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© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 1 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 1
ONB and KPMG: Exporting to the US? Learn How to Avoid US Taxation Surprises that Hurt Your Bottom Line ONB et KPMG : Apprenez à éviter les surprises fiscales américaines qui affectent vos résultats nets.
Opportunities NB Webinar Series
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 2 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 2
Host: Heather MacLean Director of Marketing / Directrice du marketing Opportunities / Opportunités NB Guest: Candace Sears Senior Manager and leader of KPMG’s New Brunswick US Tax Practice gestionnaire principal et responsable de la pratique fiscale américaine de KPMG au Nouveau-Brunswick
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 3 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 3
Today’s Speaker
Candace Sears Senior Manager KPMG in Canada T: +1 506 453 7367 E: [email protected]
Canadian, US, and Cross Border Taxation
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 4 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 4
Client-focused, proactive, professional and accountable, Opportunities NB is the first point of contact for local and foreign businesses looking to grow, expand or locate. We are focused on performance, high growth opportunities and growing New Brunswick. Opportunities NB is poised to:
• Support business development inside New Brunswick, including business support services for small, medium-sized and large businesses;
• Proactively pursue high growth opportunities through exports and foreign investment; and
• Work with industry partners, economic development stakeholders and public sector partners to identify, build and support a portfolio of significant high growth opportunities both within and outside the province!
If growth through exporting is in your business plan, you’ve come to the right place. We specialize in providing one-on-one counseling and specialized services to export-ready companies and existing exporters.
Exporting to the US & Taxation KPMG in Canada Tax kpmg.ca/tax
March 17, 2016
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 6
Exporting – By the Numbers
US Exports Pay Off
In 2014 Exports from NB totaled $13 billion
FAST FACTS
Local venture capitalist claims that 75% of all sales made by their portfolio companies are exports.
FAST FACTS
2014 Exports made up 47.5% of the provincial economy
FAST FACTS
92% of NB exports go to the United States
FAST FACTS
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 7
Agenda
Topic
1. The Canada & US Tax Treaty 2. Canadian Taxation 3. US Federal Tax 4. US State Tax 5. Business Travelers 6. Planning Ahead & Remediation
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 8 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 8
The Canada-US Tax Convention (Treaty)
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 9
The Canadian-US Tax Convention
Avoids Double Taxation Must be taxable in both countries first
A shield, not a sword
Taxes paid in one country will count towards total tax bill in the other “The Treaty”
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 10 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 10
Canadian Taxation
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 11
Canadian Taxation
Canadian Resident Individuals Federal Taxation based on Residency
Provincial Taxation based on Residency
Canadian Corporations Federal Taxation based on
Incorporation & Shareholders
Provincial Taxation based on salaries & revenues
Permanent Establishment required to owe provincial tax
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 12
Canadian Taxation
Provincial Permanent Establishment A fixed place of business Office Space Manufacturing Plant A construction project lasting longer than 183 days
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 13 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 13
US Federal Taxation
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 14
US Federal Taxation
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Canada-US Border – - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CAN CO
US CO
Subsidiary
CAN CO
Branch
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 15
US Federal Taxation
US INCOME CONNECTED TO A TRADE OR BUSINESS
A Permanent Establishment Exists
No Permanent Establishment
A US Corporate Return must be filed.
No Federal Taxation.
Treaty return claims treaty protection.
Preserves the right to deductions
A US Corporate Return must be filed.
Tax Rates 15-39%
Deduct expenses related to earning US income.
Branch taxes apply
CAN CO
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 16
US Federal Taxation US Trade or Business Sale of Services For Federal purposes – sale occurs where service
Is performed
Sale of Products For Federal purposes – sale occurs where
ownership changes hands
Consider – FOB Destination, FOB Dock
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 17
US Federal Taxation – Permanent Establishment A “fixed place of business” through which your business is carried on Includes: A dependent agent (like an employee) that has
authority to habitually conclude contracts. An employee or project which is ongoing in the US
for longer than 183 days in any 12 month period
Does not include: Use of facilities for storage, display, or delivery of
inventory Purchasing goods or collecting information Advertising, supplying information, research
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 18
US Federal Taxation – Filing Requirements Permanent Establishment Form 1120
Due 2.5 months after year end
Consequences of non-filing
Double taxation Interest & penalties on unpaid tax $10,000 penalty for related party trans.
No Permanent Establishment Form 1120F
Due 5.5 months after year end
Consequences of non-filing
$10,000 penalty Tax on gross income
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 19 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 19
US State Taxation
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 20
US State Taxation
Three primary types of state taxes Income/Franchise
Non-income based taxes Gross Receipts tax (e.g. OH, KY, NJ, WA)
Sales and use tax
Also property taxes, licensing taxes, etc.
