Tuesday & Wednesday, January 28‐29, 2020 Hya� Regency Columbus, Columbus, Ohio Workshop B Effect of U.S. Wayfair Decision on Inbound and Outbound Cross-Border Sales Involving Canada Tuesday, January 28, 2020 1:45 p.m. to 2:45 p.m.
Biographical Information Terence Valencic Jr., CPA, MT, Senior Manager, State and Local Tax Parker-Hannifin Corporation, 6035 Parkland Blvd., Cleveland, OH 44124 216-896-3341 Fax: 216-896-4039 terence.valencic@parker.com Terry began his tax career with the Cleveland office of PricewaterhouseCoopers in 2005. Over his 10+ years with PwC, Terry progressed to become a Director in the State and Local Tax practice. He worked with large publicly-held, multinational companies as well as a variety of privately-held clients. In his various client service roles, his primary focus was in the state and local income tax arena. He was primarily responsible for ASC 740 state income tax reviews, compliance and other consulting and planning projects. Terry joined Parker-Hannifin Corporation in 2015 and leads the state and local tax team. He and his team are primarily responsible for state and local income/franchise, sales/use and property taxes. Terry is also responsible for integrating tax technology tools across various Parker platforms. Terry holds a Bachelor of Science in Business Administration degree from The Ohio State University and a Master of Taxation from the University of Akron. Terry is a CPA and member of the Institute for Professionals in Taxation. Rosemary J. Anderson, CPA, CA, Partner, Thorsteinssons LLP 595 Burrard St., Vancouver BC Canada V7X1J2 604.602.4279 rjanderson@thor.ca Rosemary Anderson has practiced exclusively in solving Canadian sales tax and customs issues for clients for more than twenty years. Formerly the partner in charge of indirect tax for Price Waterhouse in Vancouver, Rosemary has extensive experience businesses around the world with their Canadian sales tax and customs issues. Rosemary joined Thorsteinssons in 2001 and was appointed National Practice Group Leader in 2008. Thorsteinssons LLP is the largest law firm practicing exclusively in tax in Canada. Rosemary is recognized by International Tax Review as one of Canada’s Leading Indirect Tax Advisors. Rosemary is one of ten practitioners on the Chartered Professional Accountants Commodity Tax Committee for Canada and is also involved in practitioner liaison committees with the Province of British Columbia.
Biographical Information Edward J. ("Ted") Bernert, Partner, Baker & Hostetler LLP 200 Civic Center Dr. Ste. 1200, Columbus, OH 43215-4138 ebernert@bakerlaw.com 614.462.2687 Fax 614.228.1541 Ted Bernert concentrates his practice in the area of state and local taxes, with a particular emphasis on the major Ohio taxes affecting businesses and business owners – sales and use, financial institution, personal income, commercial activity and real property taxes. He represents national companies concerning Ohio tax matters related to compliance, planning and tax legislation. Ted is chair of the State and Local Tax Committee of the American Bar Association Tax Section, and is a past chair of both the Ohio State Bar Association Taxation Committee and the State and Local Tax Section of the Columbus Bar Association. Ted was appointed by the governor to the Ohio Business Gateway Steering Committee to address the continued development of an electronic link for filing taxes and other matters affecting business. He also serves as a member of the Ohio Chamber of Commerce Taxation Committee. Ted is an adjunct professor of state and local taxes at the Capital University Law and Graduate Center, and served as chief editor of Ohio Tax Review, formerly published by the center. He currently serves as the co-editor of the Guidebook to Ohio Taxes, published by Commerce Clearing House. He has repeatedly been named a “Super Lawyer” in the area of taxation and holds an AV rating by Martindale-Hubbell.
