US Corp to Canadian Corp Arrangment - Tax Forms

I have a federally incorporated Company in Canada, with myself as the only employee. My Corp has entered into a contract with US Corp. US Corp makes payments to my Corp (i.e. not to me personally).

Should US Corp be issuing a 1099 to:
a) Me
b) My Canadian Corp
c) Neither a) or b), but some other Tax Form?

Thanks.

It depends on where the work is performed, if you perform the work in the US, my next post in this thread will be very long. What I will say is do the work in Canada if it is at all humanly possible, otherwise you will be in a very complex situation tax-wise.

If you do the work in Canada and merely go to the US for meetings and things like that then the corporation needs to file an 1120-F and make a tax treaty claim on Form 8833 every year with the IRS (at the same time the T2 is filed), this is basically an informational return so that the IRS can verify that the money is going where the company in the US says it's going. It's also required so that the US corporation does not have to perform non-resident tax withholding on the payments (usually 30%). Because all the work is performed in Canada there is no tax to pay.

Other than that the Canadian corp invoices them and they pay, they don't have to issue 1099s or 1042s for US corp to Canadian corp (and 1042s aren't usually required anyway for Canadians because there is no NRA withholding if a treaty claim is made properly). They can *optionally* file a 1042 with the IRS annually for informational purposes, but I wouldn't bother unless the income is more than half a million.

Individuals have to file an 8233 with their US client to inform them of their tax treaty claim but I don't think there's an equivalent for corporations.

When you download 1120-F and 8833 you will mistakenly think that 1120-F is the harder form to fill out. In fact it's pretty easy because you should already have all your financial information to hand for your T2. 8833 is the hard one, in fact it's so hard I spoke to the guy who wrote the instructions for it and his advice to me was to always phone the non-resident dept. for the IRS in PA, their contact details are in IRS publication 515. You will basically wait all day to get an agent who knows how to fill it out (if you're lucky), so take that in account.

The problem is that the tax treaty changes and so does the Internal Revenue Code, so from year to year the claim information can be different. If you really want to try and figure it out yourself, read IRS publication 901. The actual publication you should use is 597, but it's out-of-date. I'm told there won't be an up-to-date version for several months.