Podcast Transcript: How to cross the U.S. border on business
Surprisingly, many Canadians are unprepared to cross the U.S. border on business. In fact, getting turned away at the border can cost Canadian businesses millions every year, not to mention a healthy dose of pride.
Today, we have one expert who will be answering a border-related business question from a CanadExport reader who travels regularly to the U.S.
Stay tuned to hear the question and our expert’s answer. And hopefully this podcast will help to make your future cross-border business trips smoother and more profitable.
I'm Michael Mancini, Editor-In-Chief of CanadExport, the official e-magazine of the Canadian Trade Commissioner Service – Canada's most extensive network of international business professionals.
With me on the phone is Matthew Schulz, a partner with the firm Baker McKenzie. Mr. Schulz is head of the firm’s Global Migration and Executive Transfers Practice Group. And he’s on the line from his office in Palo Alto, California.
Welcome to the podcast and thanks for being here.
Matthew Schulz: Thank you for the invitation, Michael.
Michael Mancini: Let’s get right into today’s question.
This email comes from a businessperson in Calgary. He writes:
Our company often puts on workshops for U.S. consulting companies. We are paid a fee to do these workshops, which usually go for 2 or 3 days. In the past, I have gone 'armed' with a letter from the company who has asked us to do the workshop. The letter states general information such as: the fee, my credentials, when and how I will be entering- and leaving the U.S., etc. To date, I have not been forced to obtain a TN Visa (or Trade NAFTA visa) although on my last trip I was pulled into secondary screening.
I was issued a temporary TN Visa and told that I should look into obtaining a 3-year TN Visa. If I understand correctly, I will need to fill out a DS-160 form to apply for a TN Visa. However, I am flying from Saskatoon to Dallas Fort-Worth via Denver. Saskatoon does not have a consulate office, so I‘ve left enough time between connections at Denver to obtain a TN Visa (hopefully). Have I misunderstood the process?
So Matthew, what should this person do?
Matthew Schulz: The concern is whether what he’s doing here really is appropriate. It starts to look more and more like he’s doing productive work in the United States when he says he’s putting on workshops in the United States for consulting companies. And if you’re doing employment-type activities, then you really need to have a visa that authorizes that.
This often comes as a surprise to people. He thinks he’s going to stay on the payroll of the Canadian company and he’s going to be paying all of his taxes in Canada. So he really sees himself as a Canadian employee. But what the U.S. government does, what the Canadian government does, what most governments do, is they focus on where the work is actually performed. And because he’s putting on the workshops in the United States, not too surprisingly the U.S. government wants their share of his payroll taxes.
Michael Mancini: OK, so it’s not where you’re paid, it’s where you perform the work.
Matthew Schulz: That’s exactly correct. And this will come as a surprise to a lot of Canadians and, frankly, expats from other countries, who think that, merely by routing compensation through their home country, they’re fine. But of course if you think about that, that’s kind of a silly solution because that would really be an end route around all visa rules for different countries.
Michael Mancini: So it looks like he’s been getting across the border simply with a letter that states general information such as the fee, his credentials, and how he’s entering and leaving the U.S. Clearly this is not enough.
Matthew Schulz: Well, and it’s funny. He’s not real clear always on the way he’s gotten into the country. So he says that he has not been forced into a TN visa, and yet he says he’s been given a temporary TN visa. So he’s perhaps more than a little bit confused himself on exactly what’s gone on.
It really shouldn’t be that confusing. What happens to Canadian citizens when they come into the country is the border inspector has to decide what is the visa status he’s admitting them under.
If he was coming down here to negotiate the workshops, if he was coming down here to collect information about the kind of workshops they’re interested in holding, that could be an appropriate business trip for a Canadian citizen who’s coming down without a visa. But if he’s coming down here to actually put on the workshop, then he is going to need a visa that authorizes work, and that’s going to be perhaps the TN visa, perhaps an L visa, or an H-1B visa. We have lots of different visas that authorize work. Exactly how you implement those visas – where you apply, what forms and supporting documents you need – varies depending on the visa type.
Michael Mancini: So now, how would you know which visa our business person in Calgary would need?
Matthew Schulz: So we usually focus on a couple of factors. One would be when does he need to arrive in the U.S. and how long does he want to stay. Another would be what is the scope of activities he wants to do? Certainly compensation, both the amount and where it’s sourced from, are relevant considerations. And we also are really keen to know something about the education and employment experience that he brings, especially to the extent that it’s relevant to the job. Usually a combination of all those factors will help to dictate exactly what the most appropriate solution is. And in really fortunate cases, you may have more than one option to consider.
