the Thais are “not looking for handouts,” he says. “There’s a stereotypical view that they need money, but the established companies here aren’t looking for our money.” Instead, the Thais want knowledge-sharing, technological partners and joint-ventures, he says, noting that the country in the last 15 years went through an industrial phase and is now becoming more interested in innovation, R&D and education in areas such as medical technologies, IT and environmental services. The fact that “this is no longer a nation of cheap labour” means the Thais are more focused on innovative technologies and processes to improve efficiency and upgrade their manufacturing, for example. The country has “huge capabilities” in agrifood but is looking for foreign expertise in the field, he notes. Yvonne Chin, the commercial counsellor and senior trade commissioner in Thailand, says that trade with the country has great potential in the areas of agriculture, infrastructure and transportation, sustainable technologies, ICT, aerospace and defence. “It is one of Southeast Asia’s most advanced and wealthiest economies,” she says. Thailand’s business environment is particularly conducive given that the country has low taxes, is located “in the centre of everything,” does a lot of business in English, has a number of bilateral and multilateral agreements and has a sophisticated legal framework, she says. “It tends to be a modern, comfortable and familiar place for business.” The Thai people are entrepreneurial, opti-
mistic and very hard-working, van Haren comments. Thailand’s geographic location makes it a short flight away from the nine other countries that make up the Association of Southeast Asian Nations (ASEAN), which has become a single market known as the ASEAN Economic Community as of December 31, 2015. Indeed, Thailand as a hub for ASEAN has already received the attention of some Canadian businesses active in the region. The Canada-ASEAN Business Council, which had its first inaugural forum in Singapore in 2013, hosted its second CABC Forum in March 2015 in Bangkok. The Forum included more than 200 business leaders and senior government officials from Canada and Southeast Asia. Thailand is a good logistical base for all of Asia, a stepping-stone to blossoming economies like Burma and Cambodia as well as to China, and it has signed a number of important bilateral trade agreements. The Thais also like doing business with Canadians, van Haren says, especially in sectors where the two countries have synergies, such as natural resources and agriculture. Canadian SMEs are especially involved in providing services in Thailand, he reports, for example consulting, hospitality and environmental services, as well as legal and auditing consultancies. Chin says that Thai business leaders on a trade delegation to Canada last year were surprised at what Canada has to offer, and the Canadian Trade Commissioner Service in Thailand is working to educate business leaders in the two countries about each other. “Personal relationships are so essential here,” Chin says, even more so than in other Asian cultures. “Doing business in Thailand takes time,” says Bill English, president and CEO of Xanatos Marine, a Vancouver company that makes software for marine safety and security used by Thailand’s navy, coast guard, marine police and port authorities to monitor shipping. English, whose company operates in 40-plus countries, says that he’s learned a lot about dealing with the Thais over the 15 years he’s worked in Thailand “especially by making a lot of mistakes.” Today he maintains close ties with a local company in Thailand, which even meant that he flew there to be pres-
ent for the birth of his business partner’s first child. He notes that the Thais move slowly and methodically, making any transaction a “long sale” and requiring patience. “You talk about your family, you have dinner, and during your conversation you slide in some business,” he says, noting that it’s important not to get frustrated. “Don’t push; the harder you push the more of a wall they put up. Don’t ask for a decision on your first sales call, or it will never happen.” Building relationships results in building trust, he notes. “I leave my partner in Thailand with a cheque-book and I don’t worry about it.” Van Haren, who has lived in Thailand since 1991, is fluent in Thai and has his own weekly Thai language radio show, calledCEO Vision, says the country has become more sophisticated and Westernized in the ways of doing business. Social infrastructure has been modernized, for example hospitals and the education system are up-to-date and relatively inexpensive to use, he reports. Transportation systems and the overall standard of living have improved significantly. The country does present challenges for Canadian companies there, he says, such as political upheavals; the most recent coup was May 2014. Most companies are able to take such occurrences in stride, says van Haren, who has been through three coups in the 24 years he’s lived in the country. “Businesses have to go on,” he remarks, although political impasses can be limiting for businesses. For example, the fact that the country has been under military rule since 2014, makes new private sector and investors more cautious. Chin notes that Thailand has “seen its fair share of political instability,” which has negatively affected its economy. However Canadian companies that “continue to stay the course” despite political uncertainty can find opportunity, and Thai businesspeople will “remember you were here when times were tough.” Van Haren notes that there are common mistakes among foreign companies and businesspeople in Thailand. For instance they often come with the attitude that “they’ll take the country by storm,” but they don’t do enough research to determine where the
opportunities are and quickly find they cannot compete. Many companies ignore the local expertise on the ground in Thailand and try to “go it alone,” van Haren observes. “You have to take advantage of some of the resources here already,” he says, noting that the Canadian Trade Commissioner Service in Thailand can provide a non-biased view of people to talk to.
