Crispy Chips Inc. is considering an expansion into the United States. Jeff Arthur, the CEO, is not sur structure this new venture and would like some general information before he meets with his accoun lawyer.
Required:
Write a memo to Jeff informing him of the two fundamental approaches he can take to conduct his fo operations (branch and subsidiary corporation), listing two advantages and two disadvantages of
each approach.

Question

Quizplus · Accepted Answer

The Answer is MEMO

To: Jeff Arthur, CEO, Crispy Chips Inc. From: You, Accounting Assistant
Re: Foreign Business Expansion Date: dd/mm/yyyy

This memo is in response to your enquiry about the structure of a foreign expansion for your b will identify the two fundamental approaches that are available to you for a foreign business ex and will then address the advantages and disadvantages of both.

The alternatives available to you for expansion are 1) a branch location; and 2) a separate forei corporation. A branch would be part of your Canadian corporation, and therefore, would not be separate legal entity. A separate corporation, on the other hand, would be incorporated in the fo jurisdiction, and would be a separate entity from your Canadian operations.

The advantages and disadvantages of a branch and a separate subsidiary are as follows (based o Canada-U.S. tax treaty):

Branch

Advantages

1. The losses of the branch may be applied against the income of the parent corporation.

Answer: 2. A Canadian foreign tax credit is available to offset the branch's foreign tax.

Disadvantages

1. Foreign taxes will apply to the branch profits.
2. Depending on tax rates applied, double taxation could occur on the foreign profits.

Foreign Subsidiary Advantages
1. The subsidiary is only taxed in the foreign jurisdiction, which is advantageous if the foreign lower than the Canadian rate.
2. Dividends flow tax-free from the foreign affiliate to the Canadian corporation.

Disadvantages

1. Losses incurred in the foreign subsidiary cannot be applied against the parent corporation's i
2. A foreign withholding tax will be imposed on dividends paid to foreign shareholders.

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