Canada Cross-Border Transactions

On June 1st, President Trump issued a Proclamation to adjust the Section 232 duties on derivative goods made of aluminum, copper, and steel, which are generally set at 50%. Goods that are eligible for preferential treatment under the U.S.-Mexico-Canada Agreement (“CUSMA” or “USMCA”) will be subject to a lower 25% duty rate with respect to the non-U.S. content, with a minimum duty rate of 15% ad valorem. This reduced rate will be in effect from 8 June 2026 through 31 December 2027. On June 2nd, the Office of the U.S. Trade Representative (“USTR”) issued a Section 301 report that accused Canada of insufficiently enforcing its import ban against forced labor products, which USTR found to burden or restrict U.S. commerce. USTR proposed a 10% tariff on Canadian goods to address this issue, with exemptions for CUSMA/USMCA compliant goods and articles or parts of articles that are subject to Section 232 tariffs. There is an opportunity to submit public comments on this tariff proposal that closes on 6 July 2026. The Trump Administration's announcements on U.S. import tariffs that affect Canadian goods are summarized more completely in this Dorsey e-Update.

The United States estimates it owes U.S. importers roughly $166 billion dollars in unlawfully collected tariffs under the International Emergency Economic Powers Act (“IEEPA”). This webinar will assess potential litigation both from the claimant and U.S. importer perspective. More information and registration are available here.

On May 5, 2026, the Securities and Exchange Commission (“SEC”) proposed a significant change to the Exchange Act periodic reporting framework that would allow U.S. domestic reporting companies to elect semiannual interim reporting in place of the current mandatory quarterly Form 10-Q regime. Under the proposal, eligible Exchange Act reporting companies could choose to file one semiannual report on a new Form 10-S and one annual report on Form 10-K each fiscal year, rather than three quarterly reports on Form 10-Q and one annual report. More information on the proposal is available here.

Many Canadian employers expanding into the U.S. believe the U.S. legal presumption of at-will employment will provide them with additional protection against wrongful termination claims. Unfortunately for those employers, this belief is a trap. In Canada, employees who are terminated without cause often must be paid severance. In the U.S. however, an employer is generally not obligated to pay severance when an employee is fired without cause unless there is a contract requiring severance. The reality in the U.S. is that essentially every employee falls into an exception to the at-will employment doctrine. Wrongful termination claims in the U.S. are almost always discrimination or retaliation claims. In the former claim, the employee alleges that they were terminated due to some protected characteristic such as age, gender, or race. In the later claim, the employee alleges that they were terminated because they engaged in some protected activity, such as taking protected leave or complaining about workplace harassment. Once an employee alleges discrimination or retaliation, the presumption of at-will employment falls away and the employer must demonstrate a legitimate non-discriminatory and non-retaliatory reason for the termination, which the employee cannot show was a mere pretext. Because just about every employee is in some protected class or has recently engaged in some protected activity, U.S. employers must have a legitimate reason for the termination supported by strong documentary evidence. Otherwise, the employee gets to tell their story to a jury predisposed to rule against any employer who cannot provide a satisfying reason why they terminated that employee. And U.S. juries over the last several years have rendered several devastating verdicts, including a $366 million verdict handed down by a Texas jury in a case alleging race discrimination. As this case demonstrated, these verdicts are not limited to states with a reputation for being employee friendly such as California. Employers’ best defense against such verdicts is a strong performance management system that documents the legitimate non-discriminatory and non-retaliatory reasons for a termination. This requires documenting performance issues over time, not coming up with and documenting reasons after the fact. Even better, if an employer can show, with documentation, that they tried to help the employee be successful, but the employee lacked either the ability or the inclination to do so, it can help stop an employment claim before it can move much past the demand letter stage. Canadian companies taking on employees in the U.S. should make sure they have a firm grasp of the kinds of performance management practices that will keep them out of trouble. Relying on at-will employment alone is a recipe for disaster.

Good news! The SEC has issued exemptive relief under the Holding Foreign Insiders Accountable Act (the HFIAA). For those of you focused on more important things in life, like Major League Baseball’s opening day later this month, let us give you a brief recap of the HFIAA. The HFIAA was signed into law on December 18, 2025 and it subjected directors and officers of foreign private issuers to beneficial ownership and transactional reporting with the SEC if the issuer’s securities are registered under Section 12(b) or 12(g) of the Exchange Act of 1934.  Reporting commences on March 18, 2026, but the SEC was permitted to issue exemptive relief.  More detail about the HFIAA is available here. Today the SEC issued an exemptive order. We will get into more detail below, but directors and officers of Canadian foreign private issuers will not be subject to Section 16 reporting if they are subject to, and comply with, reporting under SEDI. Canada was not the only jurisdiction to receive exemptive relief. “Qualifying jurisdictions” include: Canada, Chile, the European Economic Area, the Republic of Korea, Switzerland, and the United Kingdom. The exemptive relief is available to directors and officers of a foreign private issuer that is either (i) incorporated or organized in a qualifying jurisdiction and subject to a qualifying regulation of the same jurisdiction or (ii) incorporated or organized in a qualifying jurisdiction but subject to a qualifying regulation of a different jurisdiction. A list of “qualifying regulations” is contained in the exemptive order but it consists of reporting regulations in each of the qualifying jurisdictions. In order to be eligible for the exemption, the issuer needs to be organized in a qualifying jurisdiction and be subject to the qualifying regulations in its own or another of the qualifying jurisdictions. If a foreign private issuer is organized in a non-qualifying jurisdiction, the insider will not be eligible for the exemption even if the insider is subject to a qualifying regulation. For example, if the insider of a UK entity is subject to SEDI reporting then the insider is eligible for the exemption. But, if an insider of a BVI company is subject to SEDI reporting then the insider is not eligible for the exemption and must start reporting with the SEC on March 18, 2026. The exemption contained the following conditions for directors or officers seeking to rely on it: The insider must report their transactions in the issuer’s securities as set forth under the qualifying regulation to which they are subject; and Any report filed pursuant to a qualifying regulation is made available in English to the general public within no more than two business days of its public posting.