The Great Canadian Barbecue
(Photos by Ovi Berg & 100 Travel Stories)
He notes that Canadians should protect themselves from a legal and contractual point of view and should use reputable law firms, for example, in setting out their understandings with Thai partners. One typical mistake among foreign businesspeople is misreading the Thai character, van Haren says, which is initially accommodating and hospitable. In meetings, Thais will smile, nod their heads and even say “yes” in agreement, “but it requires more than that,” he cautions. “Foreigners will walk away and think ‘I’ve got the job,’ when they actually don’t.” Polite persistence and a long-term strategy are critical. “It takes more than one visit, one meeting or one email,” he explains, noting that Thais have a tendency to “go quiet,” and it’s important to keep things positive. “Sooner or later it will become obvious if it’s a go or a no-go.” It’s important “not to approach Thai companies as if you’re superior to them and you’re here to help them,” Chin warns. “It should be a mutual partnership.” She notes that cultivating influential relationships is critical across sectors. “You have to dig deeper, you can’t just be looking at the surface,” she says, adding that the Thais are a proud culture and “the memory is very long” when people feel slighted. “It can be quite difficult to undo the damage.” Language and distance can also be barriers for Canadians doing business in Thailand, van Haren points out. This makes it important to contact the Canadian Trade Commissioner Service, the Thai-Canadian Chamber of Commerce and other business groups for help, he says. “Rather than come over and stumble around here, find out from the sources.” English says the TCS has especially helped his company and its partners set up meetings and events in the embassy and has tipped them off to potential contracts. “They keep up with the local scene.” “If you’re really serious about doing business in Thailand, think strategically and really show you’re committed to it,” she says. “If you don’t, you might have closed the door on yourself.” Reprinted with the permission of CanadExport, official magazine of the Canadian Trade Commissioner Service. Contact info: www.canadexport.gc.ca; BNGKKTD@international.gc.ca. March – April 2016
Getting to know Smiling Albino Who is Smiling Albino? What’s that Albino Smiling at? Or even why is the Albino Smiling? You may have heard of the travel planning company “Smiling Albino”. The Canadianfounded company, based in Bangkok, has been active in the Thai-Canadian community here in Thailand for over 15 years sponsoring events, helping out with charities and hosting functions. But did you know they have grown to become one of the leading experiential travel companies in Southeast Asia?
10 Things You May Not Know About Smiling Albino 1. Smiling Albino operates in six countries: Myanmar, Laos, and with their own teams on the ground in Thailand, Cambodia, Vietnam and Nepal. 2. Smiling Albino has hosted billionaires, royalty, football stars and celebrities. 3. Smiling Albino secures competitive rates and seamless value-added services for their clients eliminating all the headaches and risks, while giving more value. 4. S m i l i n g A l b i n o c re a t e s unforgettable honeymoons, family holidays, adrenalinepumping adventures, lifetime milestone memories, corporate and MICE trips as well as ultra-luxury experiences. 5. Ultra luxury you ask? Smiling Albino organizes private helicopter transfers, luxury yachts, private closed temple visits, local distinguished experts as hosts, intimate
dinners in palaces... all executed with thoughtful service, special touches, personalized care, attention to detail, flawless execution and discretion. 6. Smiling Albino also sets up picnic lunches on deserted islands, luxury tents on remote mountain tops. There isn’t a place they can’t figure out. There isn’t an experience that they can’t design. 7. Their walking tour of old Bangkok excites all the senses. Particularly the sense of curiosity. It’s never the same with new local encounters, and novel attractions to show or feed guests each visit.
8. Smiling Albino hosts some of the greatest Southeast Asia motorcycle adventures, exploring the remotest corners of the region on rare bikes. 9. Smiling Albino is for those who don’t picture themselves as guided travellers, but understand what a flawless guided experience provides. They’ll allow you to enjoy the local milieu, but separated enough to not go completely native. 10. Smiling Albino has their own fleet of mountain bikes that have been modified to best suite Bangkok touring. They have several awesome day trips cycling around the green outskirts of the city pioneered by their team. Even if you’ve lived in Bangkok for 25 years, they can show you something you’ve never seen that will blow you away. What to do with your retired parents visiting from Victoria or Florida? Family or colleagues in town? Smiling Albino are the perfect hosts to show them the city – day and night, take them on day-trips to fabulous locations from Amphawa to Ayutthaya, or for those a bit more active, a cycling tour of unseen sites in and around Bangkok. The team at Smiling Albino can create the perfect activities and excursions for everyone. From half-day discoveries to three-day adventures to three-week multicountry trips of a lifetime, Smiling Albino does it best. Interested in one of our great adventures? Contact the company at firstname.lastname@example.org (+662-107-2542). Smiling Albino will extend special rates to CANCHAM members.
