Canada is the United States’ leading trade partner, and in recent years the economies of these two countries have become increasingly integrated. Both countries have complex business environments, and trade is regulated by a combination of U.S. and Canadian tax laws, NAFTA and the U.S. Canada Tax Treaty.

The Tax Treaty has a broad impact on individuals and corporations engaged in cross-border commercial activity. With the the Fifth Protocol amending the Tax Treaty entering into force on December 15, 2008, significant changes to many areas of cross-border tax have been introduced, including:

• Tax Treatment for Different Legal Entities such as LLCs & Hybrid Entities
• Withholding Taxes
• Residency & Permanent Establishment
• Taxation of Employee Stock Options

Recent years have also seen major developments in areas other than taxation. The U.S. dollar has fluctuated in value against the Canadian currency, and many businesses and investors have lost money because they did not properly hedge themselves against these currency fluctuations.

In short, a proper understanding of the two business and regulatory environments is a key success factor to entities conducting cross-border business between the U.S. and Canada.

To assist clients in this area, UHY International has created the Canada-U.S. Tax Team (CUTT), which is composed of experienced tax professionals located in the U.S. and Canada. The CUTT team members work closely with one another to guide businesses in their cross-border ventures.

LEADING INDICATORS FOR THE NEED FOR CUTT SERVICES

1. Selling to a Related Cross-Border Entity: Recent rulings in both Canada and the U.S. have put many established transfer pricing policies into question.

2. Sending Employees into the Other Country: Companies should be familiar with payroll, withholding and reporting requirements.

3. Presence in the Other Country: Companies should consider the optimal structure to minimize taxes from a combined Canada-U.S. perspective.

4. Excessive Debt Leverage: In such cases, the company may lose interest expense deductions.

5. Ownership of a Canadian Unlimited Liability Corporation: You should know that the withholding rate on dividends paid from Canada will increase from 5% to 25% beginning in 2011.

 Areas of CUTT Expertise

Corporate

 Consideration of integrated tax minimization strategies and repatriation of profits

 Compliance with Federal, State & Provincial tax laws

 Payroll administration and year-end reporting requirements

 Analysis of available corporate tax incentives and government assistance

 Establishing an effective Canada U.S. transfer pricing policy

 Performing transfer pricing analysis

 Sale of a cross-border business

 Cross-border real estate ventures

 Sale of real estate and section 116 withholding issues

 Developing local business & banking contacts  

Personal

  Preparation of U.S. and Canadian personal income tax returns

  Analysis of the tax ramifications of a cross-border move

 Departure tax

 Expatriate tax planning and preparation  

Estates and Trusts

 Cross-border Trust and Estate planning and administration

 Tax planning to minimize exposure to U.S. Estate Taxes