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Foreign Cloud Computing Transactions: U.S. Taxation of Service, Intangible, Copyright, and Royalty Income

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, October 24, 2023

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This webinar will discuss U.S. taxation of foreign computer programs and cloud computing transactions. Our panel of international tax attorneys will explain U.S. sourcing rules for overseas digital commerce and the latest regulations relating to taxation and classification of computer-related business activity.

Description

Foreign businesses' passive income is taxed at 30 percent in the U.S., while income effectively connected with a U.S. trade or business is taxed at graduated rates after allowable deductions. Although U.S. residents are subject to tax on worldwide income, foreigners are only subject to U.S. tax on U.S. source income. Taxation of income varies significantly depending on how income is classified. Whether income is sourced to the U.S. and its income type are critical, complex determinations.

New technology and the dramatic expansion of electronic commerce have challenged existing taxation rules. Recent treasury regulation Section 1.861-18 defines a computer program as "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result." If this income earned is service income, it is sourced based on the place of performance. Foreign persons providing services in their country of residence would not be subject to U.S. taxation. The same individual receiving U.S. source income from intangible property would be subject to U.S. taxation. Even when income is clearly service income, deciding where the service is performed is problematic.

Recently released regulations outline criteria for classifying cloud transactions as either a lease of property or the provision of services. In order to minimize taxes paid on cross-border digital transactions, international tax practitioners must stay abreast of the latest developments.

Listen as our panel of international tax planning experts reviews recent legislation on U.S. taxation of cross-border digital transactions and offers tips to mitigate or eliminate U.S. tax liability.

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Outline

  1. Foreign computer and cloud transactions: an introduction
  2. Taxation of U.S. source income
  3. Character of income
    1. Service
    2. Intangible
    3. Copyright
    4. Royalty
  4. Proposed Section 861 regulations
  5. Best practices

Benefits

The panel will cover these and other critical issues:

  • Distinguishing whether a cloud transaction is a lease of property or provision of services
  • Determining whether specific digital transactions are U.S. or foreign sourced income
  • How proposed regulations under Section 861 affect taxation of digital transactions
  • What is considered copyright income and how it is taxed

Faculty

Diosdi, Anthony
Anthony V. Diosdi
Partner
Diosdi Ching & Liu

Mr. Diosdi is an experienced trial lawyer who regularly defends individuals and corporations in matters involving tax...  |  Read More

Liu, Kerrin
Kerrin N.T. Liu
Partner
Diosdi Ching & Liu

Ms. Liu focuses on civil tax litigation, representation before Internal Revenue Service Criminal Investigations,...  |  Read More

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