How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask L Dietz CPA Your Own Question

L Dietz CPA
L Dietz CPA, Accountant
Category: Tax
Satisfied Customers: 31
Experience:  Tax accountant with 27 years experience.
45435374
Type Your Tax Question Here...
L Dietz CPA is online now
A new question is answered every 9 seconds

Id like to have a basic understanding on some tax issues,

Resolved Question:

I'd like to have a basic understanding on some tax issues, incl. the international withholding tax.

. We are a small mobile payment company (A) in the Netherlands and we have a partner mobile payment company in US (B).
. We have a customer (X) who is an online gaming company in Luxemburg.
. A customer in US plays the game and charge it to their phone bill of, for example, Verizon, using the service in B.
. At the end of the month, VZ pays to B after deducting their fee. B sends $ to A after deducting their fee. And B pays to X after deducting our fee.

What we could easily confirm so far was
. there is no sales tax involved in this transaction.

The finding that we want to confirm about with you is
. The US tax authority cannot touch the VAT of Luxemburg. It is untouchable until it reaches to B and B should be responsible for VAT to the Lux tax authority.

Among all the other things we'd like to understand
. the withholding tax issue when & transfers from B to A. (Where can I look at and study to have the basic understanding of the issue?)

Thank you.
Submitted: 2 years ago.
Category: Tax
Expert:  Lindie-mod replied 2 years ago.
Hi, I’m a moderator for this topic and I wonder whether you’re still waiting for an answer. If you are, please let me know and I will do my best to find an Expert to assist you right away. If not, feel free to let me know and I will cancel this question for you. Thank you!
Customer: replied 2 years ago.
I still have not heard any response yet. Thank you.
Expert:  Lindie-mod replied 2 years ago.
Sometimes, finding the right Expert can take a little longer than expected and we thank you greatly for your understanding. We’ll be in touch again shortly.
Expert:  Lindie-mod replied 2 years ago.
Thank you for your patience, your business is very important to us, we are waiting on the Expert with the right expertise to come online. Feel free to let us know if you would like us to continue searching for an Expert or if you would like us to close your question. Thank you for your understanding!
Customer: replied 2 years ago.
Please keep searching. Thank you.
Expert:  L Dietz CPA replied 2 years ago.

Hello and welcome to Just Answer. I have 20 plus years experience in all areas of US taxation including multi-state and international issues.

 

I think I may be able to help you with your question. May I first get some additional information from you?

 

1. Is customer X in Luxemburg in any way related to Company's A & B? If yes, provide the percentage ownership if you know.

 

2. What percentage ownership does Company A (NE) have of Company B (US)? (100%? 50%? 20%?)

 

3. What types of entities are companies X, A & B? For example, is the US company a US corporation?

 

The answers to these questions will help determine if you need to read about withholding agent issues (See instructions to Form W-8 ECI on www.irs.gov), and the possible related party issues you may also need to know.

Customer: replied 2 years ago.
Hi,

Here are my answers.

1. No.
2. A have no ownership of B and vice versa. However, a company in Korea, let's call it C, has majority ownership of both A(45%) and B(65%).
C. X, A, B, and C are all corporations in the country where they belong.

Thank you.
Expert:  L Dietz CPA replied 2 years ago.
Thank you for your answers, and your patience. You have requested a High level of detail, therefore, I am working on a comprehensive response for you and gathering information for you to read for an understanding of the issue as requested. I will get back to you as soon as I can. (I am sending this response as "Need info", as this is not the official "Answer").
Expert:  L Dietz CPA replied 2 years ago.

