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US Tax Return Filing for Companies

If your company has any income from the US, it’s important to comply with IRS legislations can prepare and submit the right tax return for your circumstances

There are situations in which a foreign corporation may be legally obliged to file a US tax return with IRS even if it does not have employees in the US. Failure to do so can be subject to a penalty of $10,000.

As a general rule , the IRS may tax any foreign corporation on what is termed ‘US Effectively Connected Income’ (ECI). In the simplest case, income from the sale of tangible goods to US customers is an example of ECI.

Tax Treaty

If a foreign corporation is a resident of a treaty country, i.e. a country which has a tax treaty with the US, then it is only taxed on ECI that is attributable to a permanent establishment (PE).

What constitutes a PE is usually defined in the tax treaty. Frequent visits of foreign corporation’s employees that perform services in the US may be viewed by IRS as a PE.

If a foreign corporation with US ECI does not have a PE, it has to file Form 8833 -Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).


Example 1:Treaty Position Disclosure
An Irish company sells clothing to US customers. All operations are done from Ireland and there are no employees or office in the US. Under the terms of the tax treaty between Ireland and the US, since there is no PE, the income is not subject to US tax. However, as a foreign corporation, the company is required to disclose this treaty position by filing Form 8833 with the IRS. looks after the preparation and filing of an annual FORM 8833 for this company.

Example 2: Protective Return
There are situations where the IRS may determine that a PE exists even if the foreign corporation has neither employees nor a physical location in the US. We encountered a recent example of this with a UK company which had a virtual office with a US address and phone number. The IRS said that the virtual office constituted a PE in the US.

In this case, had the company filed a Protective Treaty Based Return, it would have been able to claim deductions and offset some of its US-sourced revenues. A Protective Treaty Based Return is essentially a blank Form 1120F that reserves the right of the foreign corporation to claim deductions in case the IRS determines that a PE existed at any given point in the past.

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Our US CPA can provide assistance with preparing your treaty tax return. Fill out the short form below and we’ll give you a no-obligation call.

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