Law Times

Law Times • November 7, 2016 Page 13 www.lawtimesnews.com Canadian boutiques boost foreign tax expertise BY MICHAEL MCKIERNAN For Law Times I n 2012, a decade after leav- ing Toronto to study at the Syracuse University College of Law, Veronika Chang believed she had left her hometown be- hind for good. With a licence to practice law in the states of New York and New Jersey, and several years of experience in tax consulting and tax controversy services in major U.S. cities, her career looked set to play out south of the border. "I didn't think I could work in Canada. I thought, 'I do U.S. tax, there's no way I can go home. There's no work for me there,'" Chang says. However, she was surprised to find her services in high de- mand on this side of the 49 th par- allel. Canadian tax boutiques, eager to distinguish themselves from their larger full-service firm competition, have boosted their expertise in foreign tax codes in recent times. According to lawyers in the field, the aim is to establish themselves as one- stop shops for cross-border tax matters involving clients with increasingly international finan- cial and personal interests. After moving to Calgary to practise U.S. tax law at a firm there, Chang landed at Toronto firm Morris Kepes Winters LLP in late 2013 to join its brand new U.S. tax and cross-border plan- ning practice group. Michael Cirone, a partner at MKW who helped recruit Chang to the firm, has also re- ceived his call to the bar on both sides of the border, having stud- ied law in the U.S. Both he and Chang are also alumni of the prestigious LLM taxation pro- gram at the New York University School of Law. Cirone worked as a tax attorney for accounting gi- ant PricewaterhouseCoopers in New York before returning to Canada early in the 21 st century, where he started practising Ca- nadian tax law. "Just because someone is licensed in New York doesn't mean they actually worked and practised there," Cirone says. "We're kind of a unique team, because we actually have the ex- perience of going to law school and practising law in the U.S. before we came back." According to Cirone, he be- gan to see the business case for a cross-border tax practice group while working as the Canadian tax counsel on international transactions. "Because of my U.S. back- ground, I would always get a lot of questions about U.S. tax," Cirone says. "What used to hap- pen was that we would be the Canadian tax counsel, and the client would hire U.S. counsel. Then there would be a lot of back and forth while we came up with a solution that would work on both sides." Cirone says the process could be a frustrating one, due to the complexity of both the Canadian and U.S. tax codes, as well as the lack of overlap in approach taken by the Canada Revenue Agency and its American counterpart, the Internal Revenue Service. "So we decided to start a cross-border group where we could do both sides in one place," Cirone says. "We do U.S. and Canadian tax planning and implementation. If clients want to incorporate U.S. companies, we can do that for them as well. We will sometimes outsource work to U.S. counsel if it's some- thing very sophisticated, but most of the time we're able to do all the work here. People are really happy to be able to go to a local firm that can handle things on both sides of the border." Vitaly Timokhov, a lawyer with Toronto firm TaxCham- bers LLP, says cross-border ex- pertise is at the heart of his firm's marketability. Called to the bar in New York as well as Ontario and Alberta, Timokhov is yet an- other graduate of the NYU LLM in taxation, and he says larger law firms and the legal wings of the Big Four accountancy firms are less well set up to handle the international tax affairs of high- net-worth individuals. "We can compete in terms of knowledge with the bigger firms, but with much lower over- heads, which tends to make us a bit more cost efficient," Timok- hov says. He says working with the owners of international busi- nesses and their families can mean his practice becomes quite eclectic. "We do everything," he says, noting that cross-generational transfer and estate planning can become extremely complex once U.S. residents or citizens are involved. "You might start with a small cross-border matter for a client, and then look into their personal affairs, and their corporate hold- ings. That's where things grow and become a little more com- plicated," Timokhov adds. Business owners and small to medium-sized private companies form the bulk of cross-border cli- ents at MKW, too, where Cirone says business is growing