Billion Baht Project at Berkeley International School in Bangkok Berkeley International School in Bangkok started building their new facility structures in February 2015. The project includes a host of sporting and performing arts facilities. The new Olympic sized pool, plush grassed soccer field and international standard covered tennis center will be ready for use early in January 2016. The gymnasium and 350 seat theater will be ready for use in April 2016. The gym will have 3 full size basketball courts and will be able to cater for volleyball, badminton, indoor soccer and a host of other sports. Gymnastic equipment and a fitness room will also be available. Berkeley will be doubling the size of its campus with these new facilities and will offer our 300 students the best of the best. The project is estimated to cost one billion baht or 30 million US Dollars. Head of school at Berkeley Ms. Lisa Johnson is
incredibly excited about the project and was quoted as saying ‘these facilities will make our school one of the top 5 international schools in the country, and we are looking forward to the extra sporting options open to our students.’
Project is due for completion in April 2016. For more information on Berkeley International School visit their website at www.berkeley.ac.th
March – April 2016
Thailand Charity Event
Canadian Ambassador Philip Calvert cutting the ribbon to start the run
Care for Cancer - 2016 Fun Run Under the theme “I care b’coz…”, this charitable event allowed participants to share and express how cancer touches their lives in different ways. In association with the Thai Red Cross Society and with the support of the Canadian Embassy and Thai-Canadian Chamber of Commerce, the working committee at the Anantara Siam Bangkok organized the “Care for Cancer” charity fun run at Lumpini Park on Saturday, 6 February 2016. The proceeds this year were donated to the Genetic Cancer Research Center at the King Chulalongkorn Memorial Hospital under the auspices of The Thai Red Cross Society. Beginning and ending inside the Lumpini Park, the Run was a fun and enjoyable Saturday outing for families, joggers and health enthusiasts of all ages. Both the 5 km and 10 km routes were perfect for running, walking or strolling at your own pace. Families with young children as well as the elderly joined in the various activities and prizes awaiting them. A Queen’s trophy was awarded to the largest participating group. The first male and female runners who reached the finishing line of the 5 km and 10 km runs, also won a prize, as did the youngest runner.
The Anantara Siam Bangkok Hotel also organized the “Canadian Cultural & Gourmet Charity Dinner' on Wednesday, the 27th of January, in the hotel’s ballroom. The dinner was held in collaboration with the “Care for Cancer - 2016 Fun Run”. Guests contributed to a very worthy cause while savoring an exclusive four-course dinner specially prepared by Canadian Guest Chef Cameron Stauch and paired with select wines. During the last fifteen years chef Cameron Stauch’s culinary career has alternated between working in kitchens in Canada and Asia. Chef Cameron was part of the kitchen team for last three Governor Generals of Canada, Canada’s head of state. He's prepared dishes using only the best Canadian heritage ingredients that represent Canada’s varied cultural communities. He’s honoured to have cooked for three generations of the British royal family from their Royal Highnesses, Her Majesty Queen Elizabeth II and Prince Philip, the Duke of Edinburgh to the Duke and Duchess of Cambridge; the Emperor and Empress of Japan and many other foreign royalty and dignitaries. His work and travel throughout Asia serve as further inspiration to his menus.
