Catalogue no.

11-621-M2019001
ISSN 1707-0503
ISBN 978-0-660-29719-4

Analysis in Brief

Multinational enterprises in Canada

by Claire Schaffter and Alexandre Fortier-Labonte

Release date: April 1, 2019

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 Multinational enterprises in Canada

Multinational enterprises in Canada

by Claire Schaffter and Alexandre Fortier-Labonte

Introduction
Globalization refers to the economic integration between countries as a result of increasing cross-border trade
and capital movements.
Multinational enterprises (MNEs) have been drivers of globalization. These enterprises have taken advantage of
innovations in logistics and communications technology over the past four decades to diversify their supply chains
and expand into new markets.
MNEs are also an important source of investment in innovation, technology and skilled labour in Canada. The
involvement of MNEs in these aspects of the Canadian economy was discussed in a prior Statistics Canada
study.1
This analytical study describes the characteristics of MNEs2 in Canada and abroad, and how their activities in
Canada differ from those of Canadian domestic enterprises that do not control businesses outside the country.
The data for the study come from various sources, including Statistics Canada’s 20163 Annual Financial and
Taxation Statistics (AFTS) program. The AFTS collects and aggregates data from the financial statements of all
enterprises in Canada.
An indicator4 that distinguishes MNEs from domestic enterprises in the AFTS data is used in this study to compare
size, industry involvement and financial performance for both groups. Data collected by the Canada Revenue
Agency (CRA) also provide details about subsidiaries of Canadian enterprises abroad.

MNEs in Canada
At the end of 2016 (see Chart 1), 99.2% of enterprises in Canada were domestic.5 Of these, 0.8% were part of an
enterprise group, while 98.5% were Canadian non-group enterprises. Only 0.8% of all enterprises operating in
Canada were MNEs. Half of MNEs were Canadian majority-owned, with foreign affiliates (MOFAs) and half were
foreign majority-owned, with Canadian affiliates (FMOCAs).
Altough less than 1% of all enterprises were MNEs, they held 67% of all assets in the Canadian economy. MOFAs
owned more assets than FMOCAs, with 49% of the total.

1. Baldwin, John R. and Guy Gellatly. 2007. Global Links: Multinationals in Canada: An Overview of Research at Statistics Canada. Analytical Studies Branch Research Paper Series. Catalogue
no. 11622MIE2007014. Ottawa: Statistics Canada.
2. For the purpose of this study, an MNE is a group of two or more legal entities that are required to prepare consolidated financial statements for financial reporting purposes, and one of the
legal entities of the group resides in a tax jurisdiction other than Canada. This definition is based on section 233.3 of the Income Tax Act.
3. At the time of writing, the most recent AFTS data was for 2016.
4. An indicator was developed using two different types of data. The 2016 country of control information from Statistics Canada’s Corporations Returns Act program was used to identify foreign
majority-owned enterprises operating in Canada. Tax information from 2016 corporate tax and information returns was used to identify Canadian majority-owned enterprises with controlled
foreign affiliates. The indicator was developed in collaboration with Statistics Canada’s International Accounts and Trade Division.
5. Canadian enterprises that are not MNEs are referred to as domestic enterprises. They may be part of an enterprise group or be non-group firms (also known as “simple singles”). Non-group
enterprises have only one legal entity in their structure and are not controlled by a separate enterprise.

Statistics Canada – Catalogue no. 11-621-M 3

Multinational enterprises in Canada

Chart 1
MNEs presence in the Canadian economy

Note: Numbers might not add up to 100% due to rounding.

Source: Statistics Canada, author’s calculations based on data from the Annual Financial and Taxation Statistics (AFTS).

Charts 2 and 3 show the distribution of assets for MNEs and domestic enterprises across industries included in
the AFTS6 for 2016.
Most MNE’s assets in non-financial industries (Chart 2) were held in manufacturing, distributive trades and
extraction, while a higher share of domestic enterprise’s assets were held in real estate and construction. Overall,
domestic enterprises owned 83.6% of all assets in construction and 70.7% in real estate. The local knowledge
required to operate in both industries could account for the high share of assets held by domestic enterprises.

Chart 2
Share of asset holdings by enterprise type — Non-financial industries, 2016
percent
100

90 Utilities
80 Transportation and warehousing
70
Real estate and rental leasing
60
Other
50
Manufacturing
40
Extraction
30
Distributive trades
20

10 Construction

0
Domestic MNEs

Source: Statistics Canada, author's calculations based on data from the Annual Financial and Taxation Statistics (AFTS).

