Nonresident alien individuals (NRA) who perform services or other activities while in the United States, and foreign corporations who employ individuals or engage individuals as agents to perform services or other activities in the United States may be considered engaged in a U.S. trade or business (USTB).
If NRA individuals performing those services or other activities are temporarily in the United States due to COVID-19 Emergency Travel Disruptions, this may cause the NRA or related foreign corporation to be viewed as engaging in a USTB when the NRA or foreign corporation would not be so engaged were these individuals not present in the United States.
A NRA or foreign corporation that is engaged in a USTB is generally taxable on its business income connected to that USTB. If a U.S. income tax treaty applies, the NRA individual or foreign corporation normally will not be liable for tax on the income of its USTB unless the business is conducted through a permanent establishment in the United States (PE); an office or other fixed base or a dependent agent.
A NRA, foreign corporation, or a partnership in which either is a partner (Affected Person) may choose an uninterrupted period of up to 60 calendar days, beginning on or after February 1, 2020, and on or before April 1, 2020 (the COVID-19 Emergency Period), during which services or other activities conducted in the United States will not be taken into account in determining whether the NRA or foreign corporation is engaged in a USTB, provided that such activities were performed by one or more individuals temporarily present in the United States and would not have been performed in the United States but for COVID-19 Emergency Travel Disruptions.
During an Affected Person’s COVID-19 Emergency Period, services or other activities performed by one or more individuals temporarily present in the United States will not be taken into account to determine whether the NRA or foreign corporation has a PE, provided that the services or other activities of these individuals would not have occurred in the United States but for COVID-19 Emergency Travel Disruptions.
The Affected Person should retain contemporaneous documentation to establish the period chosen as the COVID-19 Emergency Period and that the relevant business activities conducted by individuals temporarily present in the United States during the COVID-19 Emergency Period would not have been undertaken in the United States but for COVID-19 Emergency travel Disruptions.
The Affected Person should be prepared to provide that documentation upon request by the IRS
NRAs and foreign corporations (including those that are partners in partnerships) may make protective filings of their annual U.S. tax returns, even if they believe they are not required to file for the 2020 taxable year because they were not engaged in a USTB, to avail themselves of the benefits and protections that arise from such filings (such as those relating to deductions, statutes of limitations, and claiming tax treaty-based relief).
Consult your tax specialist.