Thailand Charity Event
CanCham Treasurer John Casella (third left), presents donation from CanCham as Ambassador Calvert (second left), looks on. March â€“ April 2016
Development of Royalties Tax Interpretation in Thailand It is has been a long time since the Supreme Court ruled in 1988 to clarify the interpretation of ‘royalties’ under Thai tax laws. It is different from the ‘royalties’ specifically defined under the tax treaties entered into between Thailand and 58 other countries. Until now, there has been no specific definition of royalties for income tax purposes under domestic Thai tax laws and no subsequent interpretation on its definition. Under Thai income tax laws, royalties is a type of income from all of the eight types of income. Royalties under such type of income include “value of goodwill, value of copyright or other rights, annuity or income in the same nature deriving from a will, other juristic act or court decision”. The Supreme Court ruled in the past to explain that ‘other rights’ shall be the rights in the same nature of goodwill and copyright and, therefore, leasehold right is not regarded as other rights in terms of royalties. From this interpretation, development of tax interpretation on royalties in Thailand is in line with the remuneration of intellectual properties, and the Thai Revenue Department (“RD”) has adopted this concept in its practices until now. In practice, the RD considered the royalties from the substances of transactions and activities between the contractual parties in addition to the obligations under the relevant contracts. At the RD level, we can learn from its certain private tax rulings as to whether or not it shall be regarded as royalties. For example, in 2004, for payments for standard computer programs (non-customised) and sales in shrink-wrapped packaging, including manuals and CDs; ownership of a program does not transfer to the distributor, while the end-customer has the right to use the program under the end-user licence but has no right to reproduce. Therefore, local sales of shrink-wrapped software in Thailand are required to deduct tax on the payment made by the purchaser at the rate of 3%. This practice is not concurrent with the practices adopted by other countries, e.g. Singapore and South Korea. In addition, the RD ruled in the same year that non-royalty transactions which embedded software are a part of the system to operate the storage hardware without separation of software and hardware prices. In this case, no separation of purchase orders (contracts) and invoices shall be involved in the transaction. Accordingly, this transaction shall not be regarded as payment of royalties. With this ruling, trigger points are the
separation of price and documentation and, therefore, it is a potential tax planning issue for the offshore seller. Subsequently, the RD ruled in 2006 that debt release of unpaid royalties on trademark licensing made by an offshore party to a Thai corporate debtor is not subject to withholding tax under Thai tax laws. The amount of debt release shall be taxable income for the Thai debtor; however, the Thai debtor is required to self-assess VAT on debt release of unpaid royalties. This ruling is a good example to understand the different positions held by the RD between withholding tax and VAT implications. Please note that the tax point for withholding tax and self-assessed VAT is the payment of a fee from Thailand to an offshore party. It is arguable that VAT should not be self-assessed due to there being no payment on the debt release made to offshore party. In other cases, the RD ruled in its many tax rulings that payments for commissioning, installation, test-runs, staff training, localisation, customisation, technical assistance, program and technology updating, hot-line and help-desk services, software rectification and maintenance service in relation to the use of computer software shall be considered the payment of royalties. In addition, the RD considered that any activities which are related to confidential information, secret formula, know-how, intellectual property, market channel(s), customer databases and proprietary rights shall be deemed as royalty transactions. Again, It is arguable that the above tax position of the RD may not be correct in view of the Supreme Court if the structure of transactions is rearranged and the taxpayer pursues its case into the court level. In relation to VAT, the RD considered that the above royalty transactions are a provision of service and are thus subject to VAT at the rate of 7%. However, some elements of royalties transactions are in the nature of hire of work (e.g. installation, staff training, maintenance), while some transactions are not (e.g. licensing). In Thailand, a hire of work contract is subject to stamp duty at the rate of 0.1% but a licensing contract is not subject to stamp duty in the view of the RD. Therefore, separation of related royalty contracts should be considered for tax efficiency purposes rather than the use of mixed contracts in the royalty transactions. Precedent Cases of the Interpretation of Royalties Tax
Scrutiny on cross-border transactions by the RD, particularly related to withholding tax on the payment of royalties, has recently increased. It is worthwhile to understand the major tax cases related to royalties ruled by decision of the court’s in order to foresee future decisions and therefore mitigate future tax risks. The RD interpretations and Supreme Court decisions in relation to royalty income have significant impacts on the franchise market. For example, as a result of the landslide case in the Pizza Hut case, the franchising parties should review their franchise contract in order to restructure the franchising transactions and amend the terms and condition of franchise in order to avoid further tax investigation on future royalties on cross-border transactions. However, current amendments to franchise agreements cannot adjust the royalties paid in the past and, therefore, a risk of a tax investigation still exists. It is important for taxpayers to understand the development of this interpretation in order to avoid any tax risk that may arise in the future. As next page, we can see from the development of royalties tax interpretation that the Supreme Court decisions rely on ‘substance over form’, with the following key factors: 1. Provision of specific information arisen from the experience; 2. Provision of the right to use the intellectual property or trade secret(s); and 3. Confidentiality conditions. In practice, there are many tax rulings issued by the RD on cross-border royalties but, unfortunately, many cases have not been brought to the high court to conclude the final interpretation as to the legal or non legal status of royalties. Care should be taken for cross-border transactions to ensure that you are in compliance with the relevant tax laws and practices in Thailand.
Chinapat Visuttipat Partner Siam City Law Office
E-mail: Chinapat@siamcitylaw.com / email@example.com
Member Profile The Supreme Court ruled in the following major tax cases relating to royalties: Year 1976
Supreme Court Decisions Facts: issuance of company shares in exchange for receiving the right to use the patent in the manufacturing of tyres. Held: issuance of shares deemed to be payment of royalties. Facts: design of the plant and layout as well as construction of the plastic manufacturing factory, including installation of equipment without provision of technology. Held: activities not regarded to be those that would generate royalties.
