The Export Disc Corporation (IC-DISC): Computer Software And Internet Sales And Licenses – Part 6

Application of the Title Passage Rule

As described in Part 5, the source of income generated by the sale or exchange of a copyrighted article often depends upon whether the sale took place within or without the United States. The place of sale is determined under the title passage rule. The Software Regulations recognizes that typical license agreements do not refer to a transfer of property and an electronic transfer is generally not accompanied by the usual indicia of the transfer of title.

There are important categories of copyrighted article transfers for DISC purposes: (i) a transfer of tangible property, such as a tangible medium in which the copyrighted article is embodied, and/or a hard copy of user manuals and documentation; (ii) (e.g., electronically transmitted copyrighted articles without any hard copy of user manuals and documentation). Either one of these can be the subject of a sale.

To comply with the passage of title rules, a DISC may consider language such as: Title to this computer software program, shall pass outside the United States in its agreements when tangible property is being transferred. If non tangible property is delivered, the DISC taxpayers could consider documentation for foreign users (which could be a contract to sign or terms consented to electronically) that states that the vendor’s delivery obligation shall be complete and risk of loss with respect to the copyrighted article shall pass at the time the program is copied onto the recipient’s computer at the end user’s location.

Next:  Part 7 – Partial Transfer of a Copyright Article: A Lease

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Richard S. Lehman is a graduate of Georgetown Law School and obtained his Master’s degree in taxation from New York University. He has served as a law clerk to the Honorable William M. Fay, U.S. Tax Court and as Senior Attorney of the Interpretative Division in the Chief Counsel’s Office of the Internal Revenue Service in Washington D.C., the IRS’s internal law firm.

Mr. Lehman has had extensive experience with all areas of the Internal Revenue code that apply to American taxpayers and nonresident aliens and foreign corporations investing or conducting business in the United States, as well as U.S. citizens and domestic corporations investing abroad.

Mr. Lehman regularly works with law firms, accountants, businesses and individuals struggling to find their way through the complexities of the tax law.

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