Canadians like to think of themselves as both internationally-minded people and as coming from a tradition of humanitarian action. However, few stop to ask why global charities are never headquartered in Canada. There is no major international charity with affiliated entities around the world that is headquartered in Canada. This is not because Canada would not be a good site for such a headquarters entity but rather because the Canadian tax system makes the sensible running of an international charity headquarters impossible. Perversely, Canada’s strict rules, which are designed and applied so as to prevent Canadian funds from being used outside Canada, have the effect of reducing economic activity in Canada.
We have been approached more than once by existing international charities considering locating the international headquarters in Canada because Canada has better geopolitical optics for some kinds of charitable endeavours than some of the other international headquarters jurisdictions like the U.S. or the U.K. We also advise successful Canadian charities with international aspirations on how they might structure themselves. Our advice is usually the same: “Canada is an inhospitable regulatory environment for global operations– here are the names of some charity lawyers in more appropriate jurisdictions.”
If a global charity had a Canadian headquarters entity, it would almost certainly need to have the entity be a Canadian registered charity. However, as a Canadian registered charity, the headquarters entity would be subject to the Canadian system that makes the transfer by gift of funds to a foreign charity illegal. While this restriction can be complied with in the context of a Canadian charity funding specific projects through various mechanisms like joint venture agreements, agency agreements or service contracts that deem the funding of a foreign charity’s activity to be the Canadian charity’s own charitable activity rather than a gift to the foreign charity, none of these mechanisms are flexible enough to allow a Canadian charity to serve as a global headquarters.
Any sophisticated international charity network needs to be able to transfer funds and other property such as intellectual property among its constituent entities and through its international headquarters entity. Global charities usually also perform back office functions for constituent charities, often without charge. A Canadian charity doing any of these usual and sensible things risks revocation of charitable registration, accompanied by the penalty tax of 100 percent of assets.
This is why, even though Canadians have been part of the founding groups of a number of global charities and there are Canadians in the senior leadership of others, global headquarters are virtually never located in Canada. If global charities were allowed to have Canadian headquarters, one would expect that this would lead to increased economic activity in Canada.
A version of this article appears in Canadian Not-for-Profit News, January 2015, Volume 23, No.1.