Tax & Accounting Blog

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Why Nature of Income Paid to Foreign Vendors Matters Part 7 – Tax Treaty Exemptions from Withholding

A common withholding exemption is a claim under an applicable provision of an income tax treaty with the country of tax residence of the income’s beneficial owner. Such a claim must be made by the vendor on a valid Form W- 8BEN, or a Form 8233 in the case of treaty claims by individuals on … Read More

IRS Releases Draft Form for Medicare Surtax on Net Investment Income

IRS Releases Draft Form for Medicare Surtax on Net Investment Income

On August 6, 2013, the IRS released a draft of 2013 Form 8960, Net Investment Income Tax – Individuals, Estates, and Trusts.  Taxpayers use the form to compute the 3.8% surtax on net investment income, added by the 2010 Health Care Act.  The IRS has not yet released instructions to the form. The IRS … Read More

New Canadian Withholding Tax Documentation Requirements

New Canadian Withholding Tax Documentation Requirements

The Canada Revenue Agency (CRA) has changed its procedures for determining whether non-residents can claim a reduced rate of withholding tax under a tax treaty. Background Canada imposes a 25% withholding tax on certain types of Canadian source income paid to nonresidents of Canada.  Residents of countries with which Canada has a treaty may be … Read More

Why Nature of Income Paid to Foreign Vendors Matters Part 6 – Exemptions from Withholding

Why Nature of Income Paid to Foreign Vendors Matters Part 6 – Exemptions from Withholding

Whether an exemption from withholding under either income tax rules or an applicable income tax treaty applies depends on the character of the U.S.-source income being paid (as defined by U.S. tax rules). For example, a foreign vendor with income that is effectively connected to the conduct of a U.S. trade or business (called “ECI”) … Read More

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IRS to Analyze Tax Credit Bond Credit Stripping and Credit Claims

Nearly $5 billion in qualified tax credit bonds were issued in 2009 and 2010, resulting in millions of dollars of bond tax credits claimed each year. In a heavily redacted report, the Treasury Inspector General for Tax Administration (TIGTA) has reported on its analysis of corporate and individual returns with claims for bond tax credits. … Read More

Why Nature of Income Paid to Foreign Vendors Matters Part 5 – Unknown Source of Income

Why Nature of Income Paid to Foreign Vendors Matters Part 5 – Unknown Source of Income

AP must also know whether or not the income being paid is U.S.-source in order to withhold and report correctly. During an audit, the IRS will request evidence supporting foreign-source payments such as contracts, invoices, expense reports and so forth. If a payment to a foreign vendor includes both U.S.- and foreign-source income and no … Read More