Outbound U.S. Planning and Immigration · • U.S. corporate federal tax rate: flat 21% federal. • U.S. state corporate tax rate varies e.g. 8.84% in CA, 5.5% in FL. • Canadian

Outbound U.S. Planning and Immigration

Cross-border Tax Planning Considerations

Tax Cuts and Jobs Act (“TCJA”) business tax rate changes:• U.S. corporate federal tax rate: flat 21% federal.

• U.S. state corporate tax rate varies e.g. 8.84% in CA, 5.5% in FL.

• Canadian federal corporate tax rate: 15% or 9% for small business rate.

• U.S. and Canadian corporate tax rates are now pretty much the same depending on state.

Business friendly tax incentives:• Foreign Derived Intangible Income (“FDII”) under Code Section 250, gives corporations a deduction on income

from sales they make to foreign persons or for foreign use. Effective tax rate on FDII is 13.125% for 2018-2025,increased to 16.406% after 2025.

• Deduction for most investments in new or used capital assets that have a depreciation recovery period of 20years or less. Full deduction for qualified property placed in service before 2023, but it is scheduled to bereduced by 20% per year from 2023 through 2026, and fully phased out by 2027.

• New deduction for qualified business income (QBI) under Code Section 199A. Generally, income from a pass-through entity (or sole proprietorship) may be entitled to a deduction equal to the lesser of the deductible amount of QBI (generally 20% subject to wage limitation) or 20% of taxable income.

Business Considerations - Non-Corporate Structure

• Investment Cost‒ Relatively low investment cost for sole proprietorship as no formal entity required.‒ Limited partnership involves forming a company to act as the general partner and drafting limited

partnership agreement reflecting U.S. partnership tax principles.

• Liability Concerns‒ Sole proprietorships offer no liability protection and limited partnerships aren’t perfect.

• Complex Tax Compliance‒ Sole proprietorships require the proprietor to file an individual U.S. tax return and claim a foreign tax credit

in Canada.‒ A partnership is required to file a U.S. partnership return, make quarterly tax remittances or income

allocated to non-U.S. partners and then each partner must file their own U.S. tax return reporting theirshare of the income. This income is also reported on the partner’s Canadian tax return and foreign taxcredits are available to eliminate double taxation.

Business Considerations - Corporate Structure

• Investment cost‒ Relatively higher investment cost as formal entity required and ongoing maintenance.

• Liability is isolated in the U.S. corporation.• Relatively simple tax compliance.• If U.S. rates are comparable to Canadian rates there is little incentive to strip out income through

interest, royalties or management fees – this drives down the risk profile.• Dividends paid out of active business earnings to Canco generally flow back tax free subject to a

5% U.S. withholding tax.• Foreign Accrual Property Income rules may apply to passive investments in a U.S. Corporation.• Such dividends are added to Canco’s general rate income pool (“GRIP”) which means “low” rate

eligible dividends can be paid to Canco’s shareholders.

Personal Investment In U.S. Pass-through

Prior Law

U.S. personal tax (39%+State) $45

Canadian personal tax:

Basic tax owing $48

Less foreign tax credit ($45)

Tax payable $ 3

Global tax payable $48

New LawU.S. personal tax (37%+State) $43

Canadian personal tax:

Basic tax owing $48

Less foreign tax credit ($43)

Tax payable $ 5


No difference to status quo.

Earns $100 of net income

..

Canada

United States

U.S. Partnership

U.S. Sole Proprietorship

Corporate Investment In U.S. Pass-through

Canco


U.S. Partnership

Canada

United States


Prior LawU.S. corporate tax (35%+State) $40

U.S. branch tax ($60 @ 5%) $3

Canco’s Canadian tax implications as follows:

Basic tax owing $27

Foreign tax credit ($27)

Canadian corporate tax payable $0

Distributable cash to Canadian individual $57

Personal tax on eligible dividend @ 32% $18


New LawU.S. corporate tax (21%+State) $26

U.S. branch tax ($74 @ 5%) $ 4

Canco’s Canadian tax implications as follows:

Basic tax owing $27

Foreign tax credit ($27)

Canadian corporate tax payable $0




U.S. Partnership


Personal Investment In U.S. Corporation

U.S. C Corp

Canada

United States


Prior Law

U.S. corporate tax (35%+State) $40

U.S. withholding tax of 15% on $60 dividend ($9)

Canadian personal tax on $60 dividend @48% $29

Foreign tax credit on U.S. withholding tax $ 9

Global tax payable: $69

New Law

U.S. corporate tax (21%+State) $26

U.S. withholding tax of 15% on $74 dividend ($11)

Canadian personal tax on $74 dividend @ 48% $35

Foreign tax credit on U.S. withholding tax $11


Corporate Investment in U.S. Corporation

Canada

United States

Canco

U.S. C Corp


Prior Law

U.S. subsidiary corporate tax $40

Distributable cash to Canco of $60

Less U.S. withholding tax @ 5% $3

Canco – no corporate income tax due to surplus regime; no FTC for U.S. withholding tax.