Each state has their own tax regime, And their own threshold of Nexus
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 21
US State Taxation US Trade or Business Sale of Services For Federal purposes – sale occurs where service
Is performed
For State purposes – sale occurs where service is enjoyed (location of customer)
Sale of Products For Federal purposes – sale occurs where
ownership changes hands
For State purposes – sale occurs where product is delivered (location of customer)
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 22
US State Taxation
What is “Nexus”? The minimum contact/connection with the state that allows it to impose tax
Different standards in different states and for different taxes
Solicitation of sales of products does not create income tax nexus, but it DOES create Franchise/sales tax nexus
Solicitation of sales of services generally DOES create nexus
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 23
US State Taxation
What is “Nexus”? The minimum contact/connection with the state that allows it to impose tax
Common nexus creating activities
Storage of inventory in warehouses
Delivery of goods in company-owned vehicles
Employees in the state
Independent Agents
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 24
US State Taxation
If a Foreign Person (Canadian company) is doing business in the US, then they probably have nexus in one or more states even if no US federal PE
Half of the states do not follow the treaty.
When federal income tax is zero, states will still impose tax. Consider whether US federal tax treatment is different at state level
Materiality of exposure needs to be evaluated
Where available, consider voluntary disclosure programs for known material exposures
Various state tax returns – typically due 2.5 months after year end
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 25 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 25
Business Travelers
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 26
Business Travelers
A Canadian company
Employing Canadian resident employees
Employees travel to the US for:
Tradeshows
To make sales
To perform installations
To train customers
Employees may be required to file a US non-resident tax return.
To report income earned from you.
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 27
Business Travelers Employee Earning Greater than $3,000 USD
• We assume 240 working days per year
• If your employee earns $60,000, it will take roughly 12 days.
• Must file a US tax return to claim treaty exemption
Employee Present for more than 120 Days (4 months)
• Formula to meet the threshold is 100% of current year days + 1/3 of days in the prior year + 1/6 of days in the second preceding year.
• If total is more than 183 – Must File a Closer Connection Election
Employee Present for more than 183 Days
• Employee may be taxable in the US
• Depends on the company’s presence in the US and % of US sales.
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 28
Business Travelers
Employee Consequences
• $1,000 Penalty per year, per employee
• No Statute of Limitations
• Back Taxes Owing
• Border Restriction
Employer Consequences
• Border Restriction
• Penalties for Failure to Withhold
• Unhappy or Disengaged Employees
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 29 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 29
Planning Ahead and Remediation
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 30
Remediation Voluntary Disclosure
File 6 years of overdue corporate returns
Must be submitted before any notice is received from the IRS
Waiver of Penalties 1st time non-compliant
Acting in good faith
State Amnesty Agreements Number required is based on state
Not all offer amnesty agreements
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 31
Planning Ahead
If the Goal is to minimize taxation Consider whether the states you
plan to enter are treaty or non-treaty states
Significant presence, such as warehouses, should be placed in treaty states
Review contracts to ensure employees don’t have the ability to conclude contracts
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 32
Planning Ahead
If the Goal is to expand aggressively Consider using a US subsidiary instead
of a branch to segregate US exposure
Separate US PE assets & employees into the subsidiary
Consider where to incorporate: Delaware, Nevada & North Dakota are popular states
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 33
A Nut Worth Cracking
“Firms that export tend to have higher productivity and they grow faster. The more export-oriented firms can become, the stronger their productivity will be.” “With an export growth increase of 300% in the past four years, there is great potential for NB companies in exporting.” – Opportunities NB
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 34 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 34
Questions
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 35 © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 35
Opportunities NB Webinar Series Tel: 1.506.453.5471 Toll free: 1.855.746.4662 Email: [email protected]
Upcoming: Leveraging New Brunswick’s Atlantic Gateway Transportation Assets Featuring Leading Experts from New Brunswick’s largest transportation hubs – Scheduled for May 19th at 3:00 p.m. AST
Thank you
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks of KPMG International.
Any Tax advice in this communication written by KPMG LLP is not intended or to be used, and cannot be used, by any person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (iii) promoting, marketing or recommending to another party any matters addressed herein. This presentation may contain a discussion or analysis of decided tax cases. Any discussion or description of the facts of the case or the positions argued by the parties is based solely on publicly available information. For greater certainty no confidential client or taxpayer information is disclosed. This information is current to February 21, 2016. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
kpmg.ca/tax