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Need tax adviser who can explain, based on the US-Cyprus court

and IRS practice, how much...
Need tax adviser who can explain, based on the US-Cyprus court and IRS practice, how much precisely is "substantial part". See http://www.irs.gov/pub/irs-trty/cyprus.pdf , ARTICLE 26, (1), (b) ... the gross income of such person is not used in substantial part, directly or indirectly, to meet liabilities (including liabilities for interest or royalties) to persons who are residents of a State other than a Contracting State and who are not citizens of the United States.
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Answered in 2 days by:
4/13/2011
Anne_C
Anne_C, Tax Attorney
Category: Tax
Satisfied Customers: 2,302
Experience: Attorney, JD awarded with Certification in Tax Law
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Good Evening -

I'm sorry, but your question is really fact-specific and, if answered in the abstract, is likely to be completely inapplicable to your situation.

However, here are US Tax Court case decisions referencing Cyprus (although my brief review shows most of the decisions aren't relevant): http://scholar.google.com/scholar?hl=en&q=cyprus&as_sdt=4%2C55%2C192&as_ylo=&as_vis=0

More importantly, though, here are US Tax Court decisions (287) construing "substantial part" and "gross income": http://scholar.google.com/scholar?hl=en&q=%22substantial+part%22+%22gross+income%22+liabilities&as_sdt=4%2C55%2C192&as_ylo=&as_vis=0

I'm not sure what your background is and where this question is originating from, but please let me know if you need an explanation of why US Tax Court law decisions are relevant to your situation.

Anne_C
Anne_C, Tax Attorney
Category: Tax
Satisfied Customers: 2,302
Experience: Attorney, JD awarded with Certification in Tax Law
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Customer reply replied 6 years ago
sorry,.. I just need more time to re-form my original question to make it more case specific... (i am looking to add some $ value to question for taking your time)
Customer reply replied 6 years ago
Taxes are not my specialty. The question came from my overseas Internet-guys. They have situation as follow:

Singapore company (game developer) owns intellectual property. Singapore Co is about to license Cyprus Company (Promoter) on all of its Apps for 70% of gross revenue. Cyprus Co will post these Apps at the Apple AppStore (US jurisdiction). Apple will pay Cyprus Co on the monthly basis (70% must go to Singapore Co).

 

There is US-Cyprus Double Tax Treaty. In general, Cyprus Co has no problem with the income generated within US, since it pays "home."

 

However, what guys are afraid of is that according to the Article 26 (I quoted before) there might be exemtion from the treaty relief. US jurisdiction may consider 70% of royalties payment as a "substantial part;" and thus transaction to be taxable in US as well. Note, that tax rate on royalties is higher in US then in Cyprus. Please also note, that Cyprus Co is not "pass-way" country in this transaction. It is good developer, which is doing really usefull part.

 

That is what the guy whant to find out. Which part of royalties payment is considered "substantial" according to the Article 26. How about 30%, 40%? Is it still substantial?

Customer reply replied 6 years ago

Anna,.. my question got closed; and I have not received reply. Anyway way, let me start anew with the furtherance of the previous question:
Taxes are not my specialty. The question came from my overseas Internet-guys. They have situation as follow:
Singapore company (game developer) owns intellectual property. Singapore Co is about to license Cyprus Company (Promoter) on all of its Apps for 70% of gross revenue. Cyprus Co will post these Apps at the Apple AppStore (US jurisdiction). Apple will pay Cyprus Co on the monthly basis (70% must go to Singapore Co).

 

There is US-Cyprus Double Tax Treaty. In general, Cyprus Co has no problem with the income generated within US, since it pays "home."

 

However, what guys are afraid of is that according to the Article 26 (I quoted before) there might be exemtion from the treaty relief. US jurisdiction may consider 70% of royalties payment as a "substantial part;" and thus transaction to be taxable in US as well. Note, that tax rate on royalties is higher in US then in Cyprus. Please also note, that Cyprus Co is not "pass-way" country in this transaction. It is good developer, which is doing really usefull part.

 

That is what the guy whant to find out. Which part of royalties payment is considered "substantial" according to the Article 26. How about 30%, 40%? Is it still substantial?

Customer reply replied 6 years ago
(I will add more via Bonus option)
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Anne_C
Anne_C
Anne_C, Tax Attorney
Category: Tax
Satisfied Customers: 2,302
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Experience: Attorney, JD awarded with Certification in Tax Law

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