The U.S. Supreme Court issued watershed decisions invalidating the U.S. tariffs imposed under IEEPA on February 20th. On March 3, 2026, we are hosting a webinar that looks to what is next for U.S. trade policy and also will discuss options for U.S. importers to receive tariff refunds. More information and registration are available here.

Directors and officers of SEC-reporting foreign private issuers will be required to report their beneficial ownership and transactions in company equity securities to the SEC beginning March 18, 2026, absent exemptive relief from the SEC. On Thursday, January 29th at 12:00 CT, Dorsey is presenting a complementary webinar that will provide an overview of the process of obtaining Edgar filing codes for your insiders, the information required for the initial Section 16 reports, and the basics of Section 16(a) reporting. More information, including the availability of CLE and CPD credits, and registration are available here.

As you may recall, the Holding Foreign Insiders Accountable Act (the HFIAA) was signed into law on December 18, 2025. In a nutshell, this means that directors and officers of foreign private issuers whose securities are registered under Section 12(b) or 12(g) of the Exchange Act of 1934 will be required to report beneficial ownership and transactions in company equity securities to the SEC. The first report is due on March 18, 2026. More detail about this requirement is available here. Since the adoption of the HFIAA, we have been receiving numerous questions. When should we start the process to get Edgar codes for our insiders? How long will it take to get codes? Will SEDI filers be exempt from reporting? Trust me, we have been considering the same questions ourselves and have spoken to the Staff of the SEC about this. Like you, we firmly believe SEDI filers should be exempt from Section 16(a) reporting under the exemption contained in the HFIAA and submitted a comment letter to the Staff of the SEC on that point. (A big thank you to our friends in Canada who double-checked our statements regarding SEDI requirements!) In 2023, there were more than 1,100 foreign private issuers reporting on Form 20-F or Form 40-F.  If the insiders of over a thousand companies need to get Edgar codes prior to March 18th, the strain on the Edgar Filer office at the SEC will be considerable. This is what we understand regarding the HFIAA rule-making process: The HFIAA requires the SEC to issue regulations implementing the HFIAA within 90 days. Regardless of the timing of the new rules (even if the SEC does not issue rules within 90 days), the Section 16(a) filing obligation begins on March 18th. The exemptive relief permitted under the HFIAA is not subject to the 90-day deadline. So, while the new implementing rules are being prepared, the exemptive relief rules are expected to be prepared in parallel and may not be issued at the same time. The SEC’s exemptive relief may be issued in tranches. So, if Canada is not included in the first exemptive order, it may be included in a subsequent exemptive order. As expected, the Staff of the SEC has been hearing from law firms and other parties regarding exemptive relief for “the usual suspects” – Canada, UK, and Europe. The Edgar filing office is expected to put out a notice/guidance about getting filing codes in order to comply with the HFIAA. This is what we recommend: Don’t wait. Start the process for getting EDGAR codes NOW! Currently, it has been taking up to two weeks to get EDGAR filing codes; we expect that time period to lengthen as we get closer to the filing deadline. Reach out to your contact at Dorsey and we will be happy to help get you started and explain the process to your insiders. Once the process for getting filing codes has been started, prepare a complete list of all company securities held by each insider, including holdings by spouses and in trusts. We have questionnaires that you can use to gather/confirm this information with your insiders. Review your insider trading policies to determine if any changes should be made prior to March 18th (assuming no exemptive relief is forthcoming). Since the time for reporting under Section 16 is two business days, which is shorter than filing deadlines for SEDI, consider adding a requirement for insiders to immediately report any transactions to the company to enable timely reporting. Determine which company personnel will be designated to assist with filings. Consider getting powers of attorney from your insiders granting these personnel the authority to make Section 16 filings on behalf of the insiders to facilitate making Section 16(a) filings on a timely basis. If not already completed, consider having each individual compete and manually sign an EDGAR filing attestation form that would allow the individual to sign EDGAR filings electronically. One final note, Dorsey will be hosting a webinar in the next two weeks regarding the process of getting Edgar filing codes as well as reviewing the basics of Section 16(a) reporting. We will follow-up with more details on the date and time.

Directors and officers of foreign private issuers take note: unless the SEC exempts you, you will be required to report beneficial ownership and transactions in your company’s registered equity securities to the SEC, and your first report is due on March 18, 2026. On December 18, 2025, President Trump signed into law the National Defense Authorization Act (NDAA), expanding reporting requirements under amended Section 16(a) of the Exchange Act of 1934 to directors and officers of foreign private issuers whose securities are registered under Section 12(b) or 12(g) of the Exchange Act of 1934. This includes, among others, issuers of securities traded on the NYSE, NYSE American or Nasdaq. More detail about this requirement is available here.

