H-1B Visa and Lottery Process

The H-1B visa category was created by Congress to employ high-skilled professionals in the U.S. by companies with a presence in the U.S.  An H-1B visa can be applied for on behalf of any applicant with relevant skills and at least a bachelor’s degree in a specialized field to work in the U.S.  There is an annual quota of 85,000 set by the U.S. Congress for the issuance of new H-1B Visas (65,000 regular visas and 20,000 visas reserved for this with a U.S. Master’s degree or higher). These new H-1B visas filed are called cap-subject H-1B visas.  Because the demand for H-1B visas is very high, USCIS employs a random selection process called the H-1B lottery to select applicants that meet the annual quota cap.

Who can sponsor an H-1B visa?

An H-1B can be sponsored by a company which is in the U.S. or a multinational company that has operations and offices in the U.S. The company which acts as the sponsor must also maintain a valid employer-employee relationship with the intended H-1B visa holder, called the beneficiary. This relationship is typically indicated by the fact that the company is the entity which has the authority to hire, fire, supervise, or otherwise control the work of the beneficiary. These requirements are often referred to as the “right to control” the beneficiary’s employment. This requirement precludes the sponsoring company from sub-contracting the beneficiary out to 3^rd party companies.  The beneficiary may perform services at an end-client/3^rd party work site, but the end-client can have no supervisory control over the beneficiary’s work or pay the beneficiary directly for their work.

Technically, any company with an office in America can sponsor an H-1B visa.  It can be a company with a few people to hundreds or thousands of people. There are some requirements by USCIS laid out so that the company filing for the visa has the ability to pay the beneficiary as it is the company’s responsibility to make sure the beneficiary is paid in the U.S. as per the U.S. Department of Labor, which is governed by something called LCA (more details below).

What are the requirements a company and foreign worker must meet to qualify for the H-1B?

For the company, the primary qualifications are related to the job which they want the foreign employee to perform, often called the proffered position. This position requires:

• Theoretical and practical application of a body of highly specialized knowledge; and
• Attainment of a bachelor’s or higher degree in the specific specialty (or its equivalent) as a minimum for entry into the occupation in the U.S.

The position must also meet one of the following criteria to qualify as a specialty occupation:

• Bachelor’s or higher degree or its equivalent is the minimum entry requirement for the particular position.
• The degree requirement is common to the industry in parallel positions among similar organizations or, in the alternative, the job is so complex or unique that it can be performed only by an individual with a degree.
• The employer requires a degree or its equivalent for the position.
• The nature of the specific duties is so specialized and complex that the knowledge required to perform the duties is usually associated with the attainment of a bachelor’s or higher degree.

For the foreign employee to be qualified to perform services in a specialty occupation, they must meet one of the following criteria:

• Hold a U.S. bachelor’s or higher degree required by the specialty occupation from an accredited college or university.
• Hold a foreign degree that is the equivalent to a U.S. bachelor’s or higher degree required by the specialty occupation from an accredited college or university (for this, an education evaluation from an accredited evaluation firm is required).
• Hold an unrestricted state license, registration, or certification that authorizes the worker to fully practice the specialty occupation and be immediately engaged in that specialty in the state of intended employment.
• Have education, specialized training, and/or progressively responsible experience that is equivalent to the completion of a U.S. bachelor’s or higher degree in the specialty occupation and have recognition of expertise in the specialty through progressively responsible positions directly related to the specialty (an education/experience evaluation from an accredited evaluation company is required to determine this).

What is an LCA and why is it required?

LCA stands for Labor Condition Application. It is a mandatory document that the H-1B Sponsor or employer must file with the U.S. Department of Labor (DOL) before filing the H-1B petition with USCIS for any non-immigrant worker as per the Immigration and Nationality Act (INA). Employers (or their legal representatives) file H-1B LCA in U.S. Dept. of Labor FLAG System. It takes about 7 days for processing. It is required to ensure that foreign workers are provided with similar wages and conditions as U.S. Workers.

