Subpart F Income/Form 5471
I am somewhat confused about "Subpart F Income" and Form 5471.
As a canadian citizen providing consulting services in the U.S via my canadian corporation, would I be liable? My understanding is that the U.S. will tax the income of my corporation regardless of whether the profits are distributed to the shareholders or not? Is this correct? The problem here is all my income will be generated by my corporation. The corporation will therefore pay corporate tax in Canada. However, the U.S. will tax the corporate income as if it were personal income. I would therefore not be able to claim a foreign business income tax credit from Canada. Would this not be double taxation considering the two countries have a tax treaty? To make things more confusing, the IRS has come out with Notice 2007-9 - "Look-thru rule for related controlled foreign corporations". This notice indicates not all income may be classified as Subpart F.
In effect I am considering whether it may be more tax efficient to provide services in the U.S. via an S Corporation since by default I have become a U.S. resident for tax purposes.