In September, a new bill was introduced in the U.S. Senate entitled the “Halting International Relocation of Employment Act” or “HIRE Act” (the “Bill”). Generally, the Bill proposes a 25% excise tax on certain outsourcing payments made by U.S. persons or entities to non-U.S. persons or entities. The Bill, if enacted, could have a significant impact on Canadian companies that are currently engaged in certain cross-border arrangements with U.S. companies, including subsidiaries or affiliates. In general, the Bill would impose a 25% excise tax on any premium, fee, royalty, service charge, or other payment made in the course of a trade or business by a U.S. person to any non-U.S. person if the benefit of the labor or services is directly or indirectly directed to consumers located in the United States. In addition, the Bill would also generally prohibit U.S. companies from deducting any such outsourcing payments in determining their U.S. federal taxable income. The Bill provides little specific guidance as to the meaning of these terms. Accordingly, if this legislation were to be adopted into law, the scope of payments or activities that might otherwise be subject to the excise tax and deduction denial remains uncertain. However, based on the language used in the draft proposal, intercompany and affiliate licensing or service arrangements appear likely to be “within scope”. To date, the sponsor of the Bill has been unsuccessful in bringing the Bill up for debate before the full U.S. Senate due, in part, to the current government shutdown. It is unclear whether and to what extent the Bill may gain support in the future. We will continue to monitor this proposed legislation. Any Canadian company that is currently engaged in, or is considering, a cross-border licensing, service or similar arrangement with a U.S. company (including subsidiaries or affiliates) should monitor the progress of the Bill and consider the potential impact its passage could have on those arrangements.

As discussed in our prior blog posting, Canadian companies should be aware that, if they engage in certain “organizational actions” (as discussed below) that affect the tax basis of their securities held by one or more U.S. persons, they may be required to evaluate the effect of such action on the U.S. holder’s tax basis and promptly disclose this information on a properly completed IRS Form 8937, Report of Organizational Actions Affecting Basis of Securities. Generally, Internal Revenue Code Section 6045B (including the Treasury Regulations promulgated thereunder) requires an issuer classified as a corporation for U.S. federal income tax purposes of certain securities to report on an IRS Form 8937 any “organizational action” that affects the tax basis of such securities held by one or more U.S. holders. For these purposes, Canadian residents who are U.S. citizens or green card holders are also treated as U.S. holders. “Organizational actions” include, without limitation: tax-deferred mergers, amalgamations and other acquisitions under Code Section 368(a), contributions of property to controlled corporations under Code Section 351(a), contributions to capital without the issuance of additional securities, tax-deferred stock distributions, share consolidations (i.e., reverse-stock splits), tax-deferred spin-offs, distributions that are treated as a return of capital (i.e., a distribution in excess of a company's earnings and profits), taxable liquidations under Code Section 331 which involve more than one distribution in liquidation, recapitalizations, redomiciliations and conversions under Code Section 368(a), and modifications of specified debt instruments. Issuers required to report an “organizational action” on an IRS Form 8937 may generally satisfy the applicable reporting requirements in one of two ways. Firstly, a corporate issuer may satisfy the reporting requirement by (a) providing the IRS Form 8937 to the IRS within 45 days of the “organizational action” (or by January 15th of the following year, if earlier), and (b) providing the IRS Form 8937 to the affected securityholders by January 15th of the following year. Alternatively, such an issuer may satisfy the applicable reporting requirement by timely posting the IRS Form 8937 on its public website within 45 days of the “organizational action” (or by January 15th of the following year, if earlier) and maintaining it on such public website (or any successor website) for ten years. For purposes of administrative convenience, most companies that maintain a corporate website generally choose this latter option of posting the IRS Form 8937 on their public website. The instructions to IRS Form 8937 provide that issuers required to report an “organizational action” on an IRS Form 8937 may make reasonable assumptions about the quantitative effect on tax basis that cannot be precisely determined by the due date. If such an issuer later determines facts that would result in a different quantitative effect on tax basis from what was previously reported, then such issuer would generally be required to file a corrected return with the IRS within 45 days of making such determination and to provide such corrected return to the affected securityholders by the later of the January 15th due date (discussed above) or within 45 days of making such determination. A non-U.S. issuer classified for U.S. federal income tax purposes as a corporation is subject to the same reporting rules described above as a U.S. issuer classified for U.S. federal income tax purposes as a corporation, provided it has at least one securityholder who is not an exempt recipient (such as a U.S. individual or partnership). For example, a Canadian unlimited liability company which elects to be treated as a corporation for U.S. federal income tax purposes is treated as a corporation for IRS Form 8937 reporting purposes. Penalties may apply for the failure to properly report an organizational action. An acquiring or successor entity of an issuer must also satisfy the above reporting obligations if the original issuer has not done so. Dorsey & Whitney regularly assists taxpayers with their reporting requirements under IRS Form 8937. If you have any questions or would like to learn more, please contact us.

In a recent development for the reporting of mineral resources, it’s come to our attention that the SEC’s staff has taken the position that a mining company subject to the SEC’s disclosure standards under Subpart 1300 of Regulation S-K cannot report “total” mineral resources in a way that would aggregate inferred resources together with any other category of resources, even if figures for measured, indicated, inferred, and measured + indicated resources are otherwise separately disclosed as required by Subpart 1300. While we understand that Canadian regulators have taken a similar position under Canada’s National Instrument 43-101, the SEC has, for the most part, allowed Subpart 1300 issuers to supplement required disclosures with additional voluntary disclosures.  However, it appears that on this specific issue, the SEC does not view it as permissible to aggregate inferred resources with any other category of resources.  Issuers that are subject to Subpart 1300 and that have previously disclosed a “total” resources figure in their SEC filings that aggregates inferred resources with any other category of resources should discontinue this practice if they do not wish to receive an SEC comment letter on this issue.