An H-1B LCA form (ETA Form 9035/9035E) has all the key information regarding the offered job, wage details, location, etc. offered to the foreign worker. It has all the below details :

• The job title of position offered
• Standard Occupation Classification Code, called as SOC Code
• Duration of the job position offered (up to 3 years at a time)
• Whether the position offered is full-time or not.
• Total number of positions the LCA is applied for (can be one or any number)
• Rate of Pay / Salary offered for the position
• Location of the job position called as “Place of Employment”
• Is it new or continuing employment
• Prevailing Wage for the same position in that area
• Employer’s & Attorney contact information.
• Is the employer H-1B Dependent or not
• Public disclosure – where LCA will be posted for viewing by public.

The sponsoring U.S. company must post a notice that an LCA and H-1B petition will be filed on behalf of a foreign worker prior to submitting the LCA to the U.S. DOL for certification. This notice must be posted in one or two ways:

1. Hard copy notice in a public location of the employer’s establishments in the area of employment such as a breakroom, common area, or bulletin board or
2. Electronic notice using the same means the employer normally communicates with its workers about internal matters such as job vacancies, promotion opportunities, etc.

The DOL introduced the H-1B LCA to protect the employee’s fundamental rights at work in terms of wages, working conditions, and policies. In the LCA form, employers declare/attest under penalty of perjury that they will abide by the labor laws and be compliant in the below four areas:

1. Pay Prevailing Wage: That the beneficiary will be paid equally, similar to their other employees in that location or the prevailing wage rate in a particular location, whichever is higher for that position, and the beneficiary needs to be paid during non-productive time. Also, provide the same benefits as regular U.S. workers.
2. Working Conditions, Hours: That the employer will provide same working conditions as U.S. workers and employing the beneficiary will not adversely impact the working conditions at the location, especially hours, vacation time, shifts, etc.
3. Strike or Lockout Info: That there is no strike or lockout or any other work stoppage for the named occupation in the place of employment during filing of LCA.
4. Post LCA Notice, Share to Union, Employees: The employer will provide a copy of the LCA to the employed workers in that location and will also provide a copy to a union, if any. Also, post the LCA in two conspicuous locations where the H-1B worker will be employed or distribute through electronic notification for the employees in that location.
5. Official Regulation H-1B LCA: If you want additional details on the above rules and more info, you can read official regulation on LCA at INA § 212(n)-(p) on US DOL website (https://www.dol.gov/agencies/whd/laws-and-regulations/laws/ina/h1b) .

When can you file the H-1B visa petition and for how long does USCIS accept petitions?

New H-1B visa applications for someone applying for the first time can only be done once a year during a defined time window (unless the U.S. company is cap-exempt). In general, you can only file for an H-1B visa 6 months before the start date of the beneficiary’s actual work start date. The USCIS fiscal year is from October 1^st to September 30^th of next year, 6 months before Oct 1^st is April 1^st.  Now, with the H-1B Registration Process, usually, the submission date for H-1B registration process is in the month of March of every year.  It varies by year. After the registration process, the selected applicants are informed by the end of March and they can file H1B petition between April 1st, and June 30th. If the applicant is not selected, USCIS will not notify them.

USCIS accepts H-1B visa applications until the quota is complete for that year. In the past, they used to accept applications for a minimum of 5 days and for up to a few months, depending on the demand to meet the quota cap of 85,000. However, this changed with the introduction of the H-1B registration process, but it is very common for USCIS to select more registrations during the lottery than there are visas available on the assumption that not all the registrations selected will actually qualify. This means that getting the H-1B petition filed as soon as possible after being selected provides the best chances for petition approval.

What happens after H-1B selection and petition approval?

If the employee is selected for the H-1B registration, they are now free to file the H-1B petition with USCIS. The petition must contain the required forms and documentation to demonstrate that the company, the proffered position and the beneficiary all meet the H-1B requirements. With H-1B cap-subject visas, the start date is always October 1^st of that year (due to the USCIS fiscal year). This is the date the beneficiary will be granted H-1B status and legal work authorization based on this status.

Assuming the petition is approved by USCIS and the beneficiary is outside the U.S., the beneficiary will then use the I-797 Approval Notice from USCIS to complete the DS-160 online and make an appointment at a U.S. embassy or consulate abroad for the H-1B visa stamp in their passport. This interview should take place no more than 6 months prior to the October 1^st start date (July 1^st). The timing of the interview and the processing of the visa stamp will depend on the U.S. embassy/consulate being used.

