Cross Border Intercorporate Transactions

Several enquiries have been received by companies wishing to do business in the United States, some have already incorporated, and some are just in the investigative stage(s).

Annual professional fees can very much be a function of your annual or ongoing compliance costs such as corporate federal and state filings. The latter can increase fees significantly if one is doing business in various states, and whether income tax, franchise tax or sales tax, etc., are applicable or unforeseen state nexus issues.

Intercorporate cross border transactions may include management fees, interest & financing costs, loans/ advances and  receivables/payables from the sale of goods or services. The latter may create a transfer pricing issue which both Canada & the U.S. have their own specific legislation.Both countries also have certain foreign information returns or forms that carry significant penalties  for failure to file. Some reporting is looking for disclosure of  related party transactions by name, description and/or dollar amount. Other foreign information returns look to ownership such as “(controlled) foreign affiliate” or “controlled foreign corporation (“CFC”).

Both countries also have certain deemed income provisions such as imputed interest on intercompany loans or even deemed dividend income inclusions. There could be certain exceptions, exclusions or safe harbor provisions within the legislation. Both countries have withholding taxes on repatriation of profit to the other country in the form of dividends or branch profits, however the Canada/U.S. tax treaty may alleviate or reduce exposure.

Planning or investigating should be done before anyone ventures into a cross border business to avoid  unexpected surprises, say a year later when most  filings are due, and to ensure the plan or organizational structure will be tax effective from a corporate and personal perspective.