As a U.S. employment lawyer who advises numerous Canadian companies, I’ve seen several traps that Canadian companies frequently fall into. The first step in avoiding these traps is to identify them. At-Will Employment is Trap. One of the biggest differences between Canadian and U.S. Employment law is so called “at-will” employment. Theoretically, employers in the U.S. can fire employees without cause and not have to pay severance. But as I like to tell my clients, this means that you can fire employees in the U.S. for any reason you want … except for the 1.7 million reasons you can’t. If an employee is in a protected class (e.g. on the basis of age, race, national origin, sex, etc.) or if an employee recently engaged in protected activity (e.g. whistleblowing, protected leave, etc.), then the employer must have a legitimate nondiscriminatory and nonretaliatory reason for the termination. Practically every employee falls into at least one protected class or has engaged in some kind of recent protected activity. With the level of skepticism that U.S. juries now view employers, U.S. employers need strong evidence of a legitimate basis for any termination. This means that employers who terminate employees in the U.S. without a good and well-documented reasons are likely to face liability. Probationary Employment is a Trap. While it might make sense for a Canadian employer to include a probationary period in its employment agreement to avoid paying severance after an early termination, this practice can backfire in the U.S. U.S. courts have interpreted such probationary periods as an agreement by the employer to terminate the employee only for cause after the probationary period. In other words, the employer loses whatever protection at-will employment offers in the U.S. And while at-will employment can be a trap, at-will employment does mean that employers don’t have to pay any kind of statutory severance for a layoff or reduction in force. Just remember to have a good and well‑documented reason for the termination as discussed above. The Cost of Litigation and Settlement is a Trap. When Canadian employers see the kinds of settlements that plaintiffs in the U.S. are demanding and the kinds of awards that juries in the U.S. are making, it can make their eyes water. Plaintiffs in the U.S. regularly demand six figure settlements for emotional distress in wrongful termination cases that do not allege any outrageous behavior other than the wrongful termination itself. And at mediation, these same plaintiffs are demanding six figure attorney’s fees settlements, not because their attorneys have spent that much in fees (they are almost always paid on contingency anyway), but because they can make you spend several hundred thousand dollars in legal fees if you don’t settle. In February 2023, a Texas jury awarded a single plaintiff in a discrimination suit $366 million in damages. That number was later reduced on appeal, but if a jury in conservative Texas is willing to award that kind of money to a single plaintiff, the sky is no longer the limit. Canadian employers have to price this reality into the cost of having less than stellar performance management and documentation practices in the U.S. Canadian employers who think they can just settle with U.S. based employees whom they want to fire without solid documentation justifying the termination are going to have some serious sticker shock. The Sheer Number of Rules and Penalties is a Trap. As an attorney who represents employers, my biggest frustration with U.S. employment law is not that it is pro-employee. I understand the need to balance the scales, especially in regard to lower wage workers.  My biggest frustration is that the sheer number, complexity, and opacity of U.S. employment laws and regulations means that good employers who are really trying to comply with the law still being subject to massive liability. Whether it’s a multi-million-dollar class action brought under arcane pay transparency laws in Washington, or a $4,000 per employee pay stub and wage statement violation in California for even tiny errors, U.S. law is an absolute minefield. Canadian companies looking to expand into the U.S. cannot afford to wing it when it comes to employment law compliance. While good U.S. employment law advice can by expensive, it is always many orders of magnitude cheaper than the liability companies will face if they go it alone.

The September 12, 2025 deadline for EDGAR filers to complete their enrollment in the EDGAR system’s new login, password, and access protocols (these updates being referred to as “EDGAR Next”) is fast approaching.  EDGAR filers including SEC reporting companies, Canadian and other non-reporting companies that file Form D’s for their private placements, Canadian and other investors that file SEC beneficial ownership reports on Schedule 13D and 13G, and Canadian and other directors, officers and 10% shareholders that file ownership reports under Section 16, must all enroll in EDGAR Next by this deadline or they will lose the ability to make new filings on or after September 15, 2025. Filers can continue to enroll between September 15, 2025 and December 19, 2025, but they will not be able to file during that time period until they enroll.  After December 19, 2025, filers will be unable to enroll, and filers that have not enrolled will be unable to file on EDGAR or otherwise access their EDGAR accounts until they submit a Form ID application for access that is granted by SEC staff. More information is available here.

The SEC has updated the EDGAR system’s login, password, and access protocols which will affect Canadian SEC reporting companies and other individuals and entities with EDGAR filing codes, including non-reporting companies that file Form Ds for private placements, Section 16 filers, and investors that file on other reports such as Schedule 13D/G, Form 13F and Form 13G (referred to as “EDGAR Next”). Compliance with EDGAR Next protocols are now mandatory for new filers, while existing filers must comply starting September 15, 2025 and existing filers will have until December 19, 2025, to enroll in the EDGAR Next system. More information is available here.  

