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Based on your description of facts, the Company is an independent contractor because it controls the manner an method by which its employees carry out their job duties on behalf of the Agent. If the Company is being paid for services rendered inside the USA, by employing a U.S. permanent resident, then the Company is legally subject to pay U.S. Federal and State employment taxes, and income taxes based on its revenues generated from U.S. sources, because it has a continuous presence and carrying on business inside the USA through its employee.
The Agent apparently has no presence in the UK an is only purchasing services, so it is not subject to UK taxes.
Hope this helps.
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If it does transpire that there is a US permanent establishment;
1. Will the US Tax Resident employee still be treated as an employee and only pay tax on any salary he receives from the Company?
2. Will the various legitimate business expenses incurred by the Company in carrying out its operations for, travel, accommodation in the UK, US and elsewhere, still be allowable?
3. Will the UK Company have to pay tax on its world wide income to the IRS? If not, how would the Companies income be apportioned?
4. Would any service agreement that the employee had with the UK Company be recognised by the US Tax authorities?
1. Maybe. If he has an ownership interest in a foreign legal entity, then he must identify it and report any nonemployee income received on his U.S. 1040 Personal Income Tax Return.
2. Yes. The employee can provide receipts to the Company for reimbursement, and the Company can deduct against their income tax obligation.
3. No. The Company is only liable in the U.S. for income derived from its U.S. Sources.
4. Can you narrow the terms, "any service agreement?" I don't understand the question.
Sorry. I hope this explains.
The employee is also a Director of the UK Company. He has signed a contract (Service Agreement) with the Company giving the Company exclusive rights to his services also ownership of all work performed or produced by him. The employee has also signed a Assignation of Right to Income agreement with the Company giving the Company the rights to all revenue/income generated or due to the employee and the company has an offshore company that receives that revenue.
4. Fringe benefit deductions are extremely complicated. See IRS Pub. 15-B, Table 201, page 5, for an overview of every possible issue.
In general, expenses incurred for the benefit of the employer are deductable (hotel, travel: yes; meals: no).
Sorry if I have confused you. Question 4 relates to something other than "fringe benefits"
How is the situation, which has been ongoing for some time affected? Will those agreements not be recognised by the IRS
4. The employee is also a Director of the UK Company. He has signed a contract (Service Agreement) with the Company giving the Company exclusive rights to his services also ownership of all work performed or produced by him. The employee has also signed a Assignation of Right to Income agreement with the Company giving the Company the rights to all revenue/income generated or due to the employee and the company has an offshore company that receives the revenue.
You are describing a relationship that violates public policy in every U.S. jurisdiction. Under U.S. Law a person is either an independent contractor or an employee. The principal factor is whether or not the worker retains the right to control the manner and method by which he or she carries out the services to the contracting party.
If your director has effectively given up all control, then he is an employee -- period. That means all of his expenses are fringe benefits of the employer (Company) as a matter of law.
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