New LawU.S. Subsidiary corporate tax (21%+State) $26

Distributable cash to Canco of $74

Less U.S. withholding tax @ 5% $4

Canco – no corporate income tax due to exempt surplus regime; no FTC for U.S. withholding tax.

Distributable cash to Canadian individual of $70



What About Using Debt To Strip Out Profits?

Canada

United States

Canco

U.S. C Corp


Prior LawU.S. C Corp corporate tax $0

Interest paid to Canco of $100 (No U.S. withholding tax)

Canco’s corporate tax after RDTOH refund: $20


Personal tax on non-eligible dividend @ 42% $34


New LawIf U.S. C Corp annual gross receipts >$25 million, interest deduction limited to 30% of EBITDA.

U.S. C Corp corporate tax on $70 @ 26% (21%+State) $18

U.S. withholding tax of 5% on dividend portion ($70 less U.S. corporate tax of $18)

$ 3

Canco’s corporate tax on $30 interest after RDTOH refund $ 6

Distributable cash to Canadian individual of $72

Personal tax on eligible dividend of $52 @ 32% $16

Personal tax on non-eligible dividend of $20 @ 42% $ 8


U.S. Immigration – Introductory Concepts

• Visa v. Status.

• Adjudicating/Controlling Agencies.‒ Department of State (“DOS”).

o Embassies/Consulates.‒ Department of Homeland Security (“DHS”).

o U.S. Citizenship and Immigration Services (“USCIS”).o U.S. Customs and Border Protection (“CBP”).o U.S. Immigration and Customs Enforcement (“ICE”).

‒ Department of Justice (“DOJ”).o Board of Immigration Appeals (“BIA”).

‒ Department of Labor (“DOL”).o Employment and Training Administration (“ETA”).

U.S. Immigration – Business Utilization

B-1 - Business Visitor:• Generally Permissible Activities – meetings, conferences, trade shows, contract negotiations.• Exceptions – Expanded Permissible Activities.

‒ **Investigating Investment Opportunities.‒ After Sales Service (NAFTA).‒ B-1 in lieu of H-1B.‒ Training Programs.‒ Professional Athletes.

**Utilized for start-up activities prior to E-2 or L-1

U.S. Immigration – Business Utilization – Cont’d

TN – NAFTA Professionals:• Nonimmigrant visa category permitting citizens of Canada and Mexico to work in the US in prearranged

business activities for U.S. for foreign employers.

• 60+ NAFTA Professional Categories, including:‒ Accountant, Architect, Computer Systems Analyst, Disaster Relief Insurance Claims Adjuster, Economist,

Engineer, Forester, Graphic Designer, Hotel Manager, Industrial Designer, Interior Designer, Land Surveyor,Landscape Architect, Lawyer, Librarian, Management Consultant, Mathematician, Range Manager, RangeConservationist, Research Assistant, Scientific Technician/Technologist, Social Worker, Sylviculturist,Technical Publications Writer, Urban Planner, Vocation Counselor, Dietitian, Dentist, Medical LaboratoryTechnologist, Nutritionist, Occupational Therapist, Pharmacist, Physician, Physical Therapist, Psychologist,Recreational Therapist, Registered Nurse, Veterinarian, Agriculturist, Animal Breeder, Animal Scientist,Apiculturist, Astronomer, Biochemist, Biologist, Chemist, Dairy Scientist, Entomologist, Epidemiologist,Geneticist, Geochemist, Geologist, Geophysicist, Horticulturist, Meteorologist, Pharmacologist, Physicist, PlantBreeder, Poultry Scientist, Soil Scientist, Zoologist, Teacher.


H-1B – Specialty Occupations:• Nonimmigrant visa category permitting U.S. employers to petition for highly educated professionals to

work in “specialty occupations” that require at least a bachelor’s degree or its equivalent as normal minimum requirement for the position.

• Filings for April 2, 2020 will be under new electronic lottery system. • Challenges with H-1B:

‒ Position must be one that normally requires a bachelor’s degree or higher as minimum requirement.‒ Positions in Marketing and IT require extra care in petition process.‒ Degree must be relevant to position (and normal requirement).‒ H-1B petitions must be filed on April 1 for October 1 start date.‒ H-1B cap of 65,000 (20,000 additional for U.S. Masters).‒ H-1B cap has been met within first few days of April for the last 16 years.


