We are paying a UK company to pack and ship household belongings from the U.S. to the UK via air freight...

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Q. (cont.) The UK company hired someone in the U.S. to do the packing and are paying that company directly. Is any portion of the payment to the UK company considered U.S.-source income reportable on a 1042-S?               

A. It is a very interesting question in that the company you are paying is the one paying someone in the U.S. to do the packing here. But you must separate that transaction, with which you have nothing to do, and focus on whom you are paying for what.

You are paying the U.K. company to pack household belongings in the U.S. and ship them to the U.K. (How they do that is their concern.) So by definition, some of the services for which you are paying must take place in the U.S. – therefore it is our [non-legal] opinion that yes, part of the payment to the U.K. entity represents U.S.-source income. You would have to report (and withhold, subject to any treaty claim) on that portion of the payment that represents U.S. source income.

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