In this particular case, it looks like he could be considering the TN visa, the H-1B visa, which is similar to the TN but available to citizens from all countries, or the L-1 visa, which isn’t based so much on his professional background but instead is based more on the working experience he has with his company in Canada.
Michael Mancini: Now, it’s clear to me how they’re different, but it’s not clear to me when a Canadian company should be doing one or the other – one of the three visas, rather.
Matthew Schulz: Well, the choice perhaps is a little bit confusing. When you need to do one of these visas will really be when you’re coming to the U.S. to engage in productive work activity. So in this example, when he comes here to put on the workshop, that’s productive work. So he’s definitely going to need to have this status in order to do that. How he implements it is a little bit different for each of the three.
TN visas can be processed just before boarding the plane if you’re coming from an airport that has a U.S. Customs and Border Protection Pre-flight Inspection Unit at it.
We have those units in a lot of the international airports inside of Canada. Unfortunately, they haven’t seen fit to staff any U.S. workers in Saskatoon. The other option is those can be processed at border crossings, or they can be processed by inspectors who are present at the airports in the U.S. that receive international flights. So he’s got a couple of options if he wants to do the TN. He could also present his application at a Pre-flight Inspection Unit at another airport inside of Canada. So he could change his travel plans. Or he could decide to process it when he lands in Denver.
The trick there is he mentions that Denver’s not really his destination. He’s hoping to fly on to the next city. And the processing time for the U.S. border inspectors is really quite variable. It depends on how busy they are, how complicated or well documented your case is. So he might very well find himself missing that flight. And probably he’s on a tight business schedule, so he doesn’t really want to run that risk. It might be smarter to process himself in advance of this specific business need so that then when he comes down for the business trip it’s not so much of a problem. So imagine maybe a week or two before he needs to be down here for the work assignment, he might make an advance trip - maybe do it through Vancouver or Calgary, where there are Pre-flight Inspection Units.
So if he says that he needs to come here to put on one specific workshop, he may only get a TN visa that’s good for the length of that one workshop. But if the purpose is to come down here to put on a series of workshops over the period of three years, even though they haven’t identified all of the workshops or exactly when and where all of these workshops will occur, then he should be able to still receive the three-year validity TN visa.
The TN visa status is really what I should be saying. Canadian citizens do not have to go to American consular posts and apply to get the actual visa sticker issued in the passport. The way TN processing specifically is done is the application is submitted directly to the Pre-flight Inspection Unit, so it’s very fast. And once he has the approval, he has a three-year approval. So on subsequent trips coming down to the U.S. during that validity period, he’ll just show that approval; he won’t have to resubmit his entire application or worry so much about processing delays on future travel.
Other visas, like the H-1B, involve U.S. Department of Labour, Citizenship and Immigration Services Agency processing in the U.S., even prior to the trip down. So you’re usually talking, in those cases, not about days but about weeks. With the TN processing, you’re usually talking about government processing time of minutes, really, because people really are coming through just before boarding the flight. The time it takes to prepare depends a lot on the company, on the employee, and of course the attorneys, if they’re working with lawyers.
Usually they’ll need to have copies of their academic documents, so transcripts, diplomas etcetera. Most universities have those readily available, just in case he hasn’t kept his handy. But those do have to be ordered. Most of the company information is relatively quickly available to the company. So a typical TN package probably consists of a detailed letter from the company, introducing themselves to the government, explaining the need for the travel, and then outlining the qualifications of the individual for the assignment, and then attaching the supporting documentation, proof that he is a Canadian citizen, which is probably his passport, and proof of his educational background. Usually a lawyer working with a company can have all this prepared in a matter of days.
Michael Mancini: OK. Now, even if you do have this kind of visa and you get to the border, can a border guard still turn you away?
Matthew Schulz: Certainly. The border guard still has final responsibility to make sure that people qualify for the benefits. So even if you’ve been granted a TN for three years, and even though they’re not fully assessing your case on each subsequent trip, you can anticipate that the border inspector is going to ask what are you doing, where you are going. And if you start to give answers that are inconsistent with what you and the company originally said as the purpose of your trip, that will cause a problem.
It may seem like we’re speaking in English but what we’re really using are words that have very specific immigration meanings. So if somebody says that they’re coming down for work, for business, for employment, that all has very specific meanings to the border inspector, and that may dictate the result that he gives you.
And the same is true when you talk about the job you’re doing. The TN status is available to a certain schedule of professions. If you use a job title that doesn’t match up with one of those professional codes, they may get confused, they may start to ask more questions. So very important that the employee read the letter that the company and the employer’s lawyer have put together so that everybody’s in agreement and knows exactly what is the explanation.
