If we pay a Canadian vendor to transport our railcars from the U.S. to Canada (split about 50/50), do we have to issue the vendor a 1042-S, and if yes, how do we calculate the reported income to the Canadian vendor claiming treaty benefits and FATCA?


Yes, you need to issue a 1042-S, though freight is not subject to FATCA withholding and, with a valid tax treaty claim (W-8 documentation), you do not have to backup withhold under Chapter 3.

 Per the experts at COKALA Tax Information Reporting Solutions, for freight and rail reporting on Form 1042-S, if the shipment stops or starts in the U.S., you will need to report based on prorated mileage logs for the U.S. portion, or some other similar means of allocation.

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