Trans-Border Tax Consequences Choosing between a new rail car lease with UTLX International or Procor Alberta Inc. has tax consequences for a lessee.
UTLX works best for a U.S. customer that earns income itself from operating the cars. Should Canadian affiliates use the cars to earn income, the lessee would be exposed to a number of potential tax problems.
Potential Tax Problems
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Income-tax rules require that a sublease be created between the lessee's U.S. and Canadian companies.
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Withholding tax is payable and may not be recoverable on cars spending the majority of time in Canada.
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GST may be payable on lease invoices or car movements.
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Non-arms-length cross-border leases expose companies to transfer-pricing audits and may draw undesirable attention to other inter-company cross-border transactions.
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Additional costs are incurred for recordkeeping, audits and professional advice.
Using Procor Alberta to handle cross-border leasing when rail cars are required for Canadian purposes can eliminate the lessee's concerns about inter-country tax issues.
