Canadian Businesses Operating In The United States

IRS Compliance Requirements:

Determine whether the Canadian corporation is engaged in a U.S. trade or business and whether it has effectively connected income (ECI) subject to U.S. federal taxation.
File Form 1120-F (U.S. Income Tax Return of a Foreign Corporation) where required.
Review whether the corporation qualifies for an exception from filing Form 1120-F, including the effect of an applicable Canada–U.S. Tax Treaty position.
Determine whether the Canadian corporation has a U.S. permanent establishment (PE) under the Canada–U.S. Tax Treaty.
Review whether U.S. business activities create ECI, U.S.-source income, or other U.S. filing obligations.

File Form 5472 where applicable for certain reportable transactions involving a foreign-owned U.S. corporation or other covered entity.
Review Form W-8BEN-E requirements for establishing foreign status and claiming applicable treaty benefits.
Review applicable Forms 1042 and 1042-S for U.S.-source payments made to or by the business that are subject to withholding and information reporting.
Review U.S. withholding tax obligations on payments such as interest, dividends, royalties, management fees, and other cross-border payments.
Review transfer pricing requirements, including Form 5472 and/or Form 1120-F reporting, where applicable, for transactions between the Canadian business and related U.S. or foreign parties.
Determine whether the business has U.S. payroll obligations where employees perform services in the United States.
Register for applicable federal payroll accounts and file payroll returns where required.
Review Form 941, Form 940, W-2, W-3, and applicable state payroll filings for U.S. employees.
Determine whether the business has state corporate income tax or franchise tax nexus in one or more states.
Register for and file applicable state corporate income/franchise tax returns.
Determine whether the business has sales and use tax nexus and register for applicable state and local sales taxes.
File applicable sales and use tax returns and collect/remit sales tax where required.
Review state employer registration, unemployment insurance, workers’ compensation, and payroll withholding requirements.
Review property tax, business license, local tax, and other state or municipal registration requirements where applicable.
Review U.S. tax implications of inventory, warehouses, offices, employees, agents, contractors, and other physical or business presence in the United States.
Review the tax treatment of U.S. real property and potential FIRPTA obligations where the corporation owns or disposes of U.S. real estate.
Apply the Canada–U.S. Tax Treaty to determine permanent establishment, business profits, withholding rates, and allocation of taxing rights.
Maintain documentation supporting U.S. revenues, expenses, intercompany transactions, payroll, sales tax, inventory, fixed assets, related-party transactions, and U.S. business activities.

CRA Compliance Requirements

File the Canadian corporation’s T2 Corporation Income Tax Return annually, subject to the applicable filing requirements.
Report the corporation’s income and expenses in accordance with Canadian corporate tax rules.
Determine whether U.S. operations affect the corporation’s Canadian tax residency, income allocation, foreign tax credit, or international tax reporting obligations.
Review whether the corporation has a foreign affiliate and whether Form T1134 (Information Return Relating to Controlled and Not-Controlled Foreign Affiliates) is required.
Review foreign affiliate income, dividends, surplus accounts, and foreign accrual property income (FAPI) where applicable.

Review Form T1135 requirements where applicable. Note that T1135 generally applies to specified Canadian-resident taxpayers other than corporations that meet the applicable conditions, while a Canadian corporation may have separate foreign-affiliate reporting obligations such as T1134.
Claim a foreign tax credit for qualifying U.S. federal and state income taxes paid, subject to Canadian foreign tax credit rules and applicable limitations.
Review the Canadian tax treatment of U.S. permanent establishments, branches, subsidiaries, and other U.S. business structures.
Review transfer pricing requirements for transactions between the Canadian corporation and related U.S. entities.
Maintain appropriate contemporaneous documentation supporting transfer-pricing positions where required.
Review intercompany transactions, including management fees, royalties, interest, financing, cost allocations, services, and purchases or sales of inventory.
Review Canadian withholding tax requirements on certain payments made to nonresidents and determine whether Regulation 105 or Regulation 116 may apply to specific transactions.
Review GST/HST implications of cross-border sales of goods and services to U.S. customers.
Determine whether supplies to U.S. customers qualify for zero-rating for Canadian GST/HST purposes.
Review import/export and customs considerations, including the GST/HST treatment of goods moving between Canada and the United States.
Review Canadian payroll and T4/T4A reporting where employees or contractors perform services in Canada or where cross-border employment arrangements exist.
Review the Canada–U.S. Tax Treaty to determine how U.S. business activities and permanent establishments affect the allocation of business profits between Canada and the United States.
Maintain documentation for U.S. tax paid, foreign affiliate information, intercompany transactions, transfer-pricing documentation, GST/HST records, payroll, revenue, expenses, and cross-border transactions.