Facts: lump sum fee that consisted of royalties and other consulting fees. Tax assessment for the whole amount to be treated as royalties. Held: consulting fees not deemed as royalty income and tax assessment not accepted by the Supreme Court.
Facts: provision of right to use the information and technology in petroleum exploration with the restriction not to disclose such technology. Held: activity considered to generate royalty income.
Facts (Nestle case): remuneration for the right to produce coffee using a specific formula, as well as know-how with advice on the processing of production, and the condition to retain the confidential information and return all relevant documents after expiration of the agreement. Held: remuneration regarded as payment of royalties.
Facts (Carnation case): engineering and technical assistance agreement relating to the trademark licence agreement with a condition to maintain high quality of dairy cream and advising on the process of production. The advice of technical assistance must be kept confidential and all advising documents returned to the service provider after termination of the contract. Held: remuneration for technical assistance agreement considered as royalties.
Facts: marketing service agreement to provide advice, assist with the general administration and negotiate commercial contracts, select distributors, promote, procure and advertise the sale of products in Thailand. Marketing materials under consultation become the ownership of the service recipient. No provision of sole distributorship to use the brand or trademark for the sale of products. No provision of special information and experience which is not restricted to be disclosed to the public. Held: remuneration under this agreement not deemed as royalties.
Facts: remuneration for the marketing and commercial channel(s), including database of customers (names, addressed, prices, terms of business). Held: remuneration regarded as royalties as the information relates to commercial experience.
Facts (Pizza Hut case): under the Franchise Agreement, the Thai franchisee is required to follow the control and sole discretion of the foreign franchisor in relation to promotion and advertising. The franchisee has no independence to do the advertising in terms of form and content. The franchisee is responsible for the budget of the promotion and advertising in Thailand but does not pay it to the franchisor. Held: while the budget is not the fee derivable directly by the franchisor, it does benefit the franchisor economically not to pay this budget to promote its franchise in Thailand. The promoting budget is required to be paid at a certain rate of gross sales in exchange for the provision of franchise and, therefore, it shall be deemed that the franchisor derives this assessable income as a part of the franchising fee and be regarded as royalties. Facts (Philips Electric case): marketing fee paid by Thai subsidiary company to its Dutch parent company is regarded as ‘business profit’ and eligible for tax exemption under the double tax treaty between Thailand and the Netherlands. The RD viewed that the marketing fee is regarded as ‘royalties’ on the basis that the Marketing Service Agreement: (1) required confidentiality conditions; (2) trade secrets were used to provide the service; and (3) the service provider is a veteran marketing service with almost 100 years of service. Held: marketing fee is regarded as royalties.
Facts (Esso case): cost allocation from the US parent company to the Thai subsidiary company is not subject to withholding tax under the Thai tax laws and the double tax agreement between Thailand and the US. The RD challenged that the source of cost allocation is a payment for the licence fee of SAP Accounting Software and is therefore subject to withholding tax. Held: cost allocation in connection with the licence fee is regarded as royalties and thus subject to withholding tax.
Facts (Thai Tank Terminal case): remuneration for the management services provided by the Dutch parent company to its Thai subsidiary company with a high percentage and low percentage of royalty payments for the licence of the parent company. Management fee is deemed as royalty payment in view of the RD. Held: management fee is not regarded as royalties as the management service was paid to reflect the real transaction of management activities provided by the parent company. March – April 2016
Crisis for Canada in 2016? Who knows really? By Paul Gambles The first thing to surprise me in 2016 is the sudden clamour to decry that the end of the world is nigh. This seems to have been partly media-driven but also has a strong whiff of doomsday prepping in the finance world. I’m not sure whether this is because of a genuine belief that this year will be “it” (as Steve Keen calls the next major economic crisis1) or it is because analysts had a glance at their horrific weekly charts when prompted for New Year’s predictions. Either way, it seems everyone is clambering onto the bandwagon: “The worst may not be over” for Canada, claimed Michael Babad in The Globe and Mail, recently. Canadian economic think-tank C.D. Howe released a report in early February suggesting that the Bank of Canada establish new permanent liquidity pools for times of crisis. That’s because it sees the liquidity market as even smaller than that prior to the 2008-2009 crisis, meaning that financial institutions could find it difficult to get funding from private markets should a crisis come round again. To be fair, all of this is not entirely without reason. Forget all the government debt figures published every month. Private debt – both household and corporate – was the main catalyst for the 2008-2009 global financial crisis. The worry thing is that Canadian households have piled up the largest increase in debt-to-income ratio amongst all G7 countries since 2000.2 If that wasn’t bad enough, unemployment – already at 6.8% between February and July of last year – remained above 7% for the last five months of 2015.3 Of course, the Canadian economy isn’t helped by stubbornly low oil prices. The average WTI price over the last ten years is USD80.65 a barrel. This mark hasn’t been reached since 30th October 2014. In fact, since the daily barrel price went below USD60 in mid-December 2014, it has only spent 16 days (out of a possible 280) above that point – and for never more than three consecutive days. At
