Discussion:Foreign individual shareholder and entity
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Discussion Forum Index --> Accounting Questions --> Foreign individual shareholder and entity
Davepelzner (talk|edits) said: | 4 June 2009 |
| I have a client who started a US / California Corporation and is the 100% shareholder for now. He is also the 100% owner of an Italian Corporation. His Italian Corporation developed a software. The software is being licensed to the US company and they will send the Italian Corporation 80% of the Revenues they collect. So it is actually a license right / royalty fee paid back.
The owner of the Italian company lives and works in Italy. Only comes to the US a few weeks a year max. My questions are: 1) Does the US Company have to withhold anything from the 80% of Revenues they send to Italy monthly? 2) Is there an issue with both entities being owned by the same individual / shareholder? 3) Anything else to be aware of and need to file due to the foreign owner of the US Corporation? Thank you for the thoughts, | |
| 11 June 2009 | |
| First of all, you have a transfer pricing issue. Is 80% a fair price? Or is it ridiculous? Transfer Pricing covers that aspect of the case. You need to bring a transfer pricing specialist in as a consultant on the case to cover your own professional liability.
There is no US tax on payments on business profits when the recipient entity is located in Italy. There is US tax on royalties. So, you next jolly question is (a) is it really royalties? And if yes, then (b) does the business profits part of the treaty apply? Or is it the royalties bit? I think the business profits bit applies, but I'd need to know more about the software product and you may need to pull in a lawyer to draft all the paperwork so that it definitley meets the definition of business profits. Once you know the answer to that, you'll know whether any tax is due. If tax is due, you withhold it, if it isn't, you don't. In either event, the foreign corporation files a W8-ECI with the US corporation to arrange the correct rate of withholding. The foreign corporation must first file an SS4 to get a US EIN to enter on the W8-ECI. We recommend telephone filing of the SS4 when all of the persons and addresses are abroad as the online version doesn't handle foreign addresses well nor does it like it when the person who created the foreign corporation doesn't have an SSN/ITIN. The phone-in filing with a human voice IRS person gets around that. The fact that both companies are owned by the same person will be disclosed on the Form 5472 that the US corporation files annually in addition to it's 1120. | |
Davepelzner (talk|edits) said: | 15 July 2009 |
| I think these do qualify as a royalty and based on industry standard, 80% is the rate paid, per my client's research.
so how do the from 1042 and from 1042-s come into play with these facts above? Also can these 1042 froms be filed vs an 1120F for this activity? thanks, | |
