vered kirshner, tax partner, pwc israel rayla rappaport ... · rayla rappaport, tax senior manager,...
TRANSCRIPT
Cloud Computing
www.pwc.com/il
Vered Kirshner, Tax Partner, PwC Israel
Rayla Rappaport, Tax Senior Manager, PwC Israel
November 2017
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Agenda
I. What is Cloud Computing?
II. Tax Considerations
III. The U.S.
IV. Israel
V. OECD
VI. Take Away
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What is Cloud Computing?
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Cloud Computing: What is it?
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Software as a Service(Provision of Services via an Application)
Platform as a Service(Application Development & Deployment)
Infrastructure as a Service(Infrastructure Software, Operating Systems, Servers and Storage, Networking, Data Center
Facilities)
A method of providing goods and services over the Internet with the customer utilizing the software and/or hardware of the provider
Waze
Amazon EC2 & S3WIX
Booking.Com Dominos Pizza SalesForceGetTaxi
Force.com
Google App Engine
Microsoft Azure
Rackspace
Google Cloud Platform
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Cloud Computing: Models
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SaaSPaaSIaaSOn-Premises
ApplicationApplicationApplicationApplication
DataDataDataData
MiddlewareMiddlewareMiddlewareMiddleware
SecuritySecuritySecuritySecurity
RuntimeRuntