Case Studies

Situation:
Canada Ltd. has sold products in the US market for many years. Canada Ltd.’s sale orders have been taken in Canada and accepted in Canada. The company’s products have been shipped from Canada to the end user in the US. Canada Ltd. has been in operation for 3 years, has Canadian employees and profitable financial statements. Canada Ltd. desires to take the next step, open its own warehouse in the US and hire US workers. Canada Ltd. desires to manage its US operation by transferring a key supervisor to the US. The supervisor is denied access to the US due to his lack of immigration status.

Solution:
Canada Ltd. forms a US Corporation. The US Corporation becomes a wholly owned subsidiary of Canada Ltd. Canada Ltd’s supervisor applies for an L Visa to enter the US.

Situation:
Canada Ltd. enters into an arrangement to “partner up” with a California retailer “California Corp.” California Corp. arranges for their California lawyer to form a California Limited Liability Company “California LLC”. The lawyer issues 50% ownership in California LLC to Canada Ltd. and 50% to California Corp. Canada Ltd. is then advised by a US CPA that Canadian individuals or corporations entering into an LLC may be subject to double taxation.

Solution:
A US Corporation “US Corp.” is formed as a wholly owned subsidiary of Canada Ltd. US Corp assumes ownership of Canada Ltd.’s 50% interest in California LLC thus eliminating the double taxation issue.

Situation:
Canada Ltd. has successfully sold and shipped its products into the US for years. A change in US Custom regulations now requires that Canada Ltd. disclose the Tax ID number of the end user on all shipments cleared through US Customs. US customers are reluctant to give out their Tax ID numbers to foreign entities.

Solution:
Canada Ltd. forms a wholly owned subsidiary “Washington Corp.” Canada Ltd. sells products through Washington Corp. and avoids the requirement to obtain customers Tax ID information.

Situation:
Canada Ltd. is in the business of providing automated equipment for factories. Canada Ltd. has been “quietly” doing business in the US for 13 years with revenues in the millions without having registered with the IRS or local tax authorities in five states. Canada Ltd.’s new Controller decides to “start anew” and completes forms in five (5) states to register as a foreign corporation authorized to transact business. In the middle of each state’s application is the question “When did you start doing business in the state?” The Controller inserts a date 13 years ago subjecting Canada Ltd. to a 13 year look back for state taxes.

Solution:
A new US Corporation US Corp is formed as a wholly owned subsidiary to Canada Ltd. Again the same question: “When did US Corp. begin to do business in the US?” Answer: “US Corp. has to date not transacted business in the US.” The look back tax liability for US Corp. is eliminated.

Case Study:

A Canadian investor desires to purchase residential or commercial real property in the United States. The investor does not wish to form a US Corporation where he will be taxed at the corporate level and then again when distributions are made to the Shareholders. The investor also does not desire to form a US Limited Liability Company (LLC) where he will be taxed at the corporate level and then again when distributions are made to the LLC Members.

Solution:

The investor, after consultation with his Chartered Accountant and Certified Public Accountant forms a Limited Partnership (LP).

• There is only one level of taxation. The partnership is a flow-through entity and therefore any capital gain realized by the partnership when disposing of the residential or commercial property will only be taxed at the partner (individual and CCPC) level since partnerships are non-taxable entities;
• A U.S. limited partnership is created or organized in the U.S. This means that they will be considered to be a U.S. Person. As such, the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) will not be applicable during the disposition of the residential or commercial real properties. Therefore, the 10% withholding tax of the gross proceeds will be avoided;
• As a limited partnership, it provides a limited liability protection for the limited partner (Individual Investor); and
• Unlike an LLC, the Canadian tax treatment will be the same – income is taxed on the partner-level. For Canadian taxation, for an LLC structure, the taxpayer is taxed on the corporate level and then again when distributions are made to the LLC members.

Case Study:
A New Zealand company has a single employee in the US paid by the New Zealand company. The New Zealand company desires to have a nationally recognized US payroll company prepare the state and local payroll reports. The US payroll company requires that a foreign entity has a US bank account from which payroll taxes are guaranteed.

Solution:
New Zealand company registers in Washington as a foreign corporation authorized to transact business in Washington and opens a Washington bank account to meet the US payroll company’s requirements.

Situation:
Canada Ltd.’s Canadian insurance broker is unable to provide insurance for Canada Ltd.’s products sold in the United States

Solution:
A US Corporation was formed as a wholly owned subsidiary of Canada Ltd. US Corp. secured insurance from a US insurance carrier. Canada Ltd. remained insured by the Canadian insurance carrier.

Situation:
A European staffing company desires to bid a contract in the State of Alaska to provide engineers to work at oil refineries in Alaska. The bid documents require that the successful bidder be registered to transact business in the State of Alaska.

Solution:
The European company forms a management company in Alaska “Alaska Management Corp.” which is a wholly owned subsidiary of the European company. Alaska Management Corp. bids the contract.