In what will come as a relief to those Canadians and Canadian companies that own U.S. entities, on Friday, March 21, 2025, FinCEN announced an interim final rule that eliminates the requirement for U.S. entities to file beneficial ownership reports under the Corporate Transparency Act (CTA). U.S. entities will be exempt even if they are owned by a foreign person or foreign company.  As a result, only those foreign companies that directly register to do business in a U.S. jurisdiction will be required to file beneficial ownership reports under the CTA. More information is available in this eUpdate.

On March 12, 2025, the staff at the Securities and Exchange Commission (SEC) Division of Corporate Finance issued a no-action letter in response to a request for Rule 506(c) interpretative guidance, agreeing that an issuer could reasonably conclude that it has taken reasonable steps to verify a purchaser’s accredited investor status in an offering of securities conducted under Rule 506(c) of Regulation D if the issuer requires purchasers to invest certain minimum investment amounts, when coupled with the purchaser’s written representations and certain related conditions as outlined in the incoming letter. Rule 506(c) of Regulation D permits issuers to broadly solicit and generally advertise an offering of securities, provided that: all purchasers in the offering are accredited investors the issuer takes “reasonable steps” to verify purchasers’ accredited investor status and certain other conditions in Regulation D are satisfied. Rule 506(c)(2)(ii) sets forth non-exclusive and non-mandatory accredited investor verification methods that, if satisfied, serve as safe harbors for issuers who will be deemed to have satisfied the “reasonable steps” verification requirement. While an issuer that does not satisfy any of the verification safe harbors can still satisfy the reasonable steps requirement using other verification methods, issuers have been hesitant to rely on Rule 506(c) due to the potentially burdensome steps required to claim one of the safe harbors under the rule, such as a review of a purchaser’s tax returns, bank and brokerage statements, liability reports obtained from consumer reporting agencies, or certifications by qualified accountants or lawyers, and the uncertainty of whether the SEC would consider alternative verification procedures to satisfy the “reasonable steps” requirement. The SEC had previously determined that an issuer can use a “high minimum investment amount” as a factor in conducting reasonable verification steps.  The latest no-action letter goes much further, effectively approving a specific standard by which an issuer, in the absence of contrary knowledge, may rely on representations provided by the purchaser to satisfy the “reasonably steps” requirement. Specifically, the staff at the SEC state that an issuer could reasonably conclude that it has taken reasonable steps to verify an accredited investor’s status for purposes of Rule 506(c) where: a purchaser that is a natural person represents that they are an accredited investor pursuant to Rule 501(a)(5) or (6), they are investing at least $200,000, and they represent that such minimum investment amount was not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer; or a purchaser that is an entity represents that it is an accredited investor pursuant to Rule 501(a)(3), (7), (9) or (12), it is investing at least $1,000,000, and it represents that such minimum investment amount was not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer; or a purchaser that is an entity represents that it is an accredited investor pursuant to Rule 501(a)(8), it is investing at least $1,000,000 (or at least $200,000 per equity owner if it represents that it is owned by fewer than five natural persons), and it represents that all of the equity owners are accredited investors as defined in Rule 501(a)(3), (5), (6), (7), (9) or (12), each of the purchaser’s equity owners has a minimum investment obligation to the purchaser of at least $200,000 for natural persons and $1,000,000 for legal entities, and that such minimum investment amounts were not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer; and in each case, the issuer has no actual knowledge of any facts that indicate that any purchaser is not an accredited investor, or that the minimum investment amount of any purchaser (and, for purchasers that are legal entities accredited solely from the accredited investor status of all of their equity owners, the minimum investment amount of any such equity owner) is financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer. The no-action letter may provide a path for issuers to satisfy the “reasonable steps” requirement, without requiring the purchaser to provide anything more beyond a minimum amount of money, and certain representations. Whether an issuer has taken reasonable steps to verify that a purchaser is an accredited investor is an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances of each purchaser and transaction. Issuers should consult with their securities counsel prior to making such a determination.

The NYSE American stock exchange requires a listed company to obtain shareholder approval prior to issuing shares pursuant to (i) stock-based compensation plans, (ii) certain acquisitions and change of control transactions, and (iii) certain other transactions that may result in the issuance of more than 20% of the previously outstanding shares (the “20% Rule”).  Effective March 6, 2025, the NYSE American amended the 20% Rule.  Previously, the 20% Rule contained an exemption for (x) a transaction that the NYSE American deems to be a “public offering” under a multi-factor test (the “Public Offering Exception”), and (y) any other transaction at a price not less than the greater of book or market value per share (the “Pricing Exception”).  In administering the Pricing Exception, the NYSE American has historically considered the market value per share to be the most recent closing price on the NYSE American prior to the signing of the binding agreement for the issuance.  Therefore, an issuer seeking to rely on the Pricing Exception was required to sell shares at a price not less than the greater of the latest closing price or book value per share, whichever was higher. Effective March 6, 2025, the Pricing Exception was amended in a manner that should make it easier for transactions to qualify for the Pricing Exception.  As amended, the Pricing Exemption no longer requires consideration of the issuer’s book value per share.  In addition, the market price requirement has been replaced with a “Minimum Price” requirement, where the Minimum Price is now defined as the lower of (i) the most recent closing price on the NYSE American prior to the signing of the binding agreement for the issuance, and (ii) average closing price on the NYSE American for the five trading days immediately preceding the signing of the binding agreement.  As a result, parties to a transaction will be able to take advantage of the Pricing Exception to permit an issuance of shares in excess of 20% of the outstanding shares, without shareholder approval, at a price that is lower than the most recent NYSE American closing price, as long as that price is not also lower than the average NYSE American closing price over the last five trading days.  This could be particularly useful to parties pricing a transaction during a time that the share price is increasing.  The amended rule also clarifies that the Pricing Exemption is available only for a cash transaction, and not an exchange offer. The amendments to the 20% Rule do not affect the Public Offering Exception, which remains a part of the 20% Rule, nor does it eliminate the ability of a foreign issuer to claim an exemption from the 20% Rule if it provides written certification from independent local counsel that shareholder approval is not required by its home country law.