Assuming the petition is approved by USCIS and the beneficiary is already in the U.S. in another immigration status, the beneficiary will officially change their status to H-1B on October 1^st. Nothing is required by the beneficiary at that time – the status change is automatic. However, if the beneficiary leaves the U.S., they will need to use the I-797 Approval Notice to complete the DS-160 and schedule an interview at a U.S. embassy or consulate to obtain a visa stamp in their passport. Without that visa stamp, they will not be allowed back into the U.S. in H-1B status and therefore will not be legally allowed to work.

Summary of H-1B Registration Process

Usually, USCIS announces the exact dates for the next H-1B Registration/Lottery Process during January of that year, so the dates in the below chart are an approximate timeline.

See the USCIS website for more information:

https://www.uscis.gov/working-in-the-united-states/temporary-workers/h-1b-specialty-occupations-and-fashion-models/h-1b-electronic-registration-process

Termination of an H-1B Worker

The H-1B visa category has a number of employer obligations built into the terms of the visa and the regulations, and this holds true even if an employer wants to terminate the H-1B worker/visa beneficiary before the end of the visa.

There are 4 key steps the employer needs to take when terminating an H-1B worker:

• Confirm the termination in writing to the beneficiary and inform them of their last day.
• Send a letter to USCIS confirming that the employer/sponsor would like to withdraw the H-1B petition once the employment officially ends, but not before it ends.
• This is because employers are required to pay wages to the beneficiary as long as the petition is in effect.
• Withdraw the Labor Condition Application (LCA) with the U.S. Dept. of Labor (DOL) via the iCERT Portal System. This can also be done via email or written notice if the employer does not have access to the electronic LCA through the Portal.
• This is a legal obligation and not withdrawing the LCA can result in a penalty for back wages under the LCA agreement.
• Offer to pay the beneficiary the reasonable cost of return transport to their home country (and this offer should be documented).
• This obligation only arises if the beneficiary departs the US. If the beneficiary transfers to a different employer, there is no obligation to pay the cost of return transportation.
• This offer can also be built into the beneficiary’s employment contract if the employer chooses, but it should be revisited upon the termination of the beneficiary.

Failure to take these steps can result in a continuing obligation to pay the beneficiary’s wages and gives the beneficiary the ability to submit a complaint to the U.S. DOL.

It’s important to note that even after the above steps have been followed and the termination has occurred, the employer still needs to maintain the Public Access File (PAF) for one year beyond the date of LCA withdrawal or employment(whichever is longer).

E-2 Visa Validity Legal Immigration Status (website version) [2024 final]

Unlike most U.S. work visas, the E-2 visa validity depends on the principle of reciprocity and is determined by the person’s country of nationality. This means that the visa stamp’s validity period will differ depending upon the nationality of the person applying for it. For example, the E-2 visa for a Danish citizen is valid for 18 months whereas an E-2 visa for a Dutch citizen is 36 months or 60 months for a UK citizen.

The reciprocity schedule can be found on the U.S. State Department’s website – https://travel.state.gov/content/travel/en/us-visas/Visa-Reciprocity-and-Civil-Documents-by-Country.html

• Use the alphabet filter near the top left corner of the page to navigate to the list of countries by alphabetical order.
• Find your country in the list below this alphabet chart and click on it.
• In the Visa Classifications chart, click on the box with the “E”
• This chart will tell you the reciprocity fee for the E-2 visa as well as the E-2 validity period.

However, while the validity of the E-2 visa stamp is determined by reciprocity, the length of time an E-2 visa holder is allowed to remain in the U.S. at one time is usually 2 years from the date of the person’s most recent entry to the U.S. (even if the E-2 visa stamp will expire during their stay in the U.S.). To put this another way, an E-2 visa stamp permits a person to enter the U.S. from abroad, but it does not determine how long the person may remain in the U.S.

