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Alcan Inc. will be severely disadvantaged by a controversial federal budget measure that scraps a tax deduction for companies investing abroad, chief executive officer Dick Evans said Thursday, warning that the initiative could make the company more susceptible to a foreign takeover.

Alcan has large aluminum smelting operations in Quebec and British Columbia, but there is no bauxite – a key component in making aluminum – in Canada. For that, it has to mine and process abroad.

Mr. Evans said the policy will hurt Alcan's ability to expand foreign subsidiaries and damage domestic operations that contribute millions of dollars in economic benefits and taxes to the Canadian economy.

“We have to invest overseas to have an efficient supply chain,” he said in an interview after the company's annual general meeting in its hometown of Montreal. “By penalizing us by investing overseas, that also penalizes our Canadian operations, making them less profitable and spending less taxes in Canada.”

Aiming to spur Canadian investment, the federal government unveiled changes to corporate tax policy in its recent budget, scrapping the ability of corporations to write off the costs of domestic loans used to invest in foreign operations.

Alcan currently has between $200-million (U.S.) and $250-million of deductible interest that would be affected by the policy change, Mr. Evans said.

Alcan's largest capital investment recently has been the $2.3-billion expansion of its Gove bauxite refinery in Australia, which will provide alumina to smelters in Canada and elsewhere that will be processed into aluminum.

Currently the world's second-largest aluminum producer, Alcan has recently been cited as a potential takeover target for foreign mining giants such as Rio Tinto PLC of London and Companhia Vale do Rio Doce of Brazil.

If the shift in deductibility rules is not amended, Mr. Evans said Alcan will be at a disadvantage to foreign competitors from the U.S., Britain, France and Russia, where the writeoffs are not prohibited.

“It would adversely affect our profitability. It would result in less taxes paid in Canada and would make us a weaker company, more vulnerable for someone to buy us,” he said.

Alcan is one of Canada's few multinational companies with operations in 61 countries and regions and about 68,000 employees. Last year, it's revenue was more than $23-billion.