U.S. Tax Relief for Canadians Emigrating to the United States

Canadians moving from Canada to permanently settle in the United States should take note of recent Internal Revenue Service (“IRS”) guidance providing relief from U.S. federal income taxation.

Foreign Corrupt Practices Act Update: A Rare Jury Trial, Increased Resources by the Feds and a Novel Theory to Charge Upper-Management All Reaffirm the Need for Vigilance in Policing a Company’s International Practices

Following a six-week jury trial in Manhattan federal court, a Connecticut investor was found guilty of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”). The case is noteworthy because FCPA cases rarely go to trial and the post-trial comments of the jurors provide insight into the critical “due diligence” a company or individual needs to undertake to avoid FCPA investigations by the government.

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Tax Provisions in Proposed Health Care Legislation Would Limit Benefits Provided by U.S. Income Tax Treaties

Foreign companies with activities in the United States should take note of the “Americans Affordable Health Choices Act of 2009″ (“H.R. 3200″). Although H.R. 3200 primarily addresses health care reform in the United States, it also includes a tax provision that affects the U.S. taxation of U.S. source interest, dividends, rents and royalties paid to foreign companies otherwise entitled to preferential tax rates under U.S. income tax treaties.

If H.R. 3200 is enacted, the preferential tax rates provided by U.S. income tax treaties for interest, dividends, rents and royalties may not be available to a foreign corporation if received from its U.S. subsidiary corporation.

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Conducting Business with Hybrid Tax Entities Between the United States and Canada: The Impact of New Paragraph 7 to Article IV of the U.S.-Canada Income Tax Treaty

The Fifth Protocol (the “Protocol”) to the U.S.-Canada Income Tax Treaty (“Treaty”) entered into force on December 15, 2008. The Protocol is generally effective for tax years beginning on or after January 1, 2009; however, certain provisions of the Protocol have a delayed effective date, including Paragraph 7 of Article IV, which is effective beginning January 1, 2010.

The Protocol makes significant changes to the tax treatment of hybrid tax entities used to conduct cross-border activities. These changes to the Treaty necessitate a review and reassessment of cross-border structures used by U.S. persons to conduct business or make investments in Canada.

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Investing in Canada Through a U.S. Limited Liability Company: The Impact of New Paragraph 6 to Article IV of the Canada-U.S. Tax Treaty

Since January 1, 2009, new tax rules affecting fiscally transparent entities investing into Canada have been in place. These new rules emanate from changes to the United States – Canada Income Tax Convention (the “Treaty”) as a result of the Fifth Protocol (the “Protocol”) to the Treaty which was signed December 15, 2008.

In view of the changes to the Treaty, cross border structures used by U.S. and Canadian businesses and investors deserve to be reviewed and reassessed. In particular, U.S. residents should review whether their investments into Canada should be structured or restructured to benefit from the new tax advantages that arise when such investments are structured through a fiscally transparent entity, such as a U.S. limited liability company, which, prior to the Protocol, did not qualify for Treaty benefits.

View the full article (PDF) to learn about the impact of Paragraph 6, Article IV of the Treaty on fiscally transparent entities like LLCs.

Expanded Scope of Requirement to Report Foreign Bank And Financial Accounts

Every U.S. person that has an interest in or authority over a foreign financial account must annually file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”) by June 30. In October 2008, the U.S. Treasury revised the FBAR to expand the list of persons obligated to file and required more detailed reporting of information concerning foreign financial accounts. The revisions were effective January 1, 2009, and any individual with foreign accounts or businesses with foreign accounts for general investment or day-to-day purposes should be aware of the expanded reporting requirements. View full article (PDF).

Proposed Federal Tax Legislation Would Alter U.S. Taxation of Foreign Entities

Foreign investors, and particularly foreign hedge funds, should take note of recently introduced U.S. tax legislation. On March 2, 2009, the Stop Tax Haven Abuse Act was introduced by Senator Carl Levin as Senate Bill 506 (“S.506″). It seeks to eliminate the use of offshore tax havens and correct other abusive tax situations. S.506 is similar to the 2007 proposed legislation (S.681) introduced by Senator Levin and co-sponsored by then-Senator Obama. A companion bill (H.R. 1265) was introduced in the U.S. House of Representatives and co-sponsored by 59 Democrats. U.S. Treasury Secretary Geithner recently stated that the administration supports legislation to shut down offshore tax havens. View full article (PDF).

Foreign Subsidiaries of U.S. Companies May Be Liable for FICA Taxes

On June 17, 2008, the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART”) was signed into law. HEART, which generally extends various tax relief measures to members and veterans of the U.S. armed forces, amends Section 3121 of the Internal Revenue Code of 1986 (the “Code”) to extend liability under the Federal Insurance Contributions Act (“FICA”) to certain foreign employers. View full article (PDF).

New Protocol to the United States-Canada Income Tax Treaty

As anticipated, the United States Department of Treasury and the Canada Department of Finance signed the 5th Protocol (“Protocol”) to the existing income tax treaty between the United States and Canada (the “Treaty”) on September 21, 2007. The Protocol is expected to be ratified by both countries before the end of 2007 and become effective on January 1, 2008. Once ratified, the Protocol will positively affect cross-border transactions between the United States and Canada. Among a number of changes to the Treaty, the following are significant changes that benefit U.S. taxpayers. View full article (PDF).

U.S. Taxation of Foreign Person – and Income Tax Treaty Between the People’s Republic of China and The United States

This article is intended as an introduction to the subject of U.S. taxation on inbound transactions. It is not a comprehensive treatment of the subject area and should not be relied upon as a reference source. It is intended to touch upon selected areas and issues involved with a foreign person’s U.S. activities in summary form. View full article (PDF).

This article first appeared in the March 2007 issue of the IPBA Journal.