• Each time you enter the U.S. from abroad on your E-2 visa, you should be admitted for 2 years from the date of your entry (unless you enter the U.S. from Mexico or Canada (or potentially some Caribbean nations) after being there for less than 30 days).
• When you go through the passport control upon your entry to the U.S., the U.S. Customs and Border Protection (CBP) officer may stamp your passport. However, CBP is transitioning to digital I-94s, so many airports are no longer physically stamping and writing in the expiration date by hand.
• If you do not have a handwritten date in your passport telling you how long you can remain in the U.S., you will need to obtain a copy of your digital I-94 in order to determine this date. The I-94 is the electronic admission record created by the CBP officer upon your entry to the U.S.
• Each time you enter the U.S. on your E-2 visa you must access your admission form I-94 online to check your allowed time in the U.S.
• To access form I-94, you will need to go to https://i94.cbp.dhs.gov/I94/#/home and select “Get most recent I-94”. Save this form for your records. I-94 will be available only after you enter the U.S.
• You will be able to re-enter the U.S. from abroad on your E-2 visa for as long as your E-2 visa stamp in your passport is valid. If you wish to renew your E-2 visa, this will require submitting an E-2 visa application to a U.S. Embassy/Consulate again.
• Your E-2 status in the U.S. is tied to your employment at the sponsoring U.S. company. You are not allowed to work for any other company.
• Your E-2 status is also tied to the ultimate ownership of the U.S. company. Should changes in the overall corporate structure and company ownership occur, it may invalidate your visa.

The below E-2 visa stamp is for a Danish citizen and therefore is valid for 18 months. The expiration date of the stamp has been circled in red.

The below image is the same person’s digital I-94 from his entry to the U.S. in E-2 status. The I-94 grants the E-2 visa holder legal E-2 status in the U.S. until October 14, 2024 (also circled in red), 2 full years from the date he entered the U.S.

E Visas: A Viable Pathway to U.S. Work Visas for Entrepreneurs and Companies

By: Olga Quinones, LL.M. Martensen Wright PC, and Anne Grethe Martensen, MBA, HA (Jur.) 

Getting a U.S. work visa can be challenging for individual foreign entrepreneurs and for foreign companies that wish to send their personnel to work in the U.S.

Most U.S. work visas require a job offer from a U.S. company. This requirement cannot be met by individual entrepreneurs. As far as the companies are concerned, they often have to comply with ever tightening requirements of Intra-Company Transfer L-1 visas or face the limitations of the Specialty Occupation H-1B visas before they can employ foreign personnel in the U.S. The E visa option is frequently the only viable option for individual entrepreneurs, and it is often the best solution for companies who need to relocate some of their key employees to the U.S.

There are two types of E visas: E-1 Treaty Trader Visa and E-2 Treaty Investor Visa. Both types of E visas are based on Treaties of Commerce and Navigation between the U.S. and foreign countries (“Treaty Countries”). Denmark, Norway and Sweden are three of the countries which maintain the above Treaties with the U.S., which allows citizens from these countries to apply for E-1 and E-2 visas. A full list of Treaty Countries can be found on the website of the U.S. Department of State:
https://travel.state.gov/content/travel/en/us-visas/visa-information-resources/fees/treaty.html

Benefits of E visas:

• E visas allow foreign entrepreneurs to come to the U.S. to start a business or to purchase and develop an existing U.S. business.
• E visas can be extended as often as needed, potentially indefinitely, as long as all the requirements continue to be satisfied.
• It is important to note that the E visa itself does not lead to permanent resident status (a.k.a. Green Card), irrespective of how long the individual has lived and worked in the U.S. in E status.
• The validity period of E visa stamp issued by the U.S. Embassy is determined by reciprocity agreements between the U.S. and the Treaty Country. Citizens of some countries may have an E visa validity period of 18 months whereas citizens of other countries may have up to five years. It is important to check the reciprocity schedule prior to applying for an E visa as the validity period may change. This can be done via the State Department website (https://travel.state.gov/content/travel/en/us-visas/Visa-Reciprocity-and-Civil-Documents-by-Country.html)
• E visas allow for the transfer of essential employees to the U.S., including employees who have been employed with a foreign parent or affiliated company for a short period of time (less than a year) or have not been employed with the foreign company at all prior to the transfer
• Spouses of the E visa holders are automatically authorized to work for any U.S. Company once the dependent spouse is admitted to the U.S. in ‘E2S’ dependent status.
• E visa allows the visa holder to travel to the U.S. from abroad during the validity period of the visa stamp in their passport. The validity period of the visa stamp does not determine how long time the individual is allowed to stay in the U.S. The period of allowed stay in the U.S. is determined by the U.S. Customs and Border Patrol authorities (CBP) upon the individual’s entry to the U.S. E visa holders are typically allowed to stay in the U.S. for two years from the day of their last entry, regardless of the visa stamp expiration date.
• If an E visa holder does not plan or want to travel outside the U.S. after their E visa stamp expires, they can apply for an extension of their E status in the U.S., without having to apply for a new E visa stamp at the U.S. Embassy. Extensions of stay in the U.S. are processed by the U.S. Citizenship and Immigration Services (USCIS) and are typically granted in two-year increments. Extension of stay in the U.S. can be granted even after the expiration date of an E visa, as long as the extension application is filed before the expiration date of the admission period on the I-94 arrival/departure form.
  • However, if an extension of stay is granted, it is only valid while the individual is in the U.S. If this individual travels outside the U.S. after their E visa stamp expires, they will need a valid visa stamp before they can travel to the U.S.
  • The visa stamp renewal process requires a new E visa application processed by a U.S. Embassy abroad. The U.S. Embassy is not bound by the USCIS approval of E status extension.

