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Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3825
Experience:  20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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A Canadian citizen is 100% shareholder of an USA company.

Customer Question

A Canadian citizen is 100% shareholder of an USA company. The company is a C corporation. The C corporation owns 50% of a USA partnership. The partnership is engaged in restaurant business.. The Canadian shareholder also own a 100% business in Canada. Questions:
1. Can his USA company pay a consulting fee to his Canadian company?
2. If he pay the consulting fee to his 100% own Canadian company, does his Canadian company have to pay income tax for the consulting in USA and does it subject to the 30% withholding. Note that the consulting services was performed in Canada not in USA.
3. If so, does he need to issue a Form 1042s for consulting fee?
4. If so, does his Canadian company and the USA company need to have a consulting contract for the amount
5. Can he also issued W-2 wage or Form 1099 to himself beside the consulting fee even thought he hardly come to USA. He has a Social Security Card allowed him to work.
6. If issue W-2, does he subject to FICA taxes?
7. If issued 1099 to him, is he subject to Self- employment taxes? According to my research, nonresident alien is not subjected to self-employment taxes.
8. Or do you have any other suggestion that can help him to save taxes
Submitted: 1 year ago.
Category: Tax
Expert:  Barbara replied 1 year ago.
Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.1. The USA company can pay a consulting fee to the Canadian company.2. If the consulting fee is paid to the Canadian company for services performed in Canada, no income tax is withheld. The Canadian company will report the fee as income on its Canadian tax return, and the U.S. company can deduct the consulting fee as an expense.3. No Form 1042s is required.4. No consulting contract is mandatory, but the appropriate documentation should be generated, i.e., invoice, etc.5. W-2 and 1099-MISC would not be issued to a foreign (Canadian) person for work performed in Canada.6. See answer to #5.7. See answer to #7.8. Taxes will be avoided by the U.S. company paying the Canadian company the consulting fee as explained in #1.Please let me know if I can assist you further.Thank you and best regards,Barb
Customer: replied 1 year ago.
Hi Barbara,Thank you for your quick respond. Do you have any supporting document for item #1 indicating that his USA company can pay his Canadian company the consulting fee (note they are related party. He is 100% shareholder on both the USA company and the Canadian company). The only thing I don't feel comfortable in my client's situation is, that the consulting fee is pay to his own Canadian company.Just want to confirm his Canadian company does not need to file USA income tax return?
Expert:  Barbara replied 1 year ago.
The following link contains excellent information that you will find helpful: U.S. company should obtain a W-8BEN-E form from the Canadian company and retain it for its records. The W-8BEN form does NOT get submitted to the IRS. regards,Barb
Customer: replied 1 year ago.
The article does not address the related party issue. That is my main concern. do you have any other sources address the related party issued
Expert:  Barbara replied 1 year ago.
I will research this further and let you know.
Customer: replied 1 year ago.
thank you!
Customer: replied 1 year ago.
Barbara,Form 5472: in regard to the consulting fee to the Canadian company, does that need to include on line 20 of Form 5472 part IV or which line is appropriate? Or does it need to disclose at all on this form
Expert:  Barbara replied 1 year ago.
My research has revealed that related party issues are involved with parent/subsidiary corporations and deal with mergers, acquisitions, etc. In your instance, the U.S. corporation is not owned by the Canadian corporation or vice versa.As to Form 5472, you would include the amount on Line 20, Part IV.Please take a moment to rate my answer since that is the only way I receive credit for answering you and alerts Just Answer to compensate me for a portion of the fee you previously paid. Also, we are now well beyond the scope and price point of your original question.Thank you and best regards,Barb
Customer: replied 1 year ago.
I would like get another expert opinion for the related party issued. please make my questions to other experts
Expert:  Barbara replied 1 year ago.
Of course. I'll opt out and another expert is more than welcome to answer.Best regards,Barb
Customer: replied 1 year ago.
Barbara,Do I need to post the questions again or the other expert already know the questions. I still haven't heard anythingThanks
Expert:  Barbara replied 1 year ago.
As soon as I opted out, your questions were open to other experts to view and answer.