the time of writing, the price was just below USD304- not good news for the Canadian Oil Patch, the world’s fifth largest producer of crude oil and natural gas. In fact, the first eight months of 2015 alone saw 63,500 oil sector job losses in Alberta alone.5 Low oil prices risk undercutting the shale gas (fracking) business, which is largely funded on high-yield (i.e. junk) bonds.6 If there’s a run on these to the point of illiquidity, that could have repercussions on the overall, already-depressed, commodities sector. However that could in turn lead to the US Government deciding to back the frackers and 2016 could be the year of the ‘shail out’, whether the rest of us like it or not. A murky picture. But never fear, the Bank of Canada is here! In a recent speech, BoC Governor Stephen Poloz announced a Made in Canada monetary policy. Poloz said that he didn’t intend to lower the base interest rate further from its current rate of 0.5%. However Deputy Governor Timothy Lane later commented that lowering rates could trigger “excessive consumer borrowing” (isn’t that already the case?) and financial instability. That’s good reasoning – the only problem is that, if they actually want to avoid the vicious Japanese cycle of debt-deflation, they need actually raise interest rates. Not by a measly 0.25%, Fed style, but to a level that will actually make a difference. And that would have all kinds of other impacts. Inflation in Canada, which had briefly looked encouraging with a year-on-year growth of 2% in 2014, dropped to 1.1% year-on-year in 2015.7 The IMF estimates that the 2015 year-on-year GDP growth rate will be just 1.04% and then 1.66% in 2016. Thus, a Japanese situation in Canada, like Europe and the US, looks to be on the cards. The Liberals have said they intend to help stimulate the weak economy, with a combination of already announced tax cuts and billions of dollars in new infrastructure
1 http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/ 2 3 4 5 6 7 8
KeenAreWeItYetPaperFinal.pdf http://business.financialpost.com/investing/outlook-2016/canadians-householddebt-highest-in-g7-with-crunch-on-brink-of-historic-levels-pbo-warns Statistics Canada http://www.statcan.gc.ca/daily-quotidien/160108/cg-a002-eng. htm St Louis Federal Reserve http://business.financialpost.com/news/energy/oil-industry-to-lose-100000jobs-by-the-end-of-2015-as-policy-uncertainties-low-prices-decimate-sector?__ lsa=f6eb-2269 http://www.marketwatch.com/story/investors-in-risky-commodity-related-bonds-arefacing-big-losses-moodys-warns-2015-12-02 http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/econ46a-eng.htm http://www.lemonde.fr/proche-orient/article/2016/02/08/le-canada-cesse-sesfrappes-contre-l-ei-en-syrie-et-en-irak_4861577_3218.html?utm_source=dlvr. it&utm_medium=gplus#xtor=RSS-3208 Voyageur
spending. That seems like a reasonable way to get the economy going, However there are two main caveats: there is always a risk that infrastructure costs a lot more than expected and, while public debt is not as important as private debt in terms of fuelling financial crisis, it should still be managed to some extent – certainly Justin Trudeau’s announcement to cease Canadian bombing in Syria will reduce expenditure somewhat. The other caveat is that these are politicians; thus policy promises do not always become reality. Of course, no matter what Ottawa implements, there are plenty of external factors that could plunge the whole world into crisis. Unless the Chinese government smells the tealeaves and changes policy radically, China will plunge itself into financial crisis – even the debt we know about is eye-popping but there’s so much hidden debt that it will implode spectacularly at some point. Then there’s the US and Europe, including the UK (for the moment!), which are heading into Japanese territory. Finally there are the small sparks that could trigger panic: war, terrorism, currency runs. So will Canada plunge into a financial crisis in 2016? There are so many potential factors to know for sure. The greatest danger is that analysts may be right about a crisis but for the wrong reasons. This would lead to a false market rally once initial panic had subsided, leading to even worse times down the line because the real causes hadn’t been eradicated. All we can do, in the meantime, is be prepared rather than scared.
Paul Gambles, co-founder of MBMG Group
MBMG Group is an advisory firm that assists expatriates and locals within the South East Asia Region with services ranging from Investment Advisory, Personal Advisory, Tax Advisory, Corporate Advisory, Insurance Services, Accounting & Auditing Services, Legal Services, Estate Planning and Property Solutions. For more information: Tel: +66 2665 2536 e-mail: firstname.lastname@example.org Linkedin: MBMG Group Twitter: @MBMGIntl Facebook: /MBMGGroup
Shopping Plaza Investors cheer as Government tenant pays 10 years of costs immediate income and ReDev’s risk reduction measures. The high occupancy and low rental rates compared to the market average provide real opportunity capital upside over and above the immediate income.
