3 Questions with Bryce Morrison: Tax Matters That Cross Borders

Bernstein Shur’s Bryce Morrison answers questions about tax matters that cross borders.

What is a common mistake that you see taxpayers make who have offshore bank accounts?

They are often unaware that they need to report foreign assets to the federal government. For example, they may work for a cross-border company and have signing authority on the company’s foreign bank account. They may be the executor of an estate of a relative who lived in a foreign country with a foreign bank account. They may be the beneficiary of a trust set up in a foreign country by a rich relative or they may own stock in a foreign company. There are strict reporting requirements that relate to these and other foreign assets. Taxpayers must report these assets to the Internal Revenue Service and also to the Financial Crimes Enforcement Network, which is part of the Treasury Department. There are significant penalties for failing to file these reports.

What is the best way for a business to expand into another country such as Canada?

It is important to keep in mind that tax and legal systems in other countries are similar, but they are also very different. For example, if a business is used to selling to customers in the U.S. and collecting sales tax, it is easy to think that this experience translates well to selling goods and services in Canada. However, the Canadian goods and services tax is a different kind of tax than a state sales tax. It has a different tax base and different reporting requirements. There is also a provincial goods and services tax in most Canadian provinces. Some of them are harmonized with the federal tax and some are not. So, the best way for a business to plan for the issues that will arise doing business in another country is to first talk to a tax professional who has experience in both the U.S. and the other country.

Can a business hire employees in another country?

The short answer is “yes.” A business can hire an employee that lives and works in another country. But the business should be aware that there are various issues that need to be addressed. For example, is the business taxable in the other country because it has an employee there? Can the business recover the tax paid to the other country or does it need to pay tax in the U.S. and in the other country? Does the business have any obligations under the other country’s employment laws? Does it have to withhold income tax in the other country from the employee’s paycheck? Although these tax issues seem to multiply quickly, there are professionals who routinely manage these complex issues. A business considering hiring an employee in a foreign country should check with an experienced tax attorney first.