Canada As a Nearshoring Destination for U.S. Tech: To Be Or Not To Be?

How would you answer the question: "Why don't American tech companies move 100% of their operations to Canada given their view on Trump's anti-immigration stance?" Thanks to the world's largest Q&A portal Quora, we can see what people of different backgrounds and lifestyles think about Canada as a nearshoring destination for US tech.

International Tax and Immigration Lawyer David S. Lesperance who also co-wrote the book "Flight of the Golden Geese" thinks that's not quite logical to move 100% of US companies' operations to Canada, while it does make sense to do "some international corporate re-organization and move some divisions/ work groups/ projects to outside or related party groups located outside the US". Listing the advantages, David points out 2 things:

1.Intellectual Property (IP)

In anticipation of the OECD Base erosion and profit shifting initiative, a number of jurisdictions are creating favorable regimes to legally house the IP of multinational corporations (the so-called Patent box). As a result, "we'll increasingly see US based tech companies transformed into outside IP creators for a non-US entity. The US will continue to get the employment (and the tax revenue) from those who remain in the US".

2. Canada is a perfect destination for setting up divisions that can be easily separated from US locations.

Examples are: software development, QA and testing, infrastructure management, etc. Now when USA is having issues getting skilled people from the rest of the world due to temporary suspension of premium H1B visa processing, Canada is moving in a completely different direction enticing more skilled foreign employees to relocate and work onsite in Canada.

"Not only can you get them the ability to work but can also get them permanent residence and citizenship which for most H1B workers is faint hope in the US"

Secondly, USA and Canada have the same time zone which allows US companies to easily manage processes outsourced to Canada and Canadian sited employees to regularly visit the US-based HQ with B1/B2 visa. It sounds like win-win, doesn't it?

"As to why don’t they do it? They are already doing it, it just hasn’t hit the headlines yet."

Former expat Andrew Crawford has a different viewpoint. He believes there're factors other than US immigration policy that determine the optimum location for outsourcing of IT operations. Answering the question, Andrew says:

"There is the cost of relocation, the cost of adjusting to a new legal and regulatory framework, differences in corporate taxation, the cost of motivating existing staff to move and/or replacing them locally, access to a well-developed supply chain, the effect it would have on branding and customer relations, etc., etc,. etc. It “seems” easy only if you haven’t thought it through."

But what if Americans knew they'd be able to make money in Canada than back home, would they really be that reluctant to relocate? We doubt so.

Another Quoran, a student at the University of Warwick, thinks it'll only make sense for US tech companies to move to Canada if they need to hire more H1B resources, as "American tech companies are located where there is an abundance of technical talent. Only a fraction of workers in high tech firms are H1Bs."

He's also wondering how Canada will be able to tolerate an unlimited influx of new immigrants, but let's leave this topic for the next blog post.

Also read how Canadian IT sector can benefit from Trump's election as President.