Law Times

Law Times • June 14, 2010 NEWS PAGE 5 Taxes can be barrier to foreign investment Continued from page 1 Silverstein says there's no secret behind OrbiMed's investment in a Canadian life sciences enterprise. "Enobia is our largest venture capital investment because it deserves to be. Th ey've met every mile- stone base for further fi nancing that has been set for them." Still, there's nothing specifi c to Canada about the investment. "We like to invest globally, particularly in regions of the world where there are undiscovered gems," Silverstein says. "With the venture capital commu- nity drying up in Canada and elsewhere, there are more global opportunities than in the past." OrbiMed recently raised $550 million for its ven- ture fund for North American and European inves- tors. "When you're dealing with that kind of money, investors are looking for fund managers who have the ability to invest across multiple fi rms through multiple rounds of fi nancing," Silverstein says. "We don't worry about whether it's Series B or Series C or an IPO because we look to long-term relationships with companies that are as successful as Enobia has been." But Enobia wasn't OrbiMed's fi rst Canadian foray. In April 2006, OrbiMed was one of the main sub- scribers to a US$21.5-million private placement in Toronto's ARIUS Research Inc., a biotech company personalizing cancer therapy through the discovery and development of cancer-fi ghting antibodies. Th e investment was a huge success. Barely two years later, pharmaceutical giant Roche acquired ARIUS. "Th at was a very nice exit," Sil- verstein recalls. Meanwhile, in August 2007, Or- biMed and Delphi Ventures, anoth- er U.S. venture capital fi rm, led a syndicate that invested US$32 mil- lion in Toronto-based NeurAxon Inc., a developer of next-generation pain treatments. Again, Canadian funds participated in the venture but not as the lead lenders. "Foreign investors, including OrbiMed, want local partners be- cause they value support from the community and support on the ground," Reicin says. "Ironically, strong community support doesn't seem to be enough to attract Cana- dian [venture] capital alone." More recently, in August 2009 research-and-development grants available in Canada. "In the end, we went with the U.S. parent because it was a cleaner structure with better tax advantages," Silverstein says. "Taxes are always one of our primary considerations." Unfortunately, Canada isn't al- ways tax-friendly to foreign investors. "OrbiMed was considering buying drug royalties out of Canada, but we pulled out when we discovered that it would subject us to double taxa- tion," Silverstein says. In this regard, foreign investors U.S. venture capital groups can be a good source of funds for Canadian life sciences compa- nies, says Cheryl Reicin. NeurAxon raised a further US$8.75 million through the sale of convertible debentures to OrbiMed and others. As a result, given the relative unavailability of venture capital fi nancing in Canada, it's important for Canadian companies to appeal to U.S. as well as domestic investors. "When OrbiMed invested in Enobia, we had to come up with a structure that was U.S.-friendly," Reicin says. Th e diffi culty was that structuring the transac- tion with a U.S. parent had tax advantages but that meant Enobia would have to give up generous have welcomed the federal govern- ment's recent decision to eliminate the need for income tax clearance certifi cates for Canadian companies disposing of their shares. Despite the fact that many of Canada's trea- ties provide that no tax is payable in respect of gains from such transactions unless they derived their value principally from real property located here, purchasers of these shares were liable for penalties if they didn't withhold funds until the Canada Rev- enue Agency provided a compliance certifi cate. Because the CRA was months behind in provid- ing them, many observers believe the delay presented a signifi cant disincentive to investing in Canada, es- pecially for private concerns. But whether Canadian investors see the light and join the party remains to be seen. LT More than 400 inspectors ready to enforce law Continued from page 1 the transportation and works department, said his com- plaints of harassment weren't taken seriously and has been on stress leave for eight months. A city investigation dismissed the incidents as "horseplay" and resulted in no fi rings. Ron Minken has seen a surge of interest in the issue in recent weeks at his employment law fi rm. "People I think now are really scrambling," he says. "It's surprising that employers are only taking steps now to com- ply given that the legislation was passed last December and given the harsh sanctions for a breach." Th e health and safety act allows for fi nes of up to $500,000 for companies and up to $25,000 or 12 months' imprisonment for individuals. Minken believes the uncer- tainty over the requirements and possible grace periods for enforcement have even caught some law fi rms unprepared. Th e bill applies to all employ- ers, regardless of their size. "I think the impression in the legal community is that only law fi rms of substantial size have to comply with Bill 168," he says. "Any lawyer in this province who employs at least one worker, and by worker I mean volunteer, independent contractor, dependent contrac- tor or employee, must be Bill 168 compliant." De L'Orme is happy to clear up any confusion over enforce- ment. He says the ministry has 430 inspectors in place for the deadline. "We are at the end of the grace period. Starting June 15, we will be issuing orders. In the vast majority, we will be ask- ing the workplaces how long they need to get into compli- ance. We would be tempering their estimation with the fact that they have actually had six months to get ready." De L'Orme says no blitzes are planned, but inspectors will question employers and employees on their knowledge of harassment and workplace violence policies as part of rou- tine inspections. At Gowling Lafl eur Hen- derson LLP, paralegal and oc- cupational health and safety consultant Cathy Chandler is spending "110 per cent" of her time on Bill 168 issues. "We're getting lots of last- minute calls and unfortunately at this point telling them we're happy to help but we can't bring you into compliance by June 15," she says. "First, we sched- ule the risk assessment. Th en I'm telling employers at least to have a training plan in place as to how you'll take the employ- ees through the policies." Th e government could have helped the situation by provid- ing more guidance to employ- ers and lawyers, according to Rudner. A Bill 168 tool box on the ministry web site arrived in May, and even then its value was limited, he says. "Where it comes down to a conten- tious issue, they simply advise people to consult a lawyer. I certainly appreciate that, but it doesn't give either the employer or the lawyer much in the way of guidance." At Hicks Morley, Fergu- son says some of her clients couldn't have complied even with the help of the tool box. School boards, for example, had already set their budgets for 2009-10 by the time the bill passed. "For a lot of those employ- ers, it probably would have taken them a good year to be well on their way to having a program ready," she says. "It wasn't really fair with the one-size-fi ts-all model where a simple employer with low risk of workplace violence got six months, but the employer that has higher risk and many dif- ferent workplaces also only got six months." LT Subscribe to Law Times Why pay extra for your legal news? Cutting-edge legal affairs, news and commentary for just 44¢ a day! Make the time for Law Times and keep up with all the developments in Ontario's legal scene. 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• Escalating Claims
• Bylaw Reform
• Focus On Real Estate Law