all the time thanks to the depth of con- nections between Canada and the U.S. "We have Canadian clients who want to expand their busi- nesses into the U.S., Canadians who are married to Americans or Canadians with children in the states. We get a lot of Cana- dian trusts with U.S. beneficia- ries, which can cause a problem," Cirone says. "It's getting busier and busier, and the files are get- ting bigger." Timokhov says a big turning point came following the pas- sage of the U.S. Foreign Account Tax Compliance Act in 2010, which requires non-U.S. finan- cial institutions to turn over de- tails of accounts held by Ameri- cans outside the country. "Twenty years ago, you could probably just hide your assets under the table, but now the level of sophistication and exchange of information between the U.S. and Canada in tax and other matters is absolutely incredible," he says. David Rotf leisch, a Toronto tax lawyer with Rotf leisch & Samulovitch PC, says the U.S. tax authorities were always in- terested in Americans living abroad who fail to file taxes because U.S. tax is based on citizenship, in addition to resi- dence, rather than residence only, as in Canada. However, he says FATCA has turned enforcement into a "slam dunk" for the IRS when it pursues Canadian-based U.S. citizens over their assets held outside the country. "It's very heavy-handed, be- cause it requires the entire world to comply with U.S. legislation. It's intrusive on all of us, but from an enforcement point of view, it's a delight for the IRS," Rotf leisch says. According to Cirone, the U.S. election campaign has also caused a spike in interest in his firm's services among Canada- based Americans, thanks to the detailed tax plan of Hilary Clin- ton, which promises to boost the inheritance tax on large estates. Currently, estates worth more than US$5.45 million are taxed at a rate of between 40 per cent and 45 per cent on everything over that amount. However, Clinton has pledged to raise the tax rate to 65 per cent and lower the exemption to US$3.5 million. "All of a sudden, more people are looking at a huge hit," Cirone says. Donald Trump had suggested he would abolish the estate tax altogether, and while Cirone be- lieves both Clinton and Trump would ultimately have trouble getting their plans through Con- gress, he says the discussion has prompted more clients to seek out advice on the issue. "If you're worth $4 million, you might not have thought about the estate tax too much before, but people are planning conservatively," he says. But cross-border tax issues are not exclusive to smaller tax boutiques and their clients. At Deloitte Tax Law LLP, national managing partner Clifford Rand says international tax dis- putes arising out of client trans- actions and reorganizations are a very significant part of the firm's practice. Transfer pricing, which involves the price set for the provision of goods and ser- vices between companies and their international affiliates, is one area that has become par- ticularly prominent, Rand says. "For example, there is often a difference between the CRA and the IRS as to how to cut up the tax pie between them, and companies can get caught in the crossfire of the disputes be- tween different countries' tax systems," Rand says. "The prac- tice has grown significantly over the years as tax authorities have become more focused on the large amounts involved and en- suring that they get a fair share of tax revenues." Rand says having the back- ing of one of the world's largest accounting firms and its suite of offices around the globe gives Deloitte Tax Law an inbuilt ad- vantage over many of its full- service competitors. "Deloitte obviously has a very large tax practice not only in Canada but worldwide, which gives us a very good perspective on tax planning and tax contro- versy in many other countries that many other law firms can not get as readily," he says. "The link to Deloitte gives us a line of sight on clients' disputes, both nationally and internationally, that we wouldn't have without the affiliation." LT TAX BOUTIQUES TORONTO 416-900-5572 OTTAWA 613-237-3300 CALGARY 403-536-7442 www.drache.ca info@drache.ca VANCOUVER 604-200-0145 EDMONTON 780-800-9956 MONTREAL 514-800-0484 S O U N D A D V I C E | S T R O N G V O I C E | S A F E H A N D S Tax Lawyers for Charities & Tax Exempt Entities Untitled-8 1 2016-11-02 8:29 AM Michael Cirone says he saw the business case for a cross-border tax practice group while working as the Canadian tax counsel on international transactions.

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