Wayfair – Effects on Inbound and Outbound Cross-border Sales Involving Canada Rosemary Anderson, Thorsteinssons LLP Terence Valencic, Parker Hannifin Corporation Edward (Ted) Bernert, BakerHostetler LLP
Introduction • When the Wayfair case was being argued to the U.S. Supreme Court, interested parties asked the Court to address the international implications in its decision. • The Court wholly failed to address the application of the new use tax nexus standard to sales across national borders. • After Wayfair, there is a need to focus on its international implications. • While sales of tangible personal property present the most pressing concern to sellers, cloud computing, streaming services and other aspects of the digital economy are focusing attention on the ability of markets to impose tax on remote sellers selling to customers from abroad. 2
Introduction (Cont.) • This session will limit its focus to the international side of Wayfair. • The issue is whether the inbound sales from Canada are subject to many of the considerations as interstate sales. – We will not be addressing the effect of Wayfair on interstate sales, which is addressed in a number of other sessions. • On outbound sales, there are a number of issues confronting those selling into Canada. 3
Introduction (Cont.) The initial reactions to Wayfair on the international front typically was the following: • Wayfair was a case involving interstate and not international commerce and surely the rules are different when the seller is a foreign company. • Wayfair is not binding on Canada or its provinces and thus changes nothing. • Even if the states could apply Wayfair in the international context, surely the states would not be chasing sellers trying to enforce U.S. judgements in foreign countries because countries do not enforce other countries’ tax laws absent a treaty. Over time, the thinking has evolved. 4
International Commerce Versus Interstate Commerce • The treaties generally, and the U.S. and Canadian treaties in particular, do not insulate sellers from being subject to subnational (states, provinces, counties, cities) taxes in the other country. • The physical presence standard operated like the permanent establishment concept for the income taxes covered by treaties. • Sellers assumed that with no permanent establishment and no physical presence, there was no need to comply. • When the states were relieved from establishing physical presence for sales and use tax, the settled expectations of sellers that absent a physical presence in the states, the tax laws of the destination states did not apply to cross-border sales, suddenly disappeared as a defense. 5
Canada and its provinces were not affected by Wayfair • Unquestionably, Wayfair has no direct impact above the border. • Moreover, the treaties between Canada and the U.S. do not provide that the states can enforce their tax judgments in Canada. • However, the Canadian provinces are paying attention to the revenue opportunities presented by seeking PST from U.S. sellers using Wayfair as a model. • The OECD has also recommended expanding VAT registration requirements to address ecommerce transactions which Quebec adopted effective January 1, 2019 6
Forcing Canadian sellers, especially affiliates of U.S. companies, to collect taxes of the U.S. states. • The most significant evolution of thought has occurred in the analysis as to whether Canadian sellers should collect U.S. tax on in- bound sales. • Even though the states cannot expect to be able to enforce tax judgements in Canada, other reasons exist why the Canadian companies may begin to collect. 7
Why Canadian sellers may need to comply. • The most prevalent scenario that we have seen that pushes the Canadian seller toward compliance in the U.S. is having an affiliate in the U.S. providing the hook for the state revenue authority. • The issue is less about the U.S. affiliate creating nexus for the Canadian entity and more about the U.S. taxing authority seeking recovery of the Canadian entity’s tax against the U.S. affiliate for amounts owed to the Canadian company. 8
Why Canadian sellers may need to comply. (Cont.) Reasons other than the existence of a U.S. affiliate: • The Canadian seller may have other business relationships in the states including: – U.S. banking/credit card arrangements – U.S. content network and advertising services. 9
Why Canadian sellers may need to comply. (Cont.) • The U.S. states may come under pressure to enforce tax obligations against foreign seller in order to “protect” U.S. interstate sellers. • The Canadian seller may be looking ahead to sell its operations and a likely buyer would be concerned about potential back liability for the period before the sale. • The Canadian seller may choose to use a U.S.-compliant marketplace facilitator to extend its sales into the U.S. and allow the marketplace facilitator to collect the tax. 10
Marketplace Facilitator • The introduction of the marketplace facilitator concept in the U.S. appears to be a potential game-changer for the future of collecting use taxes. • Because the marketplaces will be filing returns and be subject to audit, the Canadian seller’s activities will be revealed to the U.S. taxing authorities and the marketplace could be subject to garnishee-type actions by which the U.S. taxing authorities seek payment for tax from the marketplace for sales not made through the marketplace. 11
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