
Challenges Associated with the Sourcing of Computer Programs for Purposes of the U.S. Cross-Border Tax Sourcing Rules
By Anthony DiosdiThe source rules play a prominent role in the U.S. taxation of foreign persons, since they effectively define the boundaries of U.S. taxation.Source rules apply in a number of different contexts. One important application of the source rules is the determination of U.S. income tax liability for foreign persons. The U.S. taxes the gross amount of a foreign person’s U.S.-source nonbusiness income at a flat rate of 30 percent. The U.S. also taxes foreign persons at graduated rates on the net amounts of income effectively connected with the conduct of a U.S. trade or business. In other words, the U.S. taxes the U.S.-source income of foreign persons and does not tax a foreign person’s foreign-source income. Sourcing of income can also have a significant impact on a U.S.…