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Uses of Hybrids in Tax Planning for U.S. Outbound investments. Lawrence Lokken , University of Florida College of Law Werner Heyvaert , Stibbe, Brussels Kathleen Penny , Blake, Cassels & Graydon LLP, Toronto Marco Q. Rossi , Marco Q. Rossi & Associati, New York. Example 1.

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uses of hybrids in tax planning for u s outbound investments

Uses of Hybrids in Tax Planning for U.S. Outbound investments

Lawrence Lokken, University of Florida College of Law

Werner Heyvaert, Stibbe, Brussels

Kathleen Penny, Blake, Cassels & Graydon LLP, Toronto

Marco Q. Rossi, Marco Q. Rossi & Associati, New York

slide3
USCo is a Delaware limited liability company whose three owners are U.S. citizens residing in Florida. It has historically carried on business only in the Florida, but it now has an opportunity to acquire the assets of a business located in Ontario.
    • If the acquisition is completed, USCo will organize the newly acquired business as an Alberta unlimited liability company, AlCo.
  • What U.S. and Canadian tax issues should USCo anticipate with respect to the Canadian business if
    • USCo is a partnership for U.S. tax purposes and
    • AlCo is a corporation for U.S. tax purposes?
slide4
USCo is a Delaware limited liability company whose three owners are U.S. citizens residing in Florida. It has historically carried on business only in the Florida, but it now has an opportunity to acquire the assets of a business located in Ontario.
      • If the acquisition is completed, USCo will organize the newly acquired business as an Alberta unlimited liability company, AlCo.
  • What U.S. and Canadian tax issues should USCo anticipate with respect to the Canadian business if
    • USCo is a partnership for U.S. tax purposes and
    • AlCo is a disregarded entity for U.S. tax purposes?
slide5
USCo is a Delaware limited liability company whose three owners are U.S. citizens residing in Florida. It has historically carried on business only in the Florida, but it now has an opportunity to acquire the assets of a business located in Ontario.
      • If the acquisition is completed, USCo will organize the newly acquired business as an Alberta unlimited liability company, AlCo.
  • What U.S. and Canadian tax issues should USCo anticipate with respect to the Canadian business if
    • USCo elects to be a corporation for U.S. tax purposes and also elects to be an S corporation and
    • AlCo is a corporation for U.S. tax purposes?
slide6
USCo is a Delaware limited liability company whose three owners are U.S. citizens residing in Florida. It has historically carried on business only in the Florida, but it now has an opportunity to acquire the assets of a business located in Ontario.
      • If the acquisition is completed, USCo will organize the newly acquired business as an Alberta unlimited liability company, AlCo.
  • What U.S. and Canadian tax issues should USCo anticipate with respect to the Canadian business if
    • USCo is an S corporation for U.S. tax purposes, and
    • AlCo is a disregarded entity for U.S. tax purposes?
slide7
How would the analysis of each of these alternatives change if one of USCo’s three owners is a Canadian citizen who spends about 40 percent of her time in Florida and 60 percent of her time in Canada?
slide8

Example 2

USCo

USCo and USub are domestic corporations filing consolidated returns.

100%

50 %

USub

50%

PRS

PRS is organized under the laws

of country X. Its income, derived in

the active conduct of business

in country X, is taxed by country X at 20 percent.

PRS is a partnership for country X tax purposes.

It’s partners are legally liable for country X tax on its income.

PRS elects to be a corporation for U.S. tax purposes.

PRS is a reverse hybrid

slide9

Example 3

USCo

USCo is a Delaware corporation

HoldCo

HoldCo, OPCo1, and OPCo2

are corporations organized under

the laws of country Y.

They constitute a fiscal unity

under the tax laws

of country Y.

HoldCo is a disregarded entity

for U.S. tax purposes.

OPCo1 and OPCo2 are

corporations for

U.S. tax purposes.

OPCo1

OPCo2

slide10

Example 4

USCo

100 %

CayCo

CayCo is a corporation

organized in a

tax haven country.

OPCo is actively engaged in

business in the country

in which it is organized.

It is a corporation for foreign

tax law purposes and a

disregarded entity for U.S.

tax purposes.

OPCo pays

royalties to CayCo,

which OPCo deducts

in determining tax

in its country of

residence.

100 %

OPCo

slide11

Example 5(a)

USCo

USCo is a Delaware corporation

HoldCo is a corporation

for U.S. tax purposes.

HoldCo

HoldCo is organized under the

laws of country X.

OPCo1 is organized under the

laws of country Y.

OPCo2 isorganized under the

laws of country Z.

OPCo1 manufactures

goods in country Y.

OPCo2 purchases these goods

and sells them to customers

in country Z.

OPCo1

OPCo2

OPCo1 and OPCo2 are corporations for U.S. tax purposes

slide12

Example 5(b)

USCo

USCo is a Delaware corporation

HoldCo is a corporation

for U.S. tax purposes.

HoldCo

HoldCo is organized under the

laws of country X.

OPCo1 is organized under the

laws of country Y.

OPCo2 isorganized under the

laws of country Z.

OPCo1 manufactures

goods in country Y.

OPCo2 purchases these goods

and sells them to customers

in country Z.

OPCo1

OPCo2

OPCo1 and OPCo2 are disregarded entities for U.S. tax purposes

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