Memorandum Final Project Part II Milestone 1 082517 PDF

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MEMORANDUM TO:

Legal Department Division Supervisor

FROM:

William J. Russell

DATE:

August 6, 2017

RE:

EXPANSION OF BUSINESS INTO MEXICO

INTRODUCTION There has been much discussion about expanding our business into Mexico. With that stated, the following information contained in this memo is a detailed analysis of the laws pertaining to establishing our sister company in that country. We must address legal and ethical implications, in order to satisfy the operations in Mexico. There has been much publicity in the past year since we have elected a new president and the talk of building a “Wall” along the border can have an impact on crossing back and forth along the border. Finally, an evaluation of other like companies and the challenges they faced legally in conducting business across our southern border. ASPECTS OF U.S. LAW In order for our company to be a successful business in Mexico, we must learn and understand how the laws regulating our business in the U.S. pertain to our operations there. Management must review and have an understanding of the following laws, in order to proceed and be in compliance throughout the duration of our international expansion:



North American Free Trade Agreement (NAFTA) The act went into effect on January 1, 1994. The agreement is in place to assure that international trade and investment. NAFTA has clear set of rules dealing with disputes and settlements. NAFTA has established an impartial legal tribunal to address crossborder disputes and/or differences (NAFTA – Fast Facts, n.d.).



United Nations Convention on Contracts for International Sale of Goods (CISG) The CISG was developed by the United Nations Commission on International Trade Law (UNCITRAL). It offers accepted rules for contracting parties, courts and arbitrators (United Nations Convention on Contracts for International Sale of Goods, n.d.).



United States – Canada Income Tax Treaty For tax purposes and the possibility of being double taxed by either the U.S. or Canada, the treaty was signed on September 26, 1980. It is in place for taxation purposes for individuals who live in one country and commute, moves temporarily, or works for a limited period of time (Overview of Tax Considerations for Canadians in the United States, n.d.)

LEGAL IMPLICATIONS OF DOING BUSINESS IN CANADA Due to the close proximity of the U.S., establishing a sister company in Canada still must satisfy Canadian business law requirements. Things to consider for the Canadian business need to include the type of entity that we wish to form for tax and liability issues. We must consider the following advantages and disadvantages as we look at our expansion: Advantage:



U.S. entities expanding their scope of business to Canada. The U.S. Tax Convention provides that U.S. entities that perform operations in Canada will only become subject to tax in Canada when the profits attributed to a permanent establishment in Canada (Belsher and Kozub, 2012). This is important in the determination of how much business we want to do in Canada. Currently, the establishment of the business and conducting business in Canada would allow a decrease in the corporate taxation. Canada has current corporate tax rate of 15%, while the U.S. is sitting at 35% (List of countries by tax rates, n.d.). There are certain local, or provincial, corporate taxes that need to be included and range from 11 to 16%, bringing the total corporate tax rate up to 31% (List of countries by tax rates, n.d.). However, when we consider that in the U.S., state corporate taxes could be up to 12%, or a total of up to 47% (List of countries by tax rates, n.d.), it is considerably less in Canada.

Disadvantages: 

One of the disadvantages of establishing the company in Canada is the Residency Requirements. Currently 25% of the board of directors, or a minimum of one if the board has less than four directors, have to be a resident of Canada (Pratt & Hanick, 2011).



Another disadvantage is that setting up our business in Canada has to be reviewed according the Investment Canada Act (ICA) to determine if it will benefit Canada and not injure them (Pratt & Hanick, 2011).

ETHICAL IMPLICATIONS OF DOING BUSINESS IN CANADA Advantage:



One of the biggest advantages of doing business with Canada is the language similarity, with exception to French Quebec. Both countries primary language is English and it does aid in the ability to do business.

Disadvantage: 

A disadvantage for doing business in Canada is that employment law is a provincial matter and not a federal government matter (Solyom, 2012). Unlike the U.S. where national labor laws are in effect and direct employers with HR issues, the province in which the business will be working regulates Canada’s labor laws individually.

OTHER COMPANIES AND U.S. LAW COMPLIANCE IN CANADA In 1994, U.S. based company, Walmart expanded to Canada, creating Walmart Canada Corp. The corporation acquired 122 Woolco stores. Woolco was performing poorly and made a great acquisition opportunity for Walmart. With the signing of NAFTA in 1994, Walmart was allowed to expand into Canada and purchase the failing Woolco stores. NAFTA eliminated import controls and tariffs on goods moving between Canada and the US. In expanding internationally, Walmart aligned its corporate structure, under one organization, to be globally compliant, ethical and have investigation and legal functions (Global Compliance Program Report on Fiscal, 2014). In order to comply with US and International law, Walmart has a division specifically dedicated toe global compliance. The structure of the compliance program is structured that the Global Chief Compliance Officer oversees regional compliance officer, which are International Chief Compliance Officer, U.S. Chief Compliance Officer, Global e-commerce Chief Compliance Officer and the Global Anti-Corruption Officer

(Global Compliance Program Report on Fiscal, 2014). This has allowed Walmart to stay committed to being in compliance within the U.S. and globally.

References Belsher, G.S. & Kozub, C. (2012). Navigation the Law When Doing Business in Canada. Retrieved August 4, 2017 from http://www.areadevelopment.com/Canada-InvestmentGuide/Location-Canada-2012/navigating-Canadian-business-law-1137363.shtml Global Compliance Program Report on Fiscal Year 2014. (n.d.) Walmart Corp. Retrieved August 4, 2017 from http://corporate.walmart.com/global-responsibility/global-complianceprogram-report-on-fiscal-year-2014 List of Countries by Tax Rates. (n.d.) In Wikipedia Retrieved August 4, 2017 from https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates North American Free Trade Agreement – Fast Facts. (n.d.) Retrieved August 3, 2017, from http://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agracc/nafta-alena/fta-ale/facts.aspx?lang=eng Ohm, R. (n.d.). Overview of Tax Consideration for Canadians in the United States. Retrieved from http://www.americanlaw.com/ustxtmp2.html

Pratt, R. & Hanick, D. (2011). Legal Requirements of Doing Business in Canada. Retrieved August 4, 2017 from http://www.areadevelopment.com/Canada-InvestmentGuide/LocationCanada2011/canada-legal-requirements-doing-business007885.shtml Solyom, R. (2012, September 28). Five Key Differences between Canadian and U.S. Employment Law. Retrieved August 4, 2017 from http://www.mccarthy.ca/article_detail.aspx?id=6020

United Nations Convention on Contracts for the International Sale of Goods. (n.d.) In Wikipedia. Retrieved August 3, 2017, from https://en.wikipedia.org/wiki/United_Nations_Convention_on_Contracts_for_the_Interna tional_Sale_of_Goods#Reservations...