Significant Tax Risks Of International E-Commerce-5472 Tax Form

Significant Tax Risks Of International E-Commerce-5472 Tax Form

What is a 5472 tax form? Form 5472 is an information declaration form for foreign companies that hold 25% or more of US companies and are engaged in US trade/business.

The 5472 tax form has a relatively high level of disclosure reporting requirements, which can be regarded as a guide for the IRS to understand global transactions with domestic and foreign related parties. IRC § 6038A requires 25 percent foreign-owned domestic corporations to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.

The failure to timely provide this information results in a penalty, even if this information does not affect taxpayers’ ultimate tax liabilities. The IRS notifies taxpayers that the penalty has been assessed. If the taxpayer does not provide the required information within 90 days, the statute imposes an additional penalty “continuation penalty” for each 30-day period that the failure continues. This increase is capped at $50,000.

The penalty under IRC § 6038A begins at $25,000, and the continuation penalty, which commences 90 days after notification of assessment, is $25,000 for each 30-day period, without an upper limit.

The 5472 tax form applies to any U.S. company and business enterprise (including international e-commerce) that directly or indirectly owns 25% of foreign ownership. Taxpayers should declare reportable transactions with foreign related parties or domestic related parties. Reportable transactions include loans, sales of goods and services, commissions, rents, royalties, interest and other amounts paid or received. Each related party involved in a reportable transaction must file a separate 5472 tax form. This tax form has been included as part of the US corporate income tax return.

If cross-border e-commerce purchases between group affiliates and sells to the United States, the 5472 tax form must NOT be ignored.