Financial Analysis Report: Bombardier's Taxation, Compliance, and Risk

This financial analysis report examines Bombardier's financial performance, particularly focusing on taxation, compliance, and related strategies. The report delves into the company's tax payments, including payroll, profit, and property taxes, highlighting the significant tax contributions made over a five-year period. It explores the use of the liability method for income tax accounting, the recognition of deferred income tax assets and liabilities, and the methods used for measuring these items. The analysis also covers taxation rates, the impact of tax changes in the U.S., and the implications of IFRIC 23. Furthermore, it examines the company's tax contribution, compliance with tax regulations, tax risk management, and its dealings with tax authorities, including the role of an internal tax team. The report also addresses tax avoidance strategies, the use of tax havens, and the government's stance on these practices, concluding with a call for a fair tax system in Canada. The report uses Bombardier's 2017 annual report as a reference.

FINANCIAL ANALYSIS
REPORT

INTRODUCTION
 Bombardier a pioneer in the field of plane
and train manufacture
 Providing transportation solution that is
effective and sustainable
 Global leader
 Presence of more than 69,500 dedicated
employees (Bombardier, 2017)

TAXATION
 Bombardier pay a significant amount of tax
considering the vast and extensive business
 The taxes comprises those payment done in
terms of payroll, profit, property business,
taxation, etc.
 Over the past 5 years the amount of tax
stands at $4.8 billion (Bombardier, 2017).

FEATURES
 Usage of liability method of accounting for
income tax
 Recognition of deferred income tax assets
and liabilities are done
 Measurement of Deferred income tax assets,
as well as liabilities, are done utilizing the
enacted tax rate (Bombardier, 2017)

DEFERRED INCOME TAX
 Balance sheet projects the liability that is
recorded
 The difference in recognition of income and
the method of accounting observed from the
results
 The payable tax will not equate to the overall
expenses reported

TAXATION RATES
 For the FYending December 31, 2017 the rate
was 16.2% in comparison to the statutory
income tax rate in Canada that stands at
26.7% (Bombardier, 2017)

TAX CONTRIBUTION
 Payment of corporate income tax on profits
 Other taxes incurred in the business
operations
 Collection of taxes on behalf of tax
authorities that pertains to employee payroll
taxes and other social charges

COMPLIANCE
 Tax policy and attitude informed by the tax
Policy that requires compliance with the tax
regulations (Bombardier, 2017)
 Determination of the tax risk level in setting
the Tax Policy
 Principles are followed to ascertain whether
to pursue a UK tax planning:
- Commercial requirements are huge
- Tax planning needs to be in alignment
with the commercial aim
- influence of tax planning on stakeholders
is considered

 Compliance is essential and hence, the
company invested in an internal tax team
 The team lay special emphasis on the
Corporate office policy or the tax policy.

INCOME TAX RATE NEGATIVE IN THE
FOURTH QUARTER
In fourth quarter the income tax rate stood at
(7.9%) due to the following reasons:
 the impact of income tax rate altered in the
U.S
 Cases of permanent difference
 Offset happened due to net recognition of
the last tax losses of unrecognized nature
and differences of temporary nature

WHY INCOME TAX RATE NEGATIVE FOR FY
2017 ?
 Tax losses and differences of temporary nature
 Income tax rate changes in the U.S

INCOME TAXES
 Release of IFRIC 23 by IASB because
treatment of income tax was prone to
uncertainty.
 IFRIC 23 provides a clarification in application
of recognition and measurement in IAS 12
when uncertainty happens over the
treatment of income tax (Bombardier, 2017)
 Answers if an entity consider the treatment
of tax freely or collectively

 Effectiveness of IFRIC will be in operation
from January 1, 2019.
 The same will be applied on the consolidated
financial statements.

TAX BORNE & COLLECTED
 Tax paid by the entity $1.5 billion
 Payment - $4.8 billion (Bombardier, 2017)

TAX CONTINGENCY
 Uncertainty when it comes to uncertain tax
regulation
 Difference arises between the assumptions
and actual result
 Tax provisions are established by the
Corporations
 Provisions is based on different scenario such
as tax audit and tax regulation interpretation

DEALING WITH TAX AUTHORITIES
 Maintains a cooperative link with the tax
authorities
 Principle of open communication is
maintained
 Regular update of issues that are outstanding
 Response to communication in a prompt
manner
 Operations performed in a just and fair
manner (Bombardier, 2017)

TAX TEAM
 Invested in the internal tax team for
management of the affairs
 Headed by Vice President of Taxation that
report to the CFO
 Presence of Tax directors that report to the
global VP
 The team is responsible for identification,
management and reporting of the tax risk
linked with the decision of the business.

POLICY ON TAX
 Essential that every transaction with a tax
influence should be documented
 An approval matrix must be followed
 Policy evaluated and approved by the global
CFO and General Counsel (Bombardier, 2017)
 In agreement with the UK leadership team

TAX HAVEN
 Operates in Luxembourg and other tax
havens
 Reduction of the share of tax
 Top management comprises of $18 million in
stock options (Bombardier, 2017)
 The government is liberal in this regard.

TAX AVOIDANCE
 Aggressive tax avoidance
 Canadian is pleading the government:
- to stop the corporate use of tax havens
- make it difficult scenario for tax haven
- axe the loophole of stock option

CONCLUSION
 Canada is being hurt by the tax policy
 Government needs to evaluate the tax
system
 Creation of fair tax system

REFERENCES
Bombardier . Bombardier annual report and
accounts 2017. Available from: https://
www.bombardier.com/content/dam/Websites/
bombardiercom/supporting-documents/Sustai
nability/Reports/CSR/Bombardier-Activity-Rep
ort-2017-en.pdf
[Accessed 13th March 2019]

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