Let me first address the withholding tax issue from US Corp B to Netherlands Corp A. Anytime a US entity makes a payment to a foreign entity, it is generally required under US Internal Revenue Code Sections 1441 and 1442 to withhold US income taxes at a 30% rate, absent a treaty provision allowing a lower rate or allowing no withholding. Prior to making payment, the US company must obtain documentation from the foreign entity to substantiate the rate withheld. This documentation is obtained by the payee completing the appropriate Form W-8 (Form W-8BEN, Form W-8ECI, Form W-8EXP or Form W-8IMY). These forms and their instructions can be downloaded from http://www.irs.gov/. The applicable Form W-8 should completed by the payee and returned to the US entity prior to payment being made.; if the foreign entity does not provide the US entity with a completed Form W-8, then the U.S. entity must withhold at the highest applicable rate. In your fact situation, I believe you should be looking at Forms W-8ECI and W-8IMY and their instructions.

 

The US company is also responsible for remitting this withheld income tax to the U.S. Internal Revenue Service, and reporting the withholdings annually on Form 945 (due January 31 for the previous calendar year). In addition, the US entity must file Forms 1042, 1042-S and 1042-T by March 15th annually for the previous calendar year. A copy of Form 1042-S, which reports the revenue paid and the income tax withheld, if any, is also provided to the payee. The Forms 945 and 1042 series and their instructions may also be downloaded from http://www.irs.gov/. A Form 1042-S reporting the revenue paid must be filed with the US Internal Revenue Service (IRS) even if no income withholding tax was required.

 

Normally the withholding responsibility falls upon the US Corp. However, if the Netherlands Corp registers with the IRS as a "qualified intermediary" and withholding agent, then the Netherlands entity would provide the US Corp with Form W-8IMY, indicating their status as intermediary. The Netherlands Corp would also be required to obtain a completed Form W-8ECI from Customer X, the ultimate beneficiary of the revenue payment, withhold and remit the US income tax withholding, and file the applicable Forms 945, 1042, 1042-2 and 1042-T to report the tax withheld and revenue paid. As a "nonqualified intermediary" (one that is not registered with the IRS), the Netherlands entity is required to provide the US Corp with both Form W-8IMY for itself, and Form W-8ECI from the ultimate customer, and provide both forms to the US Corp. The US entity would then withhold appropriately based upon the information provided on the completed Forms W-8.

 

For further reading on this matter, I recommend that you start by reading Internal Revenue Service Publication 515, which may be downloaded from

http://www.irs.gov/pub/irs-pdf/p515.pdf. There is also information on the IRS website, along with links to relevant forms and instructions, at this link http://www.irs.gov/businesses/small/international/article/0,,id=104997,00.html.

 

As for the second part of your question, regarding the Luxemburg VAT, the US corp is required to withhold upon the gross amount paid to the foreign entity, absent an exemption claimed by a properly completed Form W-8.

 

For further information you can see US Internal Revenue Code Section 1441, 1442, 1443, and US Regulation Section 1.1441-1 definitions, and Regulations Section 1.1441-2 to 1.1441-9 as applicable. Section 1.1441-2 defines the income subject to withholding under section 1441, 1442, and 1443 and the regulations under these sections. Section 1.1441-3 provides rules regarding the amount subject to withholding. Section 1.1441-4 provides exemptions from withholding for, among other things, certain income effectively connected with the conduct of a trade or business in the United States, including certain compensation for the personal services of an individual. Section 1.1441-5 provides rules for withholding on payments made to flow-through entities and other similar arrangements. Section 1.1441-6 provides rules for claiming a reduced rate of withholding under an income tax treaty. Section 1.1441-7 defines the term withholding agent and provides due diligence rules governing a withholding agent's obligation to withhold. Section 1.1441-8 provides rules for relying on claims of exemption from withholding for payments to a foreign government, an international organization, a foreign central bank of issue, or the Bank for International Settlements. Sections 1.1441-9 and 1.1443-1 provide rules for relying on claims of exemption from withholding for payments to foreign tax exempt organizations and foreign private foundations.

 

I hope that this information helps you with your questions. Please contact me if you need further assistance.

 

L Dietz CPA, Accountant
Category: Tax
Satisfied Customers: 31
Experience: Tax accountant with 27 years experience.
L Dietz CPA and other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.