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  1. We are in the process of launching a financial analytics content offering (delivered via an electronic download from a website, embedded within a proprietary software application). The application in itself does not deliver the stated value-add to the customer, without the content. The content is produced out of India in our offices. The website is also owned by us.

In the event, we have a US customer that goes to the site and downloads the application to access the financial content that is delivered within it, would the charges paid by that US customer to ANALEC be seen as License Charge (therefore fall under Royalty payments for use of Software) or will it be seen as paying for “service” in the form of a subscription agreement. I am concerned that depending on how it is perceived or presented, it may (or may not) attract with-holding taxes in the US up to 30%. I am not sure what the provisions of the US India DTAA are on this front. Does it allow for lower or no with-holding taxes on customers buying from India entities. Theoretically, one could argue it is import of “services” and therefore not liable for with-holding taxes. Can you elaborate on what we need to be mindful of in this area.

  1. Given that we do not intend to have a PE establishment in the US, I suppose we would not be liable for sales taxes in the US for such sales. Secondly, in your opinion, having a branch office in a particular state (to look at business opportunities; without any revenue generation at the branch level) does that constitute a PE establishment from a US tax authority interpretation standpoint?
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The test for whether a company is selling a license generating royalties or a service is highly specific to the type of product that you are selling and no person can generalize without taking a good look at your product. You are correct in thinking that generating royalties would impose a 30% withholding tax absent a treaty protection under the U.S.-India tax treaty. Instead, you might consider holding your IP in a country that has a favorable tax treaty with the U.S. in the event that the provision you are looking for are not in the U.S.-India tax treaty.

Sales tax is only levied when you have a physical presence in the state. If you have no physical presence in any of the U.S. states, you won't owe any sales tax.

If you have a PE in the U.S., you will generate corporate taxes in the U.S. which you otherwise would not be generating unless you had sufficient contacts to the U.S.

Note: This is not legal advice nor does it create an attorney-client relationship.

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