AMERICAN TAXATION
Canada-U.S. Tax Treaty: Article XXIV
- Article XXIV of the Canada-U.S. tax treaty aims to prevent double taxation and ensure a credit for taxes paid in the other country. Residents working across the border must report their worldwide income to both tax authorities: the IRS (United States) and the CRA (Canada). Mechanisms like the Foreign Tax Credit (FTC) help minimize bilateral tax obligations.
Advice for Businesses Expanding Cross-Border
Entity Structuring and Restructuring
- Canadian businesses should consider structures like LLCs (Limited Liability Companies) or corporations for their U.S. operations. The pass-through taxation of LLCs can offer tax advantages under certain conditions.
FIRPTA Application
- Canadian businesses selling U.S. real estate must comply with the Foreign Investment in Real Property Tax Act (FIRPTA), which imposes a 15% withholding on the gross sale amount. Exemptions may apply, for example, if the buyer uses the property as a primary residence.
State and Local Taxation (SALT)
- Businesses must comply with local sales and use tax requirements, particularly economic nexus thresholds. The South Dakota v. Wayfair decision requires sellers to collect taxes even without a physical presence in the state. Examples of 2024 thresholds:
- California: $500,000 in sales, services excluded.
- New York: $500,000 and 100 transactions over four quarters.
- Texas/Tennessee: $500,000, including taxable services.
- Michigan/Minnesota: $100,000 or 200 transactions.
- Massachusetts: $100,000, no transaction threshold.
- Illinois/Pennsylvania: $100,000 or 200 transactions.
- Nebraska/Nevada/Utah: $100,000 or 200 transactions in the current or previous year.
Tax Optimization and Asset Protection
Tax Optimization
- U.S. LLC Tax Treatment: LLCs benefit from pass-through taxation, with profits taxed directly to owners, reducing the overall tax burden through foreign tax credits and treaty provisions.
- Canadian LLC Tax Treatment: In Canada, LLCs are treated as separate corporations, creating opportunities for tax planning to minimize cross-border taxation.
Asset Protection
- Using a trust to hold interests in an LLC provides protection against creditors and litigation. This mechanism is particularly advantageous for real estate investments and other significant U.S. assets, while also facilitating estate planning.
- Businesses and individuals operating on both sides of the border can leverage these strategies to optimize taxation, manage assets effectively, and ensure compliance with both countries’ tax regulations.
American taxation is one of the most complex tax systems in the world. It imposes strict compliance, international planning, and tax risk management obligations for businesses operating in the U.S. Whether you are a multinational or a business expanding into the U.S. market, rigorous tax planning is essential to minimize your tax burden and maximize profits.
Our American Taxation Services
- International Tax Planning: Optimizing tax structures to reduce taxes on profits and income.
- Tax Compliance: Managing tax obligations under the Internal Revenue Code and U.S. Treasury regulations.
- Cash Flow Optimization: Strategies to maximize liquidity and minimize tax burdens.
- Tax Risk Management: Assessing and mitigating tax risks to protect your assets.
- Mergers and Acquisitions: Tax advice for structuring advantageous international transactions.
- International Restructuring: Reorganizing subsidiaries to optimize tax benefits and reduce risks.
- Tax Deductions and Income Deferral: Strategies to maximize deductions and defer taxes.
- Audit and Compliance: Preparing and managing tax audits to avoid costly penalties.
Why Choose Us?
With deep expertise in corporate taxation, we help you navigate the complexities of the U.S. tax system, maximize tax benefits, and minimize obligations. Our lawyers provide tailored solutions to ensure compliance, optimize cash flows, and reduce tax risk exposure. Trust our firm to structure tax strategies suited to your business needs and support your international expansion.
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