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I was looking at a previous question on the subject and it mentioned a form 1120-F for foreign corporations.

Does this mean that foreign corporations who do business in the USA must pay US taxes?

Specifically, a UK-based SAAS company will pay UK corporation tax. Will they be expected to pay taxes in the USA as well if they have any US-based clients? Surely, this can't be correct.

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I don't think so. But, what do you mean by doing business in the US? You won't pay any taxes if you're only going to sell online services. Moreover, you don't even have to know where your customers come from. – lukeshek Mar 5 '12 at 16:54
@lukeshek Uncle Sam doesn't necessarily see it this way. It's an accountant question on what exactly: Was not engaged in a trade or business in the United States, but had income from any U.S. source, if its tax liability has not been fully satisfied by the withholding of tax at source under chapter 3 of the Code. – Karlson Mar 5 '12 at 17:57
Essentially, you pay taxes to the country where your business was founded. But as Karlson said, that is not set in stone. – BhargavPatel Mar 5 '12 at 20:14

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Ye standard disclaimer: IANAL, IANAA

Based on the instructions for the 1120-F the answer to both questions is maybe.

You have to file and you may have to pay. Normally in the US and I would have to assume in the UK the situation is that you can claim a deduction for taxes paid in a foreign country and in addition it is possible that there is an income treaty under which you will qualify for an exemption from paying US taxes.

My suggestion would be to find a good accountant and ask them about it.

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Agreed, I need professional help for a definitive answer, but I'm not keen on paying taxes in the US for a business in the UK. – Steve Jones Mar 5 '12 at 19:23
@SteveJones That's why you need professional help as treaties between US and UK may actually help in that respect. – Karlson Mar 5 '12 at 19:31

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