On Aug. 9, 2019, the IRS issued proposed regulations (Proposed Regulations) addressing the U.S. federal income tax treatment of cross-border cloud transactions. The Proposed Regulations will not become effective until final rules are adopted.

By way of background, the last time the IRS meaningfully addressed the taxation of cross-border digital content transfers was in October 1998 (1998 Regulations), which applied to software transfers.

Technological developments over the last twenty years – specifically the advent of cloud computing and streaming content – rendered the 1998 Regulations outdated. The IRS stated that the purpose of the Proposed Regulations is to bring IRS regulations current with such technological advancements.

The Proposed Regulations cover, for the first time, transactions involving:

  • Certain on-demand network-access transactions (Cloud Transactions) that include:
    • On-demand network access to “computing resources” such as software, networks, databases, servers, and other technological resources. Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) transactions fall into this category;
    • On-demand network access to “technological resources” such as streaming music and videos, transactions involving mobile development applications (apps), and access to data through remotely hosted software; and
  • The transfer of other digital content (Digital Content Transfers). The transfer of books, movies, and music in digital format for storage and use on a person’s computer or other electronic device falls into this category.

Click here for the full GT Alert.

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Photo of Pallav Raghuvanshi Pallav Raghuvanshi

Pallav Raghuvanshi focuses his practice on U.S. and international tax matters in the context of corporate restructurings and cross-border mergers and acquisitions. He is experienced handling spin-off transactions for large multinational companies, various inbound and outbound transactions involving issues related to foreign tax…

Pallav Raghuvanshi focuses his practice on U.S. and international tax matters in the context of corporate restructurings and cross-border mergers and acquisitions. He is experienced handling spin-off transactions for large multinational companies, various inbound and outbound transactions involving issues related to foreign tax credits, tax treaties, controlled foreign corporations, and other international reorganization issues. He also handles U.S. federal tax aspects of initial coin offering / first token sales and other tax-related issues on blockchain technology and cryptocurrencies.

Photo of Erez I. Tucner Erez I. Tucner

Erez I. Tucner is an experienced business and tax lawyer who focuses on structuring and negotiating the legal, business and tax aspects of complex multimillion-dollar domestic and cross-border mergers and acquisitions.

He has wide-ranging experience with the structuring and formation of domestic and…

Erez I. Tucner is an experienced business and tax lawyer who focuses on structuring and negotiating the legal, business and tax aspects of complex multimillion-dollar domestic and cross-border mergers and acquisitions.

He has wide-ranging experience with the structuring and formation of domestic and offshore private equity funds, family offices, and hedge funds and their investments in the United States, Latin America, Europe, Israel and worldwide.

Erez counsels high-net-worth individuals on their businesses, investment assets, and real property (including U.S. real property planning under FIRPTA).

He also represents corporate and individual taxpayers in tax audits and other tax controversy matters.

Photo of Kemal Hawa Kemal Hawa

Kemal Hawa focuses his practice on corporate and securities law and transactions, with an emphasis on the telecommunications, media and technology industries, domestically and internationally. Kemal assists clients with the negotiation of transactions in the cloud computing space, including the negotiation of data…

Kemal Hawa focuses his practice on corporate and securities law and transactions, with an emphasis on the telecommunications, media and technology industries, domestically and internationally. Kemal assists clients with the negotiation of transactions in the cloud computing space, including the negotiation of data center and colocation leases, globally. Kemal also has extensive experience in the negotiation of network infrastructure transactions, including submarine cable system consortium and private subsea cable deals, terrestrial fiber optic network transactions, and transactions involving antenna towers.

Kemal regularly advises public and private companies, private equity firms, investment banks, and creditors’ committees on a variety of matters, including mergers and acquisitions, investments, financing arrangements, licensing agreements, commercial transactions, market entry strategies, and bankruptcies and restructurings. His company clients include data center operators, global content providers, fintech companies, telecommunications and media companies, wireless and international carriers, Internet service providers, satellite companies, equipment manufacturers, electric utilities, and numerous technology companies.

Photo of Emily G. Naughton Emily G. Naughton

Emily Naughton advises clients on transactions in the telecommunications, media and technology space, with an emphasis on digital infrastructure and cloud computing. She has an in-depth understanding of the technology powering the cloud and the market for cloud services, and applies this knowledge

Emily Naughton advises clients on transactions in the telecommunications, media and technology space, with an emphasis on digital infrastructure and cloud computing. She has an in-depth understanding of the technology powering the cloud and the market for cloud services, and applies this knowledge to assist clients with finding practical solutions to meet their business needs. Emily represents the world’s largest content providers, data center operators, and multinational corporations in connection with network infrastructure transactions and data center leases and colocation agreements globally. She assists data center clients with every aspect of their business, including site procurement and construction, acquisitions and dispositions, financing, and ongoing commercial transactions and leases.

Emily also represents clients on a broad array of commercial real estate transactions, including acquisition and disposition, development, and leasing.

In addition to assisting clients on transactional matters, Emily also advises clients on general governance and operational issues from entity inception to dissolution.