The low Canadian dollar and long term Government leases have peeked investor interest in ReDev’s Canadian plazas. ReDev, a Canadian property developer and manager, provides opportunities for investors to become owners of shopping plazas, and lock in the low CAD, earning immediate rental income and potential capital gain. Investor’s current favorite is University Plaza. Situated in Eastern Regina, Saskatchewan, Canada, University Plaza is best known as the go to place for alcohol in the city. Leased by the SGLA being part of Government of Saskatchewan, the store has been serving customers for 18 years. Now they have extended their lease by a further 10 years, up to March 2026, increasing their rate from by 23% increase. This is music to owners ears, as it means all costs of the entire plaza, including mortgage interest are covered by a Government lease for 10 years! The SLGA has taken advantage of their monopoly in wholesale alcohol and no price competition in alcohol retail, to provide immediate and long term income to its owners. ReDev is offering a few remaining titled ownership stakes. Investors have been attracted by University Plaza’s, 100% occupation, its immediate income and the long term tenancy of the government liquor store. With current rental well below the current market rate and the Saskatchewan Government extending its lease other tenants are following, University Plaza has ample room for rental growth, increasing income and potential capital gain.
University Plaza Aerial View ReDev’s other current offering Palisades has a similar profile to Belmont. Based similarly in Edmonton and is shadow anchored by Safeway grocery. Recently Sobey’s, bought Safeway in Canada, highlighting the strong takeover activity at all levels of the retail market. Both Belmont and Palisades have high profile banks as tenants, with Palisades leases including Citi and CIBC, the world’s 5th safest bank. (Reference: Forbes). Despite the oil price downturn, Edmonton has been an “Island in a storm” said John Rose, Chief Economist for the City of Edmonton. Unemployment is significantly below the Albertan and National average at 6.1%. Alberta grew faster than all other provinces in population growth during the past year according to Statistics Canada , by 1.7 per cent to 4,216,875 between Oct. 1, 2014, and Oct. 1, 2015.The population grew by 69,835 during this period. Half of Alberta’s
The total of 11 plazas have been re sold and generated a previous 17% total return upon exit and attracted investors from Japan, Hong Kong, Singapore, Thailand / with Canadian investors representing over half. With the Canadian Dollar hovering at an 11 year low of 70c / US$1, the timing now couldn’t be better and demand has remained high for the remaining stakes Low Canadian dollar provides boon to ReDev Properties investments The low Canadian dollar has ensured a stellar year for ReDev Properties, having now resold 3 plazas in Canada in the last 12 months. The latest, Edmonton’s Belmont Plaza was sold to investors in 2006 for CAN$16.75 million and in 2015 resold to an institutional investor for CAN$23.47 million and owners had already been enjoying significant and steady net rental income every year! Belmont Town Centre is a 56,416 square foot shopping plaza, located at the corner of two arterial roadways in East Edmonton. The property includes national tenants such as the Bank of Nova Scotia, Tim Horton's, and Rexall, and is shadow anchored by a Sobeys grocery store.
Palisades Plaza population growth is from interprovincial and international migration. The remaining is natural. From Oct. 1, 2014, and Sept. 30 2015 there was a 33,638 natural increase. The increasing population underpins long term retail sales increases.
Investors have been attracted to ReDev properties as they minimize risks. When Kensington Commons Plaza in Edmonton suffered an arson attack around three years ago, investors in the ReDev plaza wondered how this would affect them. Around 50% of the plaza was destroyed. Due to extensive insurance which covers most eventualities, investors were able to rest easy as rental income was assured to them. ReDev’s policy of minimizing risks to investors has paid dividends. First, the lost income generated by the shop leases was covered by insurance. Second, the cost of rebuilding the plaza was also covered by insurance. Adjustments to the original building design, significantly improved the access and plaza attractiveness. With the original plaza built in 1988, investors are able to benefit from a complete rebuild of 50% of the plaza, giving an opportunity for capital gain. New tenants are now leasing the newly built space at a much higher rate, increasing the investor’s income, including Dollarama in November 2015. Richard Crenian, President ReDev said “When strong brands like Dollarama lease space, it confirms the attractiveness of location, footfall and design of the plaza to other potential tenants.” Owners of retail plazas in Canada such as ReDev Properties have capitalized on the brand influx seeking Canada’s high sales per sq ft, with occupancy rates in key cities such as Edmonton and Regina at 99%. ReDev’s policy of buying plazas with a low rental cost compared with those of the surrounding area, gives an opportunity to increase rental rates which directly increases owner cash flow. Having enjoyed 17% pa average return, investors are increasing their ownership of ReDev plazas, encouraged by the Canadian dollar being at an 11-year low of only 70 cents to the USD making Canadian shopping plazas a great value with immediate cash flow and strong capital appreciation potential.
