MGIC- Tax Payment and Reporting

Tax Payment and Reporting

Purpose

The purpose of this policy is to articulate the Maryland Global Initiatives Corporation (MGIC) requirements regarding U.S. and foreign taxation.

Background

MGIC is a nonprofit, tax exempt organization registered in the State of Maryland under Section 501(c)3 of the United States (U.S.) Revenue Code.

MGIC conducts business in foreign jurisdictions for the benefit of the University of Maryland, Baltimore (UMB) and Affiliate Entities (hereafter referred to collectively as UMB/Affiliates), where its activities may be subject to taxation by the national revenue authority and/or municipal governments. MGIC’s status as a U.S. tax-exempt entity does not absolve MGIC or its employees from foreign tax obligations associated with its activities according to the country’s laws.

Similarly, MGIC obtains goods and services from individuals and businesses that may be considered taxable income by the U.S. Internal Revenue Service (IRS). MGIC also makes other payments that qualify as earned income (such as royalties and honoraria) to U.S. and Non-U.S. tax residents. These payments may also be subject to U.S. income tax levied against the payee, depending on the payee’s tax residency and the type of income. MGIC is responsible to withhold, remit, and report all applicable U.S. income taxes in compliance with IRS requirements for Withholding Agents. 

MGIC is administered by the International Operations (IO) division of UMB’s Administration and Finance department.

Policy Statement

1. MGIC shall comply with all tax obligations levied by governments that are applicable to MGIC activity by law. These may include but are not limited to income tax on employee earnings, corporate and permanent establishment taxes, sales and property taxes, Value Added Tax (VAT), and duties on imported or exported goods.
2. MGIC shall complete all tax reports, filings, and mailings associated with its financial activity, in every country in which it has tax liability. This includes U.S. information returns, non-employee and miscellaneous compensation forms, and withholding returns for U.S. source income of foreign persons, among others. This also includes any statutory filings required of MGIC in countries where it is legally registered to do business, via local country offices established in those countries.
   1. The IO division shall process direct tax payments and filings required by law on behalf of the Corporation, and shall maintain accurate records including proof of tax registrations, filings, payments, exemptions, and any correspondence with national or local tax authorities.
3. MGIC shall contract service providers through its U.S.-based function administered by IO, to enable the Corporation to comply with applicable tax laws in foreign countries when needed. Examples of such providers include global Employer of Record (EOR) companies, audit and accounting firms, legal counsel, and corporate secretarial services.
4. MGIC shall withhold applicable U.S. income tax from recipients’ gross pay, at the rates stipulated by the IRS according to the type of income, status of the payee, and relevant tax treaties. Payees are individually responsible to provide accurate, complete information to MGIC. MGIC may utilize UMB’s tax compliance software to calculate tax on specific payments and may require payees to complete online declarations and submit relevant data in that system.
5. MGIC shall remit U.S. tax withholding amounts through the options provided by the federal government.
6. All foreign (non-U.S.) taxes paid by MGIC must be documented through valid commercial invoices, official assessment or demand letters, or other proof of obligation, and a bank proof of payment. Additional documentation of fully cleared account balance should be obtained from the relevant authority if feasible.
7. All tax payments, fees, fines and penalties, and costs for legal or audit support for tax compliance on specific transactions, regardless of jurisdiction in which the cost was incurred, shall be recovered from the Requesting Unit for which the MGIC services were provided. Disputes between MGIC and Requesting Units shall be escalated to the MGIC Board of Directors and university leadership.
8. MGIC shall obtain tax advisory services and legal counsel as necessary to ensure corporate compliance with U.S. and foreign tax laws.
9. The IO division shall retain tax records for the MGIC retention period of three years.

Scope

This policy applies to all personnel who administer MGIC’s U.S.-based finance and tax functions, the Requesting Units that use MGIC to retain and pay for goods and services that may be subject to taxation, and recipients of payments from MGIC who have associated tax obligations to the U.S. or other countries.

Responsibilities

1. IO Division: Understand and follow tax requirements for MGIC payments. Advise Requesting Units on tax obligations associated with MGIC payments. Complete tax withholding, remittance, filing, reporting, and mailing processes. Consult tax advisors and legal counsel as appropriate to ensure tax compliance.
2. MGIC Board of Directors: Approve MGIC policies and revisions to policies. Engage university leadership to resolve disputes over tax liability or delinquent reimbursement of MGIC by Requesting Units.
3. Requesting Units: Follow MGIC policies and procedures. Ensure payees complete required documentation and/or online data entries timely and accurately to allow for compliant taxation. Reimburse tax payments and costs associated with tax compliance to MGIC.

Procedures

See MGIC Standard Operating Procedures.

Documentation Requirements

• Tax withholding, payment, and reporting documentation as required by applicable jurisdiction

References

• n/a