Many U.S. companies use foreign source income rules as part of their tax planning strategies. The credit for offsetting foreign taxes paid can reduce U.S. tax liabilities and protect the profits earned in foreign operations. But many questions must be answered when determining where income is sourced for tax purposes. The statutory category of income is sometimes ambiguous and a careful look at the rules and the specifics of the transaction are a must. For example, computer software sales could be classified as a simple transfer of inventory or as a lease. Determining the exact nature of the transaction will drive which sourcing rules are used. Sourcing decisions are the building block of determining international transaction tax planning.
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This story is from the CCH’s monthly Focus on Tax newsletter, which provides advise and guidance on federal and state tax issues for tax and accounting professionals.
Read this article from CCH’s Journal of Taxation of Financial Products.