Edmonton’s city wide 99% occupancy rate, gives plaza owners opportunities to increase rental rates, providing further incentives for new investors to become owners of Palisades.
In ReDev’s 14-year history, re-sales of 9 properties have resulted in owners achieving 17% pa. An additional five plazas have been refinanced, releasing some of their original capital (30% - 200%), while owners still maintain their original stake and continue to receive steady income.
The Palisades Plaza is literally across the road from Kensington Commons in Edmonton and investors are attracted by the 7%
Contact Stephen 0909 656 430 / stephen@ redevproperties.com for more information on current properties. March – April 2016
Movie night at Embassy Diplomat screens CanCham held a special movie night at the Embassy Diplomat Screens, at the Central Embassy plaza in Bangkok to watch the Thailand premiere of Steve Jobs. Set backstage in the minutes before three iconic product launches spanning Jobs’ career—beginning with the Macintosh in 1984, and ending with the unveiling of the iMac in 1998—Steve Jobs takes us behind the scenes of the digital revolution to paint an intimate portrait of the brilliant man at its epicenter. Steve Jobs was directed by Academy Award® winner Danny Boyle and screenplay by Academy Award® winner Aaron Sorkin, working from Walter Isaacson’s best-selling biography of the Apple founder. Michael Fassbender, who plays Steve Jobs, the pioneering founder of Apple, was nominated for Best Actor for his performance, while Kate Winslet earned a best supporting actress nomination for her performance as Joanna Hoffman, former marketing chief of Macintosh. Steve Wozniak, who co-founded Apple, is played by Canadian Seth Rogen, and Jeff Daniels stars as former Apple CEO John Sculley. All on hand for the evening enjoyed the comfort of the most luxurious cinema complex in Southeast Asia. Embassy Diplomat Screens 6th Floor, Central Embassy, Bangkok BTS: Ploenchit Station Tel: +66 2160 5999 Email: email@example.com Website: www.embassycineplex.com
At the event, Ian Graham (right) presented CanCham President Ron Livingston (left) with a medallion set, donated by The Royal Canadian Mint.
Paying tribute to Sam Cohen
March â€“ April 2016
About Magna International We are a leading global automotive supplier with 305 manufacturing operations and 95 product development, engineering and sales centres in 29 countries. We have approximately 139,000 employees focused on delivering superior value to our customers through innovative products, processes and World Class Manufacturing. Our product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing. Our common shares trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). For further information about Magna, visit our website at www.magna.com. On January 6 - Magna a world leader in camera-based driver assistance systems, announced its rear view camera and innovative image processing technologies are featured in the 2016 Ford F-150 Pro Trailer Backup Assist system, the top CES 2016 Innovation Award honoree in the Vehicle Intelligence category. About Magna In Thailand Magna corporate and business development office is located in the Central City Bangna building in Bangkok, while the manufacturing facility located in the Amata Nakhorn Industrial Estate in Cholburi province. Our General Manager; Mr. John E. Stewart says this facility is home to 160 employees. We provide 3 main products & services in Thailand which include: Body & Chassis, Closures & Mirrors and Vehicle Engineering Service. Magna already supplies our products to: Ford, Toyota, Mazda, Auto Alliance Thailand (AAT), Isuzu, Honda and Volvo.
we received “Ford Q1 Award” for our commitment to timely deliveries and high-quality products. And we were honored having Mr. Philip Calvert, Canada’s Ambassador to Thailand, visit our Facility in Cholburi as he congratulated to Magna on “Three years without a lost-time accident”. All awarded in the past showing our world-class manufacturing practices and commitment to excellence.
Club Canada Thailand proudly presents
Snowball Saturday March 26, 2016 Anantara Siam Bangkok Hotel
18:30 to midnight Dinner & Dancing Raffle Prizes & Silent Auction Donation: 3,000 Baht
Includes 4 bottles of wine per table & cocktails For reservation and/or tickets contact: Awards : In 2014 Magna have been awarded “Best Improvement” from Ford Motor Company (Thailand) Limited. And for 2015
Eric Kenso Ward, ISB Class of 1979
International School Bangkok Bringing out the superhero in each of us since 1951. www.isb.ac.th
March â€“ April 2016
Voyageur is a publication of CanCham designed to promote Thai-Canadian business interests and profile Chamber members and their activities.
Published on Mar 1, 2016
Voyageur is a publication of CanCham designed to promote Thai-Canadian business interests and profile Chamber members and their activities.