On February 27, 2025, FinCEN confirmed that it would halt enforcement actions in relation to the Corporate Transparency Act (“CTA”) while it developed revised regulations that would prioritize reporting for “those entities that pose the most significant law enforcement and national security risks.” On March 2, 2025, the U.S. Treasury Department confirmed that the scope of those new regulations would be limited to “foreign reporting companies” only, and that Treasury would not “enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect”. Essentially, the U.S. government has now abandoned the CTA for the vast majority of reporting companies that were covered under the prior regime. Dorsey will continue to monitor developments and will review the proposed revised regulations in detail once published. Of particular importance will be the defined terms “domestic reporting company” and “foreign reporting company”, as referred to in the recent Treasury announcement, and whether the forthcoming regulations will retain the current definitions of those terms. Under the existing regulations, a U.S. entity formed and wholly-owned and/or controlled by a Canadian company or Canadian person would constitute a “domestic reporting company”. Assuming the revised regulations will not change this definition – such entities would be exempt from the enforcement of penalties or fines under the CTA. Under the existing regulations, Canadian entities that have registered to do business in the U.S. by the filing of a document with a secretary of state or similar office would generally be considered “foreign reporting companies”. Again, assuming the revised regulations will not change this definition, such entities would remain subject to CTA enforcement and penalties and fines for non-compliance. While Treasury’s recent announcement should be welcome news for many U.S. entities formed by Canadian companies and Canadian persons, we remain cautious as the changed scope of CTA enforcement in Treasury’s announcement may have been unintentionally broad and may be subject to refinement upon release of the forthcoming regulations.

On February 25th, Dorsey & Whitney LLP will be hosting a webinar on changes to U.S. trade policy as part of its International Business Roundtable Series. The webinar, International Trade: A First Look at the Second Trump Administration, U.S. Trade Policy, and Potential Impacts on U.S. Businesses, will feature discussions with representatives of Canada and Mexico and business leaders. Please use the link above to register for this event.

ON FEBRUARY 6, 2025, AN UPDATE WAS ADDED TO THE END OF THIS POST. According to a White House Fact Sheet published on February 1, 2025, the Trump Administration followed through with its threat to impose high U.S. import tariffs on Canadian, Chinese, and Mexican origin products. These tariffs will subject many Canadian and Mexican origin products to a 25% import duty, while Chinese origin products will be subject to a 10% import duty. U.S. President Donald Trump invoked his authority under the International Emergency Economic Powers Act (“IEEPA”) to impose the sweeping tariffs, citing a national emergency relating to fentanyl trafficking and illegal border crossings. The Executive Order that targets Canada prescribes a lower 10% tariff rate on Canadian energy products, and an effective date of February 4, 2025, for the tariffs. The effective date was later postponed to March 4, 2025; see Update below. Before his election in November 2024, Trump frequently made promises to impose tariffs on U.S. imports, including specific promises to tax goods from China and Mexico, citing various policy concerns. This tariff action solidifies those promises, including a 25% tariff on many Canadian products (lowered to 10% for energy products) that displaces the preferential treatment expected under the Canada—United States—Mexico Agreement (“CUSMA,” also called the U.S.—Mexico—Canada Agreement (“USMCA”)). This latest action follows in the wake of the “America First Trade Policy” memorandum that the Trump Administration issued in its first day in office on January 20, 2025. There is much at stake in this latest trade dispute. U.S.-Canada cross-border trade plays an outsized role in both countries’ economies. According to the Congressional Research Service, three-quarters of Canadian exports are destined for the United States, and Canada relies on the United States for nearly half of its imports. Canada is the largest supplier of U.S. energy imports, which prompted the lower 10% tariff for these products. The United States also relies heavily on Canadian automotive goods, heavy equipment, machinery, and metals. There is also significant cross-border travel and e-commerce that could become collateral damage, because the Executive Order removes the duty exemption for small parcels that may include gifts and personal effects. Recognizing this potential leverage, many Canadian leaders have called for retaliatory tariffs on U.S. goods and export restrictions. Within hours of the White House announcement, Canadian Prime Minister Justin Trudeau announced retaliatory tariffs at 25% against a wide range of U.S. goods imported into Canada. These moves are reminiscent of a previous round of U.S. import duties against Canadian steel products under national security grounds, Canada’s counter-tariffs, and the subsequent removal of both sets of measures during the first Trump Administration. This time, it is unclear how long the trade war will last. Although Trump’s Executive Order calls for periodic review of Canada’s cross-border law enforcement to see if the tariffs will continue, there are no clear goalposts. While the latest U.S. tariff action cites national security, President Trump has long viewed U.S. foreign trade deficits as a major concern, which the White House cites in the Fact Sheet. The three targets of these measures, Canada, China, and Mexico, are also the United States’ largest trading partners. According to trade statistics collected by the U.S. Census Bureau, these three countries account for approximately 40% of total U.S. foreign trade, and the United States has a longstanding trade deficit with each of these countries. This concern over trade deficits prompted President Trump to renegotiate and replace the previous North American Free Trade Agreement (“NAFTA”) between Canada, Mexico, and the United States in 2017 with CUSMA/USMCA, which entered into force in 2020. IEEPA, which Trump invoked for this tariff action, authorizes the U.S. President to declare a national emergency “to deal with any unusual and extraordinary threat” from outside the United States and select from a broad range of options to impose sanctions. While U.S. Presidents have invoked IEEPA frequently to target foreign countries and persons over the years, those sanctions measures usually involve prohibitions against financial transactions and trade, and not import tariffs. However, the first Trump Administration set a precedent when it invoked IEEPA in 2019 to threaten high tariffs against Mexican origin products, citing illegal border crossings, before rescinding the measure based on assurances from Mexico.  Unlike most import tariffs imposed under other U.S. trade laws, IEEPA does not require any prior legislation, investigation, notice, or public hearing before the U.S. President imposes the measures. Update:  On Monday, February 4, 2025, the White House announced a 30-day postponement of the tariffs on Canadian and Mexican products until March 4, 2025. According to multiple news sources, Trump issued this pause just hours before the tariffs were to take effect after receiving commitments from the Mexican and Canadian Governments regarding border security. It remains to be seen whether the White House will be satisfied with Canada’s and Mexico’s progress on this front or if the threatened tariffs will take effect in the future. As Trump stated in his subsequent Executive Order, “If the illegal migration and illicit drug crises worsen, and if the Government of Canada fails to take sufficient steps to alleviate these crises, the President shall take necessary steps to address the situation, including by immediate implementation of the tariffs described in the Executive Order of February 1, 2025.”

