If a U.S. company that is 25% or more owned by foreign person(s), which includes (but is not limited to) individual(s) or corporation(s), has reportable transactions with related parties, form 5472 (Information Return of a 25% Foreign-owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business) may be required to be filed. With increased corporate cross border activity between the U.S. and Canada, it is becoming more and more likely that situations may occur where the 5472 filing requirement is triggered. To raise awareness and educate taxpayers, the corporate cross border accountants at AG Tax have prepared a brief summary on Form 5472.
What is Form 5472?
Form 5472 is used by foreign owned domestic corporations (25% shareholders or more) to report certain transactions during a taxable year between them and foreign or domestic related parties. It can also be used by foreign corporations engaged in a trade or business within the United States. For example, shareholder loans are related party transactions.
Who must file Form 5472?
Generally, U.S. corporations that are owned 25% or more, directly or indirectly, by foreign shareholders are required to file Form 5472 if they have reportable transactions with the foreign related parties.
Who does not need to file form 5472?
There may not be a filing requirement if there were no reportable transactions that took place between the reporting corporation and a foreign owner or related party, or if a transaction is exempt from taxes due to a tax-treaty between the U.S. and the country of residence of the foreign corporation.
While there are other exemptions, determining the filing obligation can be a complex process, and we advise taxpayers to contact an AG Tax expert regarding these situations.
What Information Is Required?
This form requires the disclosure of the foreign shareholders’ name, address, and country of citizenship, organization, or incorporation. Additionally, assets may be included as well as the nature and amount of reportable transactions with each foreign related party by the foreign-owned domestic corporation.
When must the 5472 be filed?
It should be completed and filed along with the annual income tax return of the foreign-owned U.S. Corporation; including extension time granted.
What are the consequences of negligence?
A penalty of $10,000 may be assessed if the foreign-owned domestic corporation fails to file Form 5472. Please note that, an incomplete or improperly filled form is also considered to not be filed. Criminal penalties may also be applied depending upon the facts and circumstances.
Foreign reporting requirements are often overlooked, and complying with these requirements can be a very involved and confusing process.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax associates are dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