The Basic Requirements for Both E Visa Types:

•  The U.S. Company must ultimately be at least 50% owned by citizen(s) of the same Treaty Country as the visa applicant’s country of citizenship. It is important to note that ownership is traced to the ultimate individual owners of the business.
  • Foreign citizens who are permanent residents of the U.S. (Green Card holders) cannot serve as qualifying owners for the purposes of E visa applications.
• The visa applicant must demonstrate an intent to leave the U.S. after the termination of their E visa status. Note: This does not preclude the applicant from ultimately applying for a Green Card if a separate basis for the Green Card application exists, but it does mean the visa application cannot complete the Green Card process from within the U.S.

E-1 Treaty Trader Visa

The specific requirement for an E-1 visa is that the Treaty Trader (individual or company) must have established “substantial trade” in goods or services between their country of nationality and the U.S. To be considered substantial, this trade must constitute at least 50% of the company’s or individual’s total international trade. This trade requirement may be fulfilled either by the foreign individual, foreign company or by the U.S. subsidiary that will serve as the employer of the intended visa holder.

Notes regarding Qualifying Trade:

• Trade between the foreign country and the U.S. must be in existence before the visa application can be submitted for processing. Trade includes both export and import of goods and/or services.
• If the company is trading goods, the goods must be manufactured in the applicant’s country of nationality (Trade Country), shipped to the U.S. from the Trade Country and invoiced in the Trade Country to count as trade for E-1 visa purposes. Alternatively, the goods can be manufactured in the U.S., shipped from the U.S. to the Trade Country and invoiced in the U.S.
• Substantial trade is determined by the number of transactions over time, not only by the dollar amounts. For example, one transaction will not qualify as substantial trade, even if it involves a large sum of money.
• Typically, US Embassies require substantial and detailed documentation in regard to the company’s international trade to satisfy the E-1 visa requirements. Such documents include, but are not limited to, bills of lading, invoices, bank account statements and other documentation showing transactions between the two countries.

Note Regarding the Visa Applicant’s Position in the U.S. Company

The visa applicant must be coming to the U.S. to be employed in a supervisory, executive or specialized capacity.  Ordinarily skilled or unskilled workers do not qualify for E-1 visas.

E-2 Treaty Investor Visa

As the name suggests, an E-2 visa is based on investment. This type of visa requires a substantial investment to be made in the U.S. Company by a foreign individual (often, but not always, the visa applicant) or a foreign company that has the same nationality as the visa applicant.

Notes regarding qualifying investment:

