International Tax: Treatment of Website Revenues for International Company
N/AOUTCOME: Foreign corporation not subject to US taxation under Tax Treaty.
A company based in a foreign jurisdiction that was doing business via a website to US based customers asked for an opinion on the taxation of such revenue generated via the website. There owner was ba ... sed in a jurisdiction that had a tax treaty with the United States. Apart from a handful of contractors that were domiciled in the Untied States, the owner had no physical presence or ties to the United States. A legal analysis of the particularities of the foreign corporation showed that they did not have enough US presence to become a "permanent establishment", as that term is defined in the relevant Tax Treaty. However, they did have enough contact with the US to be considered a "US trade or business", as that term is defined in the Internal Revenue Code and under various tax court cases. Under the rules of the Tax Treaty, the foreign corporation would be subject only to tax in the home jurisdiction. Under the rules of the Internal Revenue Code, the foreign corporation would be subject to tax in the US on (1) its "effectively connected income" to US sources and, potentially, (2) for monies distributed back to the home jurisdiction under the "Branch Profits Tax." It would also be likely that the home jurisdiction would impose an additional tax for money sent back home (though a foreign tax credit may have applied). There were significant tax savings if the company elected to have the Tax Treaty apply, which they chose. I advised on both the consequences for Tax Treaty election (the non-application of the US tax code) and the process for making such an election (IRS Form 8833) to the corporation's accounting department.
