Who's the Employer?

Answer: Nightmare in the IRC!

For ordinary income tax purposes, foreign corporations are not component members of controlled groups. (See IRC 1563(b)(2).) However, the component member rules do not apply to controlled groups for qualified plan purposes (See IRC 410(b).) That means that for qualified plan purposes, the status of a corporation as domestic or foreign is irrelevant in determining if that corporation is part of a controlled group or the consequences of that membership.

In the situtation you describe, for purposes of a plan set up by one of the U.S. subsidiaries, it must treat as its employees all employees who work for:

1. He or she must not be a U.S. citizen
   
2. He or she must not be a resident of the U.S. Residency is defined in IRC 7701(b)(1) as follows:
   

   
   (A) Resident alien. An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual meets the requirements of clause (i), (ii) , or (iii) :
   

   (i) Lawfully admitted for permanent residence. Such individual is a lawful permanent resident of the United States at any time during such calendar year.
   
   (ii) Substantial presence test. Such individual meets the substantial presence test of paragraph (3).
   
   (iii) First year election. Such individual makes the election provided in paragraph (4).

   (B) Nonresident alien. An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)).

Special treaty rule. In addition, an employee who is a nonresident alien (within the meaning of section 7701(b)(1)(B)) and who does receive earned income (within the meaning of section 911(d)(2)) from the employer that constitutes income from sources within the United States (within the meaning of section 861(a)(3)) is permitted to be excluded, if all of the employee's earned income from the employer from sources within the United States is exempt from United States income tax under an applicable income tax convention. This paragraph (c)(2) applies only if all employees described in the preceding sentence are so excluded.

Compensation for labor or personal services performed in the United States; except that compensation for labor or services performed in the United States shall not be deemed to be income from sources within the United States if?

(A) the labor or services are performed by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of 90 days during the taxable year,

(B) such compensation does not exceed $3,000 in the aggregate, and

(C) the compensation is for labor or services performed as an employee of or under a contract with?

(i) a nonresident alien, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, or

(ii) an individual who is a citizen or resident of the United States, a domestic partnership, or a domestic corporation, if such labor or services are performed for an office or place of business maintained in a foreign country or in a possession of the United States by such individual, partnership, or corporation.

1. The worker is here less than 90 days,
   
2. The US income is less than $3000 (which effectively makes the limit a lot less than 90 days, especially if you are dealing with an executive),
   
3. The foreign parent isn't doing business itself in the US.

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