The US IRS on August 9 issued proposed regulations (REG-130700-14) concerning the income tax treatment of transactions involving on-demand network access to computing and other similar resources.
The proposed regulations extend the existing software revenue classification rules in §1.861-18 to cloud transactions and provide new rules for classifying these transactions as either a provision of services or a lease of property (or both).
The new regs also clarify the source of income for certain transactions governed by existing reg.. §1.861-18.
New proposed reg §1.861-18(f)(2)(ii) provides that when copyrighted articles are sold and transferred through an electronic medium, the sale is deemed to occur at the location of download or installation onto the end-user’s device used to access the digital content for purposes of §1.861-7(c).
The regs provide that the income is then sourced under sections 861(a)(6), 862(a)(6), 863, or 865(a), (b), (c), or (e), as appropriate.
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