Like other commercial agreements, it is essential that an international distribution agreement clearly identifies the responsibilities of each party. The supplier and distributor must be clear about their obligations, which must be fulfilled in accordance with the conditions of the transaction. CONSIDERING that the supplier wishes to make these products available to the distributor exclusively for distribution in these countries; As explained by the Internal Revenue Service (IRS), Form 5472 should be used to provide the information required under Sections 6038A and 6038C when reportable transactions occur in the relevant tax year of a reporting business with a foreign related party or a foreign business operating in a trade or activity in the United States. Needless to say, the official IRS statement of this form is not very clear. IRS Form 5472: Understanding the Requirements As a starting point, you need to know if you are required to file Form 5472. To do this, you must determine whether your business is a „reporting entity” within the meaning of U.S. tax law. Reporting companies are companies that own 25% of a foreign person, foreign entity, or foreign company that conducts a business or activity in the United States. For reporting businesses, the disclosure requirements on Form 5472 are broad. Among the transactions that can be reported are: sales or purchases by investors; the sale or purchase of real estate; licences and licensing agreements; commission paid or collected; loan or loan agreements; and any other consideration offered for goods or services. More simply, if a transaction with a related foreign company affects the reporting company`s U.S.
tax obligations — meaning it has resulted in an increase in revenue or an increase in expenses — it is likely that the transaction would have to be reported using IRS Form 5472. With very limited exceptions, the IRS requires notification of all transactions with related companies and persons with international companies. Penalties There are severe penalties for failure to properly file IRS Form 5472. Indeed, the Tax Cuts and Jobs Act of 2017 notably imposed increased penalties for violations of this tax law. . . .