• by admin
• November 22, 2024

Do you know, as a Canadian resident, what your reporting obligations are if you are doing business in the United States through a corporation either incorporated in Canada or you have incorporated in the United States?

All Canadian residents who directly or indirectly own 25% or more ownership in a Corporation incorporated in the United States or a Canadian corporation doing business in the United States need to provide information on Form 5472 when they have a reportable transaction with the related party or parties.

 

Canadian Corporation

A Canadian corporation is a corporation that has been incorporated within the jurisdiction of Canada. It could be a Canadian Federal Corporation or a Canadian Provincial corporation. When this corporation is engaged in a trade or business in the United States, It is considered as a Foreign Corporation in the United Sates. This corporation may be required to file an income tax return in the United States and provide information on From 5472. Certain exceptions may apply.

 

25% Ownership

A corporation incorporated in any state of the United States is considered a domestic corporation in the United States. A Canadian resident is considered as a Foreign Person in the United States. When this foreign person owns or controls 25% or more voting power of a domestic corporation in the United States, they need to provide information on Form 5472.

 

You report this information with your income tax return in the United States. A corporation files and reports its income on Form 1120 in the United States and files Form 5472 along with Form 1120.  The same due date applies as your income tax return due date.

If you fail to report this information on Form 5472 by the due date or report incomplete information, a penalty of $25,000.00 may apply.

 

Filing information on Form 5472 is an important step. If the information reported on Form 5472 needs to be corrected or completed, it may be considered as Form 5472 has not been filed.

 

There are certain exceptions when you do not have to report this information, and those are:

1. If you do not have any reportable transactions
2. If your foreign-related corporation is controlled by the U.S. person who files Form 5471
3. If your foreign-related corporation qualifies as a foreign sales corporation
4. If your foreign-related corporation does not have a permanent establishment in the United States under an applicable income tax treaty and timely files Form 8833.
5. If your foreign corporation gross income is exempt from taxation
6. If the reporting corporation and the related party are not U.S. person

Additional requirements:

You must maintain all the books and records.

 

The most common information that you need to provide:

• Information about the reporting Corporation, which could be domestic corporation or a foreign corporation
• Foreign shareholders information
• Related Party Information
• Monetary Transactions Between Reporting Corporations and Foreign Related Party
• Nonmonetary and Less-Than-Full Consideration Transactions Between the Reporting Corporation and the Foreign Related Party
• Payments to which section 267A applies
• Extent to which deduction is disallowed
• Cost Sharing Arrangement
• Base Erosion Payments and Base Erosion Tax Benefits Under Section 59A

 

Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.

Blogs Canada  |  Blogs USA