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Canadian Agri Food Exporter’s Top 10 U.S. Tax Myths - What You Don't Know Could Cost You

04/03/2010


With the Canadian agri food industry exporting approximately 70% of its products to the U.S, it’s important to know the cross- border tax issues that could affect you.  According to Andrew Raphael, MNP’s Director of Agri Food , cross-border issues with the U.S. are becoming  more complex as real and perceived threats from terrorism, health concerns and the recession continue to rise.

“These threats have stimulated U.S. protectionism, such as ‘Country of Origin Labeling’ and the ‘thickening’ of the Canada U.S. border in some areas,” says Raphael. “As a result, it’s more important than ever to be aware of a number of tax myths that are exposing Agri food exporters to the U.S. to harsh penalties and fines.”

Michael Shumate, a U.S Tax Specialist and Partner in MNP’S Toronto office shares Raphael’s sentiments.  “If you have heard yourself or others mutter any of the following myths, it’s time to talk with a U.S. corporate tax professional to get the facts before it costs you.”

The Top Ten Tax Myths To Avoid:

  1. If I don’t file, the IRS can’t catch me.
  2. The treaty will protect my company if I try to hide.
  3. We don’t have a permanent establishment because we never conclude a contract in the U.S.
  4. We bonus down each year, so there’s no profit for the IRS to tax.
  5. Our U.S. Subsidiary (or branch) never makes a profit, so we’re not exposed.
  6. We have a U.S. Subsidiary, so we’re fine.
  7. If the IRS can’t tax us, neither can a state.
  8. We don’t need to worry about sales taxes.
  9. We don’t need to worry about those “other” taxes.
  10. We’re Canadian so U.S. payroll taxes don’t apply to us.

Shumate reminds all companies doing cross-border business that if their U.S. customer is in the U.S., there is a significant trail already. “Believing these myths or pleading ignorance isn’t going to protect you from the U.S. tax man,” he says. “If you are doing business in the U.S., you are required to file U.S. income tax and information returns and you may also have additional filing requirements, even if the activities are limited.”

Lori Schmaltz, an MNP Agri Food Specialist in Alberta explains that because the U.S. economy still faces economic insecurity, you could be subject to higher taxes as our southern neighbours try to balance their budgets.
“Many cross-border businesses face a heavy burden on business profits and capital gains with global tax costs that are excessive and disproportionate. It’s a lot easier to tax those who can’t vote in the U.S,” warns Schmaltz.

Raphael confirms that there are a number of effective strategies to help minimize the tax implications for Canadian food  processors with cross-border business activities, but it’s important to work with professionals who understand U.S. tax law from a Canadian perspective.  “An experienced U.S. tax professional can help you pay the least amount of tax possible while ensuring you avoid onerous tax penalties from failing to comply.”

MNP’s 65 years of experience in the Agri food sector combined with an experienced National U.S. Corporate Tax Team gives them the industry insight to understand the issues and deliver the strategies you need to address your cross-border and export issues.

To find out what MNP can do for you, contact Andrew Raphael, Director of Agri Food at [email protected] or call 1.877.688.8408.