Michael Mancini: Now, what if this gentleman’s company expands what it’s doing in the U.S.? What implications are there for the company?
Matthew Schulz: Well, that’s a real typical pattern we see from Canada. A lot of companies start off a little bit slowly, kind of dipping their toe in the water, so coming down to put on a few workshops. Once they realize how receptive American business is to the expertise they’re bringing down from Canada, they may find more opportunities. They may want to expand beyond workshops and start to offer more services or products here. Although he’s only using the TN visa to come down for sporadic business assignments, in fact it authorizes somebody to live and work in the U.S. on a full-time basis. The same is true of the H-1B and the L-1 that we alluded to. So those are all solutions that could be used when they want to start to move personnel down here.
The TN visa is good for up to three years. It can be renewed. It’s renewable in increments of up to three years at a time. There’s no limit on the number of renewals that can be granted. That’s a fairly unique benefit that Canadians enjoy because of the NAFTA agreement negotiated between the two countries. And we don’t have similar benefits like that for citizens of most other countries.
Michael Mancini: What American income tax responsibilities might this person have?
Matthew Schulz: Glad you brought that up. A lot of people will hone in on the visa issue and they’ll ignore some of the other related legal issues that arise. Taxation is of course a very important one, not only for the individual employee but also for the company. Once you start to have personnel working in the U.S., then the company has an obligation to start U.S. payroll tax withholding, at least for the amount of compensation a person is earning for the services rendered in the U.S. So the employee is going to end up with a U.S. social security number; the employer’s going to need to get an IRS employer identification number.
That also raises some interesting issues for the company. Is their income, in whole or in part, going to become subject to business income tax reporting in the U.S.? And they may want to do some serious planning on whether it makes more sense to set up a separate legal entity in the U.S., say a wholly owned subsidiary of the Canadian company, so they can isolate some of those tax responsibilities for U.S.-related activity in that company.
And that goes even far beyond tax to issues of, say, employment law. What employment laws will cover this fellow while he’s working in the U.S.? Do they think that Canadian employment laws will cover him, and that, say, the State of New York or the State of California won’t try to assert their own laws? So very definitely they want to talk with lawyers who are familiar with the laws applicable in the places where he actually will work. I know a lot of times when we work in situations like this, we may end up with a second employment agreement just to cover the U.S. activities.
Michael Mancini: So this is actually much more than just about getting over the border. I mean, that’s one hurdle, but once you’re there, there could be a whole slew of other ones.
Matthew Schulz: Yes, very definitely. The tax lawyers talk a lot about permanent establishment. By having an employee in another country or in another state, a company has effectively set up its own office in that location. And suddenly issues of local taxes start to come to play as well as subjecting themselves to jurisdiction in the courts, not to mention changing the rules for which employment laws impact an individual. It can be very complex.
Michael Mancini: Is this a typical example of how well prepared a company is?
Matthew Schulz: Your tongue is pretty firmly in your cheek when you say that, isn’t it, Michael? Canadians probably both benefit and suffer from the close connection between Canada and the U.S., both in terms of geography, politics and law. So it is so easy for citizens of Canada and the United States to visit each other’s countries that we may not always give as much respect or attention to the laws of each country as we otherwise could.
Certainly people who have no choice but to stand in line in embassies to apply for visas, for better or for worse, they’re kind of forced to start to learn and appreciate the laws of the other country. And that is some kind of a protection for them because it means they won’t unwittingly subject themselves to as many liabilities. Whereas you could easily imagine in this scenario that a Canadian company could be blissfully doing business in the U.S. - and apparently they have - without realizing that the IRS may have a claim on some of their income taxes.
Michael Mancini: Well, this has been very interesting. Thank you very much for your time today, Matthew.
Matthew Schulz: Thank you for the opportunity. It’s always a pleasure.
Well, that’s all for this podcast edition of CanadExport. Don’t miss our next podcast as we invite another expert to talk about how Canadian companies need to be prepared to bring their foreign delegations into Canada. There will be lots of practical advice in that one as well.
For more information on border issues, visit the website of the Canada Border Services Agency. That’s at www.cbsa.gc.ca or you can visit the website of the U.S. Department of State at www.travel.state.gov. Another useful site is the U.S. Citizenship and Immigration Services website at www.uscis.gov. You can find all these links on our podcast page resource centre at www.canadexport.gc.ca. That’s c-a-n-a-d-export.gc.ca.
I’m Michael Mancini, signing off for now.
To download our other episodes, just go to www.canadexport.gc.ca or go to iTunes and use the searchword “CanadExport.”
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