BEPS Will Force Nations to Rethink Taxation of Cloud-Based Transactions

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Tax practitioners participating in a panel discussion on cloud-based computing said the Organization for Economic Cooperation and Development's Base Erosion and Profit Shifting (BEPS) project would force nations to reconsider their tax treatment of cross-border software and electronic commerce transactions.
Gary Sprague, a partner in the Palo Alto, Calif., office of Baker & McKenzie LLP, said Nov. 8 tax treatment questions relating to cloud-based transactions should be answered quite easily by focusing on the fundamental components of international tax law. He said nations should be able to arrive at rational conclusions about cloud-based transactions through an analysis that includes an understanding of the tax rules on character of income, source of income and tax nexus.
But Sprague, speaking during the University of Chicago School of Law's 66th Annual Federal Tax Conference, said the BEPS process might spawn alternative structures taxing cloud-based transactions—an outcome he viewed as unnecessary.

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