The Americas. An Intro to Cross Border Taxation of Leased Equipment in: Canada, Mexico & Puerto Rico

Transcription

1 The Americas An Intro to Cross Border Taxation of Leased Equipment in: Canada, Mexico & Puerto Rico ELFA Tax Professionals Roundtable Washington D.C. June 4 6, 2007

2 Presenters Moderator: Mark Holcomb Holland & Knight LLP Speaker: Val Pfeiffer CIT Group

3 The Americas An Intro to Today s Discussion Overview of cross border leases Global tax concerns on cross border leases Leasing into Canada Leasing into Mexico Leasing into Puerto Rico with emphasis on recently enacted sales tax

4 Cross Border Leases Direct Cross Border Rent Payment USA Lessor Foreign Lessee Finance or True Lease Cash Payment Sell Equipment USA or Foreign Equipment Supplier Transport Equip Foreign Equipment Location

5 Cross Border Leases Multi-National Cross Border Rent Payment USA Lessor USA Lessee Finance or True Lease Cash Payment Sell Equipment USA or Foreign Equipment Supplier Transport Equip Foreign Equipment Location

6 Cross Border Leases Global Tax Concerns Permanent Establishment ( PE ) and a Lessor obligation to file and pay corporate tax is tax treaty specific Generally, direct cross border leases do not create PE but do incur a withholding tax Foreign withheld taxes may be used as a foreign tax credit against US tax liability, subject to certain limitations

7 Cross Border Leases Global Tax Concerns - Continued Generally, multi-national cross border leases do not incur a withholding tax Most countries impose a value added tax ( VAT ) which is recoverable to registrants on business to business transactions, albeit a net exemption on B2B Cross border leases frequently tend to generate a non-recoverable VAT, albeit an expense

8 Canada Direct Cross Border (US lessor, CN lessee, CN equipment) Withholding Tax True Leases -10% of rent Finance Leases 10% of interest Federal Goods & Service Tax ( GST ) 6% on all transactions, input credit rather than resale exemption To the extent lessor is carrying on business in Canada pursuant to GST/HST Policy Statement P-051R2 revised 4/5/05 Provincial Sales Tax ( PST ) Similar to US sales tax, rates vary from 5% - 10% 14% GST & Harmonized Sales Tax (NB, NF, NS) 7.5% Quebec Sales Tax, operates same as GST Policy Statement P-051R2 understood as guiding principal for PST

9 Canada Multi-national Cross Border (US lessor, US lessee, CN equipment) Federal Goods & Service Tax To the extent lessor is determined to be carrying on business in Canada pursuant to GST/HST Policy Statement P-051R2 revised 4/5/05 Provincial Sales Tax Policy Statement P-051R2 understood to be guiding principal for the

10 GST & Provincial Rates CANADA GST,HST and PROVINCIAL TAX Effective as of 10/28/06* PROVINCE: HST * GST RATE * PST/QST RATE Include GST in base for PST/QST In addition to GST, Pay HST/QST to Vendor* Alberta 6% - N/A N/A British Columbia 6% 7% No NO Manitoba 6% 7% No NO New Brunswick 14% No Yes Newfoundland 14% No Yes Northwest Territories 6% - N/A N/A Nova Scotia 14% No Yes Nunavut 6% - N/A N/A Ontario 6% 8% No NO Prince Edward Islands 10% (w /gst factor calculates 6% as 10.6%) Yes NO Quebec 7.5% (w / gst factor 6% calculates as 7.095%) Yes Yes Saskatchewan 6% 5% No NO Yukon Territory 6% - N/A N/A

11 Mexico Direct Cross-Border (US lessor, MX lessee, MX equipment) Withholding Tax True Leases -10% of rent Finance Leases 10% of interest Value Added Tax (VAT) 15% standard rate 10% border towns and imports

12 Mexico Multi-national Cross Border (US lessor, US lessee, MX equipment) Withholding Tax True Leases -10% of rent Finance Leases 10% of interest Value Added Tax (VAT) 15% standard rate 10% border towns and imports

13 Puerto Rico Direct Cross Border (US lessor, PR lessee, PR equipment) Withholding Tax True Leases - 29% of rent Finance Leases 29% of interest only if paid to a related corporation or partnership Sales Tax (VAT) Personal Property Tax True Leases Only if determined to be engaged in business in Puerto Rico. Questionable.

14 Puerto Rico Multi-national Cross-Border (US lessor, US lessee, PR equipment) Sales Tax (VAT)

15 Puerto Rico Sales Tax Commonwealth imposed and collected In partial conformance with Streamline Municipal tax is imposed and collected at local level Taxability is established by local ordinance which may or may not be same as Commonwealth San Juan follows Commonwealth with few deviations

16 Puerto Rico Sales Tax - Continued Puerto Rico Regulation 7249 provides most comprehensive guidance With regards to leases, Regulation 7249 provides a California continuing sale concept wherein a lease that is a sale is taxed on the receipts Regulation 7249 is available on ELFA website: Also see ELFA initial Q&A with Treasury:

17 Taxable Base Included: Puerto Rico Sales Tax Delivery Charges Installation Excluded: Key Provisions Warranty/Maintenance Separately stated interest on finance leases Personal Property Taxes per Treasury response to ELFA Q&A, official administrative ruling pending

18 Puerto Rico Sales Tax Key Provisions Exemptions Resale for purchase of equipment for lease as a sale Manufacturing machinery & equipment Government agencies 90 day sale leaseback 12 month exemption for leases in place as of 10/30/06 Continued exemption must be authorized by Treasury. ELFA is seeking additional clarification

19 Puerto Rico Property Tax Key Provisions Assessed on market/book value as of January 1 st each year Combined Commonwealth and municipal tax ranges from 6% to 6.83% and is self-assessed at time of filing annual return Annual return is filed with Municipal Revenue Collection Center (CRIM) If a corporation gross receipts > $l,000,000, the property tax return must be reviewed by a Puerto Rico licensed CPA and accompanied by financial statements certified by CPA licensed in Puerto Rico.

20 As always, the devil is in the details No short answers when leasing in or into other countries Do consult with experienced and knowledgeable counsel Do have isolate all the facts of your deal