Difference Between Sales, Services Could Cause FDII Problems


Steven Hadjilogiou commented on the recent proposed rules on foreign-derived intangible income and potential confusion over when a transaction might be viewed as a royalty or as a service payment. Hadjilogiou explained that the regulations do not directly address the license versus service designation and companies will instead have to turn to case law and revenue rulings for guidance. In the end, he notes “…if you do have a borderline case, you just want to make sure you structure it in such a way that regardless of how characterized, it would still get the benefit of the deduction.”