Level 4

Solved

Business Profits Tax Exempt Due to Treaty

Forum|Forum|4 years ago
December 29, 2021
3 replies
19 views

I have a client that who is an Amazon seller and who resides in a country that has a tax treaty with the U.S. They are taking the position that their business profits are tax exempt because they do not have a permanent establishment in the U.S. (I'm not asking for advice on the merits of this position)

Since they have done so, do I need to file a schedule C on a 1040NR and also claim the treaty position? Or do I simply not need to file anything for them because all of their U.S. income is tax exempt?

ProConnect Tax

This topic has been closed for replies.

Best answer by Terry53029

Thanks. Based on that it seems like the provision that is overridden by the treaty is 26 U.S. Code section 872 (a)(2). Seem right?

https://www.law.cornell.edu/uscode/text/26/872

(a)General ruleIn the case of a nonresident alien individual, except where the context clearly indicates otherwise, gross income includes only—

(1)

gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and

(2)

gross income which is effectively connected with the conduct of a trade or business within the United States.

I agree, 26 U.S. Code section 872 (a)(2) sounds right. While not an official source the article from Expat tax Professional agrees with you not taxable. Here is link:

https://expattaxprofessionals.com/blog/article/amazon-fba-and-us-federal-taxes-for-foreign-sellers.

George4Tacks

Level 15

https://www.ustaxhelp.com/tax-help-us-amazon-sellers-living-abroad/ may help you to get started. You should review the specifics of the treaty the client is referring to.

Answers are easy. Questions are hard!

F

freshy70Author

Level 4

Thanks. I've reviewed the specifics of the treaty and I don't believe that an Amazon fulfillment center rises to the level of a permanent establishment of the NRA business. They have no control over what happens there and are simply paying for service. So I agree with the client.

Taxes-by-Rocky

Level 7

Why is it that every Amazon seller hates the US tax code?

There must be some irony in there somewhere.

Maybe start with Form 8833 and see where it leads you? Good luck!

F

freshy70Author

Level 4

Thanks. I reviewed the instructions for Form 8833 and see that report is specifically required when: "That a treaty modifies the amount of business profits of a taxpayer attributable to a permanent establishment or a fixed base in the United States"

The only thing I'm not sure on is Box 2 on the Form 8833 "List the Internal Revenue Code provision(s) overruled or modified by the treaty-based return position" Any idea what IRC provision relates to taxation of business profits?

T

Terry53029

Intuit Community Champion

Try googling "26 us code chapter one". Go down the list, and select the one that applies to your client.

Taxes-by-Rocky

Level 7

Just an observation:

- Has your client established a legal entity doing business in any country other than the US?

- Do the "permanent establishment" or "office or other fixed place of business" rules apply to individual taxpayers?

- Does your client's business have any other income sourced from the US or otherwise?

I"m not suggesting you have some form of "hybrid" structure.....but you might ask if you haven't.

Sign up

Login with SSO

Let's get you signed in

Login with SSO