Canada Eliminates Certain Cross-Border Interest Withholding

Changes to Section 212(1)(b) of the Canadian Income Tax act result in the elimination of Canadian withholding tax on arm's-length interest payments after January 1, 2008, to nonresident recipients. An exception applies to interest on participating debt.

Once the recently agreed Protocol to the Canada-US tax treaty enters into effect the withholding tax on interest payments to non-arm's-length recipients will be gradually phased out also.

US LLC’s & "S" Corporations are Corporations for Canadian Purposes

The Canada Revenue Agency has confirmed it considers US limited liability companies and so-called "S" corporations are to be corporations for Canadian income tax purposes. For the moment, "S" corporations are apparently eligible for the 5% withholding potentially available on dividend payments, provided the treaty requirements are met.

Florida Nexus

The Florida Department of Revenue takes the position that "physical presence" is not required to impose Florida corporate income tax. Therefore an out-of-state "financial services processing company" whose only contact with Florida was through "unrelated authorized vendors" was determined to be subject to Florida corporate income tax. (Technical Assistance Advisement, No. 07C1-007, October 17, 2007).

Kentucky Nexus

Kentucky also takes the position that "physical presence" is not required to impose corporate income tax. Accordingly a Kentucky court has confirmed that a corporation having no physical presence in Kentucky was subject to Kentucky corporate income tax based on its derivation of income from ownership interests in partnerships doing business in Kentucky. (Franklin Circuit Court, Kentucky, No. 06-CI-00288, December 4, 2007).

Income From a New York "S" Corporation

New York has issued a personal income advisory opinion explaining how shareholders of a New York "S" Corporation compute the amount of income to report on a New York income tax return. (TSB-A-08(1)I, New York Commissioner of Taxation and Finance, January 4, 2008).