6. See Appendix A for a list of industries included in the AFTS estimates.

4 Statistics Canada – Catalogue no. 11-621-M

 Multinational enterprises in Canada

Chart 3 shows the distribution of assets across financial industries. MNEs held more assets in depository credit
intermediation than domestic enterprises. Generally, large banks have operations abroad while local credit unions
do not.
In general, the financial industries were dominated by MNEs, which held 72.1% of total assets (Table 1). The
only financial industry with more assets owned by domestic enterprises than MNEs was Securities, Commodity
Contracts and Other Financial Investment and Related Activities, where domestic enterprises owned 57% of total
assets.

Chart 3
Share of asset holdings by enterprise type — Financial industries, 2016
percent
100

90

80
Activities Related to Credit Intermediation
70
Depository Credit Intermediation
60
Insurance Carriers and Related Activities
50
Non-depository Credit Intermediation
40

30 Securities, Commodity Contracts, and Other Financial Investment and Related Activities

20 Management of Companies and Enterprises

10

0
Domestic MNEs

Source: Statistics Canada, author's calculations based on data from the Annual Financial and Taxation Statistics (AFTS).

There was also a large discrepancy between the size of MNEs and domestic enterprises in capital intensive
industries such as extraction and utilities. In the extraction industry, the median7 value of assets held by MNEs was
$14.4 million, versus $0.16 million for domestic enterprises. In the utilities industry, the median value of assets held
by MNEs was $17.34 million, versus $0.29 million for domestic enterprises. Earlier work also showed that MNEs
were more likely to operate in large-firm industries with significant economies of scale and capital intensity.8

7. The median was chosen because it is less sensitive to outliers.

8. Baldwin, John R. and Guy Gellatly. 2007. Global Links: Multinationals in Canada: An Overview of Research at Statistics Canada. Analytical Studies Branch Research Paper Series. Catalogue
no. 11622MIE2007014. Ottawa: Statistics Canada.

Statistics Canada – Catalogue no. 11-621-M 5

Multinational enterprises in Canada

Table 1
Enterprise size in 2016, by type, for selected industries
Industry MNEs’ share of assets Type Assets (median)  
percent $ milllions
Construction 18.6 MNEs 3.80
domestic enterprises 0.13
Distributive trade 60.8 MNEs 6.90
domestic enterprises 0.22
Extraction 85.2 MNEs 14.4
domestic enterprises 0.16
Finance 72.8 MNEs 3.41
domestic enterprises 0.57
Manufacturing 86.5 MNEs 19.52
domestic enterprises 0.24
Real estate 33.0 MNEs 3.27
domestic enterprises 0.54
Transportation and warehousing 62.3 MNEs 6.43
domestic enterprises 0.05
Utilities 53.2 MNEs 17.34
domestic enterprises 0.29
Source: Statistics Canada, author’s calculations based on data from the Annual Financial and Taxation Statistics (AFTS).

MNEs had higher operating revenues for the industries where they owned more assets. Chart 4 displays the
proportion of operating revenue generated by MNEs in selected industries.
MNEs in the extraction and manufacturing industries had the highest share of operating revenue of all industries
(80.8% and 75.4%, respectively). MNEs in construction and real estate had the lowest share of operating revenue
(17.3% and 27.8%, respectively).

Chart 4
MNEs share of operating revenue for selected industries, 2016

Extraction

Manufacturing

Finance

Utilities

Transportation and warehousing

Distributive

Real estate

Construction

0 10 20 30 40 50 60 70 80 90
percent

Source: Statistics Canada, author's calculations based on data from the Annual Financial and Taxation Statistics (AFTS).

6 Statistics Canada – Catalogue no. 11-621-M

 Multinational enterprises in Canada

Overall, one in four employees in the Canadian economy9 worked for MNEs in 2016. The employment share of
MNEs was the largest for the extraction industry (65.5%) and lowest for construction (12.3%) (Chart 5).

Chart 5
MNEs employment share for selected industries, 2016

Extraction

Finance

Manufacturing

Transportation and warehousing

Distributive

Utilities

Real estate

Construction

0 10 20 30 40 50 60 70
percent

Source: Statistics Canada, author's calculations based on data from the Annual Financial and Taxation Statistics (AFTS) and Survey of Employment, Payrolls and Hours (SEPH).

MNE affiliates abroad

The United States had the most corporate ownership connections with Canada in 2016.
The United States had more parent enterprises for FMOCAs than any other country (58.3%), followed by the
United Kingdom and Germany (Chart 6).