Canadian corporations making dividend payments should ensure that they are compliant with U.S. federal backup withholding and reporting requirements to avoid potential U.S. federal income tax issues. Generally, a Canadian corporation making a payment of dividends aggregating USD$10 or more to another person during the calendar year is subject to the U.S. federal backup withholding and reporting regime. However, a dividend payment by a Canadian corporation is excluded from these rules if it is: from sources outside the United States; by a non-U.S. payor or a non-U.S. middleman; and paid and received outside the United States. For purposes of this discussion, a reference to a “Canadian corporation” does not otherwise include a Canadian corporation that is treated as a U.S. domestic corporation for U.S. federal income tax purposes under the “anti-inversion rules” in Section 7874(b) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Assuming that a payment from a Canadian corporation constitutes a “dividend” for U.S. federal income tax purposes (which analysis often differs from Canadian tax rules), and assuming the payee is not otherwise an exempt employee (which is beyond the scope of this blog article), a dividend payment must satisfy each of the above requirements in order to be exempt from U.S. federal backup withholding and reporting requirements. In respect of the first requirement above, dividends from a Canadian corporation are generally treated as paid from sources outside the United States unless 25% or more of the corporation’s gross income from all sources for the prior three years was, or was treated as, effectively connected with the conduct of a trade or business within the United States. In respect of the second requirement above, a Canadian corporation or its non-U.S. middleman (e.g., a non-U.S. financial institution or broker acting as an intermediary) generally should be treated as a non-U.S. payor or non-U.S. middleman. However, certain Canadian corporations or middlemen are not treated as non-U.S. payors or non-U.S. middlemen for these purposes including, without limitation, those that are: (i) “controlled foreign corporations” under Code Section 957(a), (ii) foreign partnerships in which the majority of interests are held by U.S. persons, or (iii) foreign persons for which 50% or more of the gross income for a three-year period has been effectively connected with the conduct of a U.S. trade or business, as applicable. In respect of the third requirement above, the payment of a dividend by a Canadian corporation (not otherwise treated as a U.S. payor, as discussed above) is generally considered to be made outside of the United States unless (i) such payment is made to an account maintained by a payee in the United States or by mail to a United States address, and (ii) the Canadian corporation’s shares are: registered under the Securities Act of 1933; listed on an exchange that is registered as a national securities exchange in the United States; or included in an inter-dealer quotation system in the United States. Generally, a Canadian corporation should be aware if its securities are either registered under the Securities Act of 1933 or listed on an exchange that is registered as a national securities exchange in the United States (e.g., the NSYE or Nasdaq), and thus whether its dividends are currently subject to U.S. federal backup withholding and reporting requirements. However, even if the shares of a Canadian corporation are not otherwise registered under the Securities Act of 1933 or listed on a national securities exchange in the United States, it is nonetheless possible that prices for such Canadian corporation’s shares could be quoted on an inter-dealer quotation system in the United States (e.g., certain of the OTC platforms). If a Canadian corporation’s share prices are quoted on an applicable inter-dealer quotation system in the United States, then dividends paid to an account maintained by the payee in the United States or mailed to a U.S. address would generally be subject to the U.S. federal backup withholding and reporting requirements. In the event a dividend payment is subject to the U.S. federal backup withholding and reporting requirements, the Canadian corporation would be required to withhold backup withholding in respect of such payment at the U.S. federal backup withholding tax rate, currently at a rate of 24%, unless, prior to payment, the payee provides to the Canadian corporation a properly completed and duly executed IRS Form W-9 certifying that such payee is not subject to U.S. federal backup withholding tax. Collecting U.S. tax forms in advance of dividend payments requires advanced planning. The U.S. federal backup withholding and reporting requirements are complex. Canadian corporations should consult with U.S. counsel and review the potential application of the U.S. federal backup withholding and reporting regime before making a dividend payment.