• Qualifying Investment must be “substantial,” and the funds have to be irrevocably committed. “Substantial” is not defined in the visa regulations. Typically, if the U.S. Company is new, we see success with an initial investment of $80,000 – $100,000.
  • The investment must be sufficient to ensure the successful operation of the U.S. enterprise, and this amount is typically relative to the type of enterprise.
• The investment must be made into qualifying categories of expenses related to the U.S. Company. Uncommitted funds in a bank account or mere ownership of undeveloped land are not considered an investment.
  • Specific types of qualifying expenses often depend on the type of business.
  • Examples of expenses for E-2 visa purposes include, but are not limited to, U.S. office infrastructure, inventory on hand, equipment, company cars, marketing expenses, recruiting expenses, and one-month’s office rent.
• The investment may not be marginal, meaning that the U.S. enterprise must have the present or future capacity to generate more than just the income needed to provide a minimal living for the treaty investor (or the employee of the investor) and their family.
  • The U.S. business must demonstrate a realistic need and plan to hire U.S. employees and a realistic potential for a financial return that significantly exceeds what is necessary to support a living for the visa applicant and his/her family.
  • While there is no specific mention of job creation in the visa regulations, this requirement is the core of why the E-2 visa exists.
• The investment must be ‘at risk’ in a commercial sense. If the investment funds are not subject to partial or total loss if business fortunes reverse, then the investment does not qualify to support an E-2 visa application. Loans secured with the assets of the U.S. enterprise do not qualify for E-2 visa purposes, nor does simply transferring money to a U.S. bank account

Note Regarding the Visa Applicant’s Position in the U.S. Company:

If the visa applicant is the principal investor, this individual must be coming to the U.S. to develop and direct the U.S. enterprise. If the applicant is a prospective employee of the U.S. company, this applicant must be employed in a supervisory, executive, or specialized capacity. As with the E-1 visa, ordinarily skilled or unskilled workers do not qualify for E-2 visas.

If you have questions or would like further information on E visas, please feel free to contact Martensen Wright PC at info@usa-eurolaw.com.

Danes and Dual Citizenship

Danish Nationals living in the United States now enjoy the option of having dual citizenship.

This means that Danes can apply to become US citizens via naturalization in the USA without losing their Danish citizenship. The Application for Naturalization, form N-400 is available here: https://www.uscis.gov/n-400

Danes who lost their Danish citizenship when they became citizens of another country prior to September 1, 2015, can apply to have their Danish citizenship reinstated. The deadline for submitting an application is August 31, 2020.

The application, Erklæring om Generhvervelse af Dansk Indfødsret for Tidligere Danske Statsborgere, is available here.

For more information about Citizenship [in Danish statsborgerskab og indfødsret] please see Tidligere Danske Statsborgere.

Questions about the application should be directed to the Office for Indfødsret at phone no.: 011 45 7226 8700 or via e-mail: uim@uim.dk

Martensen Wright welcomes Pernille and says goodbye to Sandra

Our team is saying  goodbye to Sandra who has interned with us for a year and welcoming Pernille, our new intern from Denmark.

Dorthe Mikkelsen Wright awarded the knighthood

On Monday 20 August 2018 Dorthe Mikkelsen Wright had an audience with the his Royal Highness Crown Prince Frederik of Denmark to thank him for the knighthood she was awarded for her services as Honorary Consul of Denmark in Northern California. Dorthe continues to serve as Honorary Consul, assisting Danes in need in Northern California.

Lars Reed being sworn in as a California attorney

Martensen Wright congratulates Lars Reed, our former Law Clerk, on being sworn in as a California attorney.

The swearing-in ceremony took place in Alaska (notice the seal on the wall in the picture), because Lars is currently clerking there for Chief Justice Craig Stowers of the Supreme Court of Alaska.

Lars graduated in May 2017 from UC Davis School of Law and passed the California bar in November.

Martensen Wright is proud to have been part of the beginning of Lars’ legal career and we wish him the best of luck in the years ahead.

Finn Martensen, co-founder of Martensen Wright PC, passed away

It is with great sadness we announce that Finn Martensen, co-founder of Martensen Wright PC, passed away in Denmark on November 28, 2017.

Finn pioneered the concept of bringing Danish companies to the United States and helping these companies navigate through foreign legal systems and regulations.

Even after “retiring” to his native Denmark in 2009, Finn continued to assist companies get established in the United States and secure visas for their employees.

Finn worked until the very end and he will be greatly missed in the legal community of Danish-American commerce.

Our thoughts are with his wife Anne Grethe, his sons Jens and Rasmus and their families.

Peace be with his memory.

New I-94 Website with Reminders for Travelers

Frequent travelers to the United States should be very familiar with the U.S. Customs and Border Protection’s I-94 website.  Martensen Wright has just learned that the site has been updated with a feature allowing certain travelers on visa waivers to check the status of their stay in the US.  Staying past one’s “admitted until date” can have serious consequences for future visa applications, so this new feature will surely come in handy for many travelers.