9. The agriculture industry was excluded.

Statistics Canada – Catalogue no. 11-621-M 7

Multinational enterprises in Canada

Chart 6
Countries where FMOCAs have the most parents, 2016

22%

USA

United Kingdom

Germany
4%
France
4%
58% Japan

5% All other countries

6%

Source: Statistics Canada, Corporate Returns Act program.

MOFAs10 reported that most of their subsidiaries (49.9%) were located in the United States. The number of
subsidiaries located in the United States was nearly seven times higher than the number of subsidiaries located in
the United Kingdom, which had the second highest number of subsidiaries (Chart 7).

Chart 7
Countries where MOFAs have the most subsidiaries, 2016

33%
USA

United Kingdom
50%
China

Australia

Mexico

All other countries

3%

5%

5%
5%

Source: Canada Revenue Agency, T1134 information return.

10. To learn about the structures and activities of MOFAs, we relied on the T1134 Information Return Relating to Controlled and Non-Controlled Foreign affiliates which CRA requires all
enterprises with foreign subsidiaries to complete. Data were available for 60% of enterprises in the AFTS that had been identified as MOFAs. Other tax sources which were used to identify
MOFAs did not contain details about countries and industries in which foreign subsidiaries of MOFAs operate.

8 Statistics Canada – Catalogue no. 11-621-M

 Multinational enterprises in Canada

On average, MOFAs directly controlled subsidiaries in only one other country. However, about 10% of MOFAs
controlled subsidiaries in more than four countries in 2016 (Chart 8).

Chart 8
Number of countries where MOFAs operated, 2016

5%
4%

11%

5 or more

80%

Source: Canada Revenue Agency, T1134 information return.

MOFAs had a higher proportion of foreign subsidiaries than Canadian subsidiaries (Chart 9). However, it was most
common for a Canadian enterprise without Canadian subsidiaries to control one foreign subsidiary. Over 50% of
MOFAs had this simple structure.

Chart 9
Proportion of foreign subsidiaries within a MOFA, 2016
percent
70

60

50

40

30

20

10

0
Less than 50% 50% to 60% 60% to 70% 70% to 80% 80% to 90% Greater than 90%

Source: Canada Revenue Agency, T1134 information return; Statistics Canada, Data Integration Infrastructure Division.

Statistics Canada – Catalogue no. 11-621-M 9

Multinational enterprises in Canada

Most MOFAs operated in more than one industry,11 either in Canada or abroad (Chart 10).
Among enterprises that operated in two industries, the most common pairing was Securities, Commodity
Contracts, and Other Financial Investment and Related Activities with Real Estate and Rental and Leasing (7.3%).
Oil producers were also involved in mining activities (6.5%), and manufacturers were involved in wholesale trade
(5.3%). No other pairings comprised over 5% of the total.

Chart 10
Number of industries where MOFAs operated, 2016

1%
2% 2%

9%

28%

1
2
3
4
5
More than 5

58%

Source: Canada Revenue Agency, T1134 information return; Statistics Canada, Data Integration Infrastructure Division.

Financial performance
This section compares the profitability, efficiency and leverage of MNEs and domestic enterprises in 2016.12
The analysis includes only non-financial industries because the selected ratios are better suited for those
industries. All ratios have been controlled for enterprise size.

11. Industry groupings were made at the NAICS 24 level, so there are 6 financial industries and 18 non-financial industries. See Appendix A for a table of industry groupings.
12. Financial ratios are used to measure the performance of an enterprise. Financial ratios for MNEs and domestic enterprises in selected industries were created using the balance sheet and
income statement data from the AFTS.

10 Statistics Canada – Catalogue no. 11-621-M

 Multinational enterprises in Canada

Chart 11
Difference in profitability and efficiency ratios for MNEs compared to domestic firms, in percentage, for selected industries,
2016
percent
160

140

120

100

80

60

40

20

-20

-40
Construction Distributive Extraction Manufacturing Utilities Real estate Transportation and
warehousing

Profit margin Asset turnover

Source: Statistics Canada, author's calculations based on data from the Annual Financial and Taxation Statistics (AFTS).

