1. The first company is located in Canada, from which we purchased items for our neonatal unit at the hospital. The invoices are for equipment/parts. Will I be responsible for any 1099/1042-S reporting, and/or will any taxes be due for this payment?
2. The second vendor is located in Montreal and the invoice is for a software license for 30 users, which we ourselves use daily. Will we be responsible for any reporting or taxes for this?
3. The third vendor is a collection agency we use for patient bills, located in Switzerland. They perform all work from their location, and never come to the U.S. What about reporting and taxes for this?
A. In the first case, items purchased for the neonatal unit from a vendor in Canada, it appears that you are buying merchandise. If you purchase in the first case is only of merchandise (products/tangible goods), then you do not have a reporting or tax withholding obligation on the payment.
In the second case, paying for software from a vendor in Quebec, you might have reporting and withholding obligations. It depends on the particulars of the transaction—is the software agreement a lease? If so, and you are using the software within the U.S., then the payment is “U.S. source” income and you do have a reporting requirement and would have a withholding requirement, unless the vendor claims Canada’s tax treaty with the U.S., in which case you do not have to withhold tax. Assuming the vendor is an entity, it must complete a W-8BEN-E to claim the treaty. (A different form is used for an individual.)
In the third case, a vendor providing collection services from Switzerland, because the services are performed in Switzerland and not in the U.S., the payment is non-U.S. source income and not reportable or withholdable.
In TAPN’s Compliance Suite, 1099 section, find in the section on 1042-S Reporting, “Error-Free Payments to Non-U.S. Persons” and “Guide to Foreign Payments,” along with other articles found in that section of the site.