Future updates to the I-94 website will incorporate additional non-immigrant travelers and will allow travelers to check how much longer they may remain in the United States. In addition, CBP is working towards emailing travelers 10 days before their expected departure date to remind travelers how much longer they can remain in the United States without overstaying the terms of their admission.

Read more about the changes to the I-94 website here.

IRS Starts Transfer Pricing Audit Campaign

The Internal Revenue Service (IRS) has announced that U.S. distribution subsidiaries of foreign multinationals, including Danish companies, can expect special transfer pricing scrutiny during IRS audits.   The IRS is concerned that foreign-owned companies are not paying their “fair share” of income tax when a parent company charges excessively high prices on goods, services and royalties. Incorrect cross-border prices can lead to artificially low corporate income tax payments.

Recently, we have seen the IRS become more aggressive in employing this audit strategy, and challenging transfer prices has become a lucrative way to raise tax revenue.  During audits, the IRS will request information on the company’s business operations and justification of the cross-border prices charged between companies – commonly known as a transfer pricing documentation report.

In discussions with tax agents, IRS Auditors regularly review earnings before interest and tax (EBIT) as a percentage of net sales when selecting targets. U.S. subsidiaries incurring losses face the highest risk of scrutiny, and many middle-market companies are being audited for the first time.

New Transfer Pricing Standards in DK Raise the Bar and Widen the Net – Starting at $20 Million in Group Revenue!

The IRS is not the only tax authority concerned about transfer pricing.  The Danish tax authority, SKAT, has also become more aggressive in auditing transfer pricing practices for Danish companies.

Transfer pricing has long been a tax concern for the largest multinationals and news articles on Apple, Starbucks, Google and others have raised the profile of this contentious tax issue.  Danish transfer pricing documentation rules were updated in 2016 to follow the OECD’s recommendations for combating large-scale tax avoidance by multinational companies.  Consequently, fines now apply for documentation breaches.  SKAT, for the first time in March 2017 published details of a court case in which a fine for failure to comply with transfer pricing documentation rules was upheld.

For the largest companies, new international transfer pricing documentation standards require companies to provide information on both global business operations (a “Master File”) available to all tax authorities and a transfer pricing analysis (a “Local File”) for tax authorities in all countries where a multinational operates.  However, many middle market companies will also be subject to these higher documentation standards in Denmark. Most notably, Danish regulations now require companies with global revenues of DKK 125 million (~ $20 million) and more than 250 employees to be subject to the same higher transfer pricing documentation standards as large multinationals.

In our experience, these new requirements are more prescriptive both in terms of the volume of information required and the details that must be included in a report. For instance, a Master File should include written descriptions of important drivers of business profit, the supply chain for the five largest product lines, major service agreements within the group, and an explanation of which companies own intangibles by country.  By contrast, a Local File for each country, requires a thorough explanation of local business strategies, functions, risks and assets. Each Local File must also include an explanation of inter-company transactions, financial results and selection of the “Best/Most Appropriate Method” for bench marking transfer prices.

What to Do Next?

Taxpayers of all sizes should review their transfer pricing arrangements in anticipation of a potential audit. Companies with U.S. distribution subsidiaries can expect additional transfer pricing scrutiny as a part of every IRS tax audit. Depending on the risk profile of a company, transfer pricing documentation or other supporting economic analyses may be necessary to justify operating results and reduce the risk of additional tax assessments and penalties.

The IRS has published a Transfer Pricing Audit Roadmap which can be viewed here: https://www.irs.gov/businesses/corporations/transfer-pricing-audit-roadmap-now-available .

This article was written by Hanne Rørholm LeLoup and Alex Martin.  Hanne LeLoup is a Partner with Hutchinson and Bloodgood LLP, http://www.hbllp.com/  in San Diego, California. HBLLP is a full-service CPA firm. Hanne grew up in Denmark and assists numerous Danish companies with their American tax issues. Hanne can be reached at hleloup@hbllp.com .  Alex Martin is a Transfer Pricing Expert at Clayton & McKervey in Detroit, Michigan, https://claytonmckervey.com/.  Alex can be reached at  amartin@claytonmckervey.com .