Canadian companies that award stock options to their employees, non‑employee directors and/or other service providers often inquire as to whether they should offer Incentive Stock Options (“ISOs”) to any such individuals who are U.S. taxpayers.  Below is a discussion of some of the tax considerations in awarding ISOs and the main requirements that must be met for an option to qualify as an ISO. Please note, this blog post provides only a high‑level summary of the tax treatment of options as well as some of the notable requirements for an option to qualify as an ISO.  This article does not purport to cover every nuance or situation.  As such, you should consult with U.S. counsel (as well as your accountants) for assistance in determining whether ISOs should be awarded, and if so, the requirements that must be met. Tax Considerations in Awarding ISOs Under U.S. tax law, an option will be treated as either (i) an Incentive Stock Option or (ii) a Nonqualified Stock Option (“NSO”).  An option that does not meet the requirements for ISO treatment will be treated as an NSO for tax purposes. An ISO allows the option holder the opportunity to obtain more favorable tax treatment in that (i) there is no tax due at exercise (as contrasted with NSOs where the spread is taxed at ordinary income rates at the time of exercise), and (ii) if ISO shares are held until the end or the required ISO holding period (i.e. held for at least one year after exercise and two years after grant), the excess of the sales price over the exercise price will be taxed at the long‑term capital gains rate.  This means that the amount of the spread at the time of exercise is never taxed at the higher ordinary income rates and no Federal Insurance Contributions Act (“FICA”) taxes (i.e. Social Security and Medicare taxes) are paid.  While there is the potential for more favorable tax treatment for the option holder, depending on the individual’s specific tax circumstances, the exercise of an ISO could trigger something known as alternative minimum tax, so the option holder may not actually get the full tax benefit. On the other hand, ISOs are potentially less favorable to the employer because it will not be eligible to take a compensation expense deduction on its U.S. corporate income tax return for the compensatory element of the ISO (i.e. the amount of the spread at the time of exercise), unless the employee makes a disqualifying disposition (i.e. sells before the end of the required ISO holding period).  In contrast, the employer may take such deduction if the option is an NSO. What are the Requirements for ISOs? One of the main limitations of an ISO is that it may only be granted to employees of the issuing company (or a subsidiary).  This means that non‑employee directors and consultants are not eligible to receive ISOs.  Moreover, while it is common in Canadian equity plans for the number of authorized shares to be represented as a rolling percentage, a plan that awards ISOs must designate a fixed number of shares authorized to be granted as ISOs.  An ISO may not have a term of longer than ten years, and there is no explicit exception to this rule for an ISO that may expire during a blackout.  For each optionee, no more than $100,000 in options may first become exercisable in any calendar year, and to the extent the $100,000 limit is exceeded, the excess is treated as an NSO.  Lastly, it is important to note that in order to grant ISOs, the plan must be approved by the shareholders of the issuing company within 12 months of adoption of the plan. Concluding Considerations It is worth reiterating that should an option designated as an ISO fail to meet any of the ISO requirements, the option will be treated as an NSO for tax purposes.  As such, an option holder would be in no worse of a position than if the option had been originally designated as an NSO.  For this reason, as long as shareholder approval is not expected to be an obstacle, many companies ultimately decide to award ISOs to employees that are U.S. taxpayers.  In particular, companies that award options to lower‑to‑mid level paid employees may wish to consider ISOs, as these employees are not typically subject to the alternative minimum tax and would not likely exceed the $100,000 limit on ISOs.

On September 27, 2024, the Securities and Exchange Commission (SEC) approved substantial updates to the EDGAR system's login, password, and access protocols that will affect Canadian SEC reporting companies and other individuals and entities with EDGAR filing codes including Section 16 filers. (referred to as “EDGAR Next”). Compliance with the new EDGAR Next protocols will be mandatory for new filers starting March 24, 2025, while existing filers must comply from September 15, 2025. Filers have until December 19, 2025, to enroll in the EDGAR Next system. More information is available here.  

Canadian companies with U.S. subsidiaries have been gearing up all year to file beneficial ownership reports with FinCEN pursuant to the Corporate Transparency Act, in advance of a January 1, 2025 deadline for entities that were formed prior to 2024. Many have already completed their analysis and either determined that they qualify for an exemption or filed their initial beneficial ownership reports. On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the January 1, 2025 deadline. More information is available here. Companies that have not yet filed their initial beneficial ownership reports, and that are not exempt, now have a choice to make – they can either make the filing or continue monitoring developments and be ready to file should the injunction be lifted upon appeal.

Last month, I was invited to speak to the Canadian Securities Administrators, focusing on how U.S. securities exemptions, prospectus forms, and continuous disclosure requirements differ from their Canadian counterparts. One of the handouts was a side-by-side comparison of the different exemptions and forms, that we thought our readers might also appreciate. Here is an updated version you can download and print.

This is a reminder that the deadline to file initial Beneficial Ownership Information Reports with FinCEN is January 1, 2025 for all non-exempt entities formed or registered to do business in the United States prior to December 31, 2023. The deadline is within 90 days of formation for all non-exempt entities formed or registered in 2024 (and within 30 days of formation for all non-exempt entities formed or registered on or after January 1, 2025). In January, we published this summary of the Corporate Transparency Act, in addition to our long form update on the CTA. Our attorneys are ready to assist with any questions you may have.