united-states international tax-law
What are &quot;US Business Activities&quot; and &quot;Effectively connected income&quot;, again?
<p>I know this is a confusing matter and there's been number of questions here and articles elsewhere, but maybe it would be simpler in the situation explained below.</p>

<p>Assume there's a non-US company selling software on App Store and providing certain subscription services. The following information has to be provided to Apple:</p>

<ol>
<li>Do you have any U.S. Business Activities?</li>
<li>(if Yes for 1.) Are you required to file a US income tax return with respect to the payments you receive from Apple? </li>
</ol>

<p>Assume the following:
The company is located in a country that has a tax treaty with US. The company does NOT receive any income other than from Apple. The company does NOT have any employees, contractors or any other personnel, office or any physical assets in US. The only thing US-based that the company DOES have are cloud servers physically located in US provided by a US cloud company, used in order to provide subscription services mentioned above. The location of these servers is not critical for the business, chosen for latency reasons and can be changed for the same or other reasons at any moment later.</p>

<p>Based on this, how should the questions above answered?</p>

<p>Furthermore, what exactly having or not having "effectively connected income" would change in this situation, what's more beneficial? Is there a "if in double choose ..." option?</p>

<p>The location of the cloud servers is irrelevant.</p>
<p>The only activity that could make the business U.S. based or effectively connected would be its sales of goods or services in the U.S. But, realistically, this probably wouldn't be sufficient to subject the company to U.S. income taxation if the business has no U.S. presence. See generally, <a href="https://www.irs.gov/individuals/international-taxpayers/effectively-connected-income-eci" rel="nofollow noreferrer">here</a>.</p>

<p>This is probably not a "real" answer (and may be too late), but - here we are, it's almost 2019 and we don't know how to treat transactions of the type you describe.</p>

<p>You can do a few things, though, just to clarify your position to yourself:</p>

<p>Apple (I'm not familiar with their policies): if you answer that the company does not have any US business activities, do they ask the company to file IRS Form W8-Ben-E? If he company doesn't file, will Apple withhold tax on their payments to the company? </p>

<p>Check (or better yet, have a US tax lawyer check) the tax treaty which may apply to the company (even that question isn't always as intuitive as you might think), and see if the combination of using Apple and the US cloud host constitutes a "permanent establishment" under the relevant Article of the relevant treaty. It's not likely the lawyer will have an answer, but if the treaty is new enough, it's just possible. While you are paying that lawyer to look into the problem, ask him or her to determine if your company is treated (for US tax and treaty purposes - two different things, possibly) as a corporation or a flow-through entity; the answer may make a significant difference to the outcome.</p>

<p>Finally, check with a tax lawyer in your (or your company's - not necessarily the same) home country to see if US taxes withheld from payments to your company (or paid by your company if it files US tax returns) are creditable (in full) against home country taxes (if any). If so, the impact may be minimized.</p>

<p>If it's any consolation, you are on the cutting edge of 21st century international taxation :)</p>