L-1 – Intracompany Transfers:• Nonimmigrant visa category created to facilitate the movement (either via full-time secondment or

intermittent entry) of executives, managers, and specialized knowledge personnel employed byglobal business organizations.

• Beneficiary must have been employed in an executive, managerial, or specialized knowledge capacityfor a minimum of one year in three years prior to the petition by a parent, subsidiary, branch, or affiliatedcompany of the U.S. petitioning employer.

• Can be utilized for U.S. 50/50 joint ventures and branch offices.• “New Office” L-1 Petitions - While the general rule for U.S. employers seeking work-authorized visas

for personnel is that the petitioning organization must have been active for at least one year, a specificexception called the “new office” L-1 permits U.S. start-ups to utilize the L-1 program with an expandedset of qualifying criteria and revised processing procedures.

• Significant change in adjudication procedures – CBP only handling initial L-1 petitions for Canadians.


E-2 – Treaty Investors:• Nonimmigrant visa category allowing nationals of treaty countries (including companies with Canadian

nationality), who have made significant investment in a new or existing U.S. enterprise, to employ thePrimary Investor (when investor is individual) or executive, managerial, or essential skills personnel inE-2 nonimmigrant status (personnel must have same nationality as investor).

• Investor (individual or company) must have control of the U.S. entity, including the ability to direct anddevelop the US enterprise.

• New v. Existing Enterprise‒ New – U.S. subsidiary, branch office, or joint venture that is newly established by the E-2 investor.‒ Existing – Acquisition of all assets/liabilities of a company previously established by someone other than the E-2

investor.

• Unlike the L-1, the E-2 Employee Applicant is not required to have been employed by an related legalentity outside the US.


E-2 – Treaty Investors:• Whether a new or existing enterprise – must be active and operating at the time of E-2 visa application.• Required Evidence of “Active and Operating” U.S. entity

‒ Minute book for U.S. entity.‒ Corporate bank account.‒ Commercial lease agreement for U.S. office.‒ Wire transfer confirmation(s) evidencing invested capital.‒ Documentation of any invested equipment, inventory, or set-up costs paid directly by investor.‒ Evidence that at least a portion of the investment has been utilized for start-up costs.‒ Vendor/Customer/Business Partner contracts, purchase orders, invoices, etc.‒ Business Plan, including 5 year financial and personnel hiring projections.

Cross-border Investment Scenario 1 (B-1 to E-2)

Husband

Canada

United States

Limited partner49.5%

U.S. Real Estate Property

Wife

GP Inc.

General partner 1%

Common shares 50%

Common shares 50%

Loan

Limited partner49.5%

100%Owner

LP

Cross-border Investment Scenario 2 (B-1 to L-1 to EB-1)

Canco(Canadian owners and Management)

US Subsidiary

(Delaware)

Canada

U.S.

Leasing U.S. Equipment

Debt and equity investment

US Equipment Supplier

(third party)

Purchase equipment for leasing to Canco

U.S. Immigration considerations for L-1• Be employed by Canco (i.e., the transferring Canadian entity) for at least the last

12 months;• Currently be employed in an executive or senior management position and be

transferred to a similar position with U.S. Subsidiary;• Be a Canadian citizen and have a passport that expires no earlier than 12

months from the date that you make the visa application; and• Establish that U.S. Subsidiary has sufficient resources and a realistic business

plan.

U.S. tax planning considerations:• Income earned on cross-border lease should be FDII.• Assets used outside the U.S. would not qualify for full expensing.• Must ensure the formalities are followed such as documentation, provides for

reasonable terms including initial lease and renewal terms, etc. to ensure thatthe cross-border lease is respected as a lease and not treated as a sale for U.S.tax purposes.

• Foreign tax credits should be available for Canadian withholding tax on leasepayments.

• Lease payments should not be subject to state sales tax as Canco is a foreignlessee.

Cross-border Activities Scenario 3 (B-1 After Sales Service)

Canco(Equipment

manufacture)

U.S. Customer

Canada

U.S.

Technician or installer providing after sales services in the U.S.

U.S. Immigration considerations:• Can enter the U.S. to provide after-sales service work pursuant to a contract or

warranty for goods manufactured outside of the U.S. • Should carefully draft the sales agreement or contract to include after sales

service provision as part of the contract or an addendum to it.• Presentation of Application, including supporting documentation must specifically

address each regulatory requirement.

U.S. tax planning considerations:• Need to monitor activities to avoid creating a permanent establishment (taxable

presence) in the U.S. through service contracts.• Need to address various state income tax issues related to providing services.

Documents

Outbound U.S. Planning and Immigration · • U.S. corporate federal tax rate: flat 21% federal. • U.S. state corporate tax rate varies e.g. 8.84% in CA, 5.5% in FL. • Canadian