Chart 11 represents the percentage difference in profit margin and asset turnover ratios between MNEs and
domestic firms. A positive difference represents an advantage for MNEs over domestic firms.
Profit margin is an indicator of profitability and measures the before-tax profit on each dollar of sales. Asset
turnover is an indicator of efficiency and measures the sales generated per dollar of investment in assets.
In the distributive trade and manufacturing industries, MNEs had a slightly higher profit margin than domestic
enterprises (3.7% and 9.2%, respectively). These two industries contain a large number of firms that make up
a competitive market. This could explain why MNEs could not attain a high profit margin, as competition puts a
downward pressure on their profit margin. However, it seems that MNEs were more profitable in terms of their
asset turnover in these industries, since MNEs were able to generate more sales than their domestic enterprise
counterparts with the same level of assets.
The Canadian utilities industry can be described as an oligopoly, as there are relatively few enterprises in this
industry. Furthermore, there are significant barriers to entry, with high fixed costs required to operate in this
industry. This could explain why, of all the industries, the difference in profit margin percentage between MNEs
and domestic enterprises in 2016 was at its highest (42.1%). MNEs seemed to use this oligopoly to increase
their profit margin. Despite this, MNEs had no efficiency advantage, as there was no difference in asset turnover
between MNEs and domestic enterprises.

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Multinational enterprises in Canada

Chart 12
Difference in debt-to-equity ratio for MNEs compared to domestic firms, in percentage, for selected industries, 2016
percent
0

-10

-20

-30

-40

-50

-60

-70

-80

-90
Construction Distributive Extraction Manufacturing Utilities Real estate Transportation and
warehousing
Source: Statistics Canada, author's calculations based on data from the Annual Financial and Taxation Statistics (AFTS).

The debt-to-equity ratio measures an enterprise’s debt relative to the value of its shareholder equity. It describes
the extent to which an enterprise has taken on debt. A high ratio is associated with a high risk, meaning that an
enterprise has been aggressive in financing its growth or operations with debt.
The debt-to-equity ratio of MNEs in construction, utilities and transportation and warehousing was the same as
domestic enterprises (Chart 12). However, the ratio was lower for MNEs than domestic enterprises in the remaining
industries. Since MNEs are larger firms, they are more likely to have access to public equity. This could explain
why MNEs financed their operations with less debt.

Conclusion
In 2016, less than one percent of enterprises in Canada were MNEs. Though they were a small share of total
enterprises, MNEs had a significant impact on the Canadian economy. These enterprises employed one of four
Canadians, and owned 67% of total assets in the financial and non-financial sectors. MNEs also earned more
revenue and held more assets than domestic enterprises in nearly every Canadian industry, and, taking into
account their size were generally more profitable than domestic enterprises.
The majority of Canadian MNE affiliates are in the United States, where 58.3% of all parents and 49.9% of all
subsidiaries are located.

12 Statistics Canada – Catalogue no. 11-621-M

 Multinational enterprises in Canada

Appendix A

Table A
Industry groupings for study’s charts
North American
Indstry Classification
System (NAICs) codes Industry groups for Chart 2
for 24- level industry (Financial industries) & Chart 3 Selected industry groups
classification Industry groups for Chart 9 (non-financial industries) for all other charts
212 Mining and Quarrying (except Oil and Gas)
Extraction Extraction
21C Oil and Gas Extraction and Support Activities
22 Utilities Utilities Utilities
23 Construction Construction Construction
31-33 Manufacturing Manufacturing Manufacturing
41 Wholesale Trade Distributive trades Distributive trades
44-45 Retail Trade Distributive trades Distributive trades
48-49 Transportation and Warehousing Transportation and Warehousing Transportation
and Warehousing
53 Real Estate and Rental and Leasing Real Estate and Rental and Leasing Real Estate and Rental
and Leasing
5221 Depository Credit Intermediation Depository Credit Intermediation
5222 Non-Depository Credit Intermediation Non-Depository Credit Intermediation
5223 Activities Related to Credit Intermediation Activities Related to Credit Intermediation
523 Securities, Commodity Contracts, Securities, Commodity Contracts,
and Other Financial Investment and Other Financial Investment Financial industries
and Related Activities and Related Activities
524 Insurance Carriers and Related Actvities Insurance Carriers and Related Actvities
55 Management of Companies and Enterprises Management of Companies
and Enterprises
51 Information and Cultural Industries
54 Professional, Scientific and Technical Services
56 Administrative and Support, Waste Management
and Remediation Services
61-62 Educational, Health Care and Social Assistance Services Other N/A
71 Arts, Entertainment and Recreation
72 Accommodation and Food Services
81A Repair, Maintenance and Personal Services
11 Agriculture, Forestry, Fishing and Hunting

Statistics Canada – Catalogue no. 11-621-M 13