Aug. 7, 2018
U.S. tax reform has essentially reversed long-held tax-related assumptions, Osler partner Paul Seraganian tells the Association for Financial Professionals (AFP). In his article, author John Hintze examines the worldwide impact of U.S. corporate rates being lowered as part of U.S. tax reform. The article argues that tax reform in the U.S. “echoes a wider trend of tax changes worldwide” that businesses that engage in cross-border operations should be mindful of. Paul, Managing Partner of Osler’s New York office and a taxation expert, explains the implications of U.S. tax reform for countries such as Canada, which has close trade ties to the U.S.
“The river used to flow one way, and now it’s going in the opposite direction, and that creates a number of foreseeable and, frankly, possibly unforeseeable results,” Paul tells AFP. He adds that the “notion applies especially to Canada because of its proximity and outsized trading relationship with the U.S., but similar dynamics are relevant to other jurisdictions as well.”
One such example, according to Paul, is tax deductions. Paul tells AFP that if they can, companies will harvest them in the jurisdiction with the higher tax rate. He says that in light of the new tax situation and other factors, companies with cross-border business ties may decide that over time, centralizing management in the U.S. and charging a higher management fee to the Canadian company for U.S. services makes more sense, because “it’s deflecting income at a higher rate in Canada and taking income inclusion at a lower rate in the U.S.”
Paul also discusses the other variables at play with respect to the new relationship between tax regimes, that could impact a company’s operations, including depreciation deductions, capital expenditures and intellectual property (IP).
“If you’re moving intercompany items that generate deductions into Canada, that largely means you’re moving income-producing factors to the U.S., whether it’s IP, IP management or other intercompany resources,” Paul says.
For more information, read author John Hintze’s article “U.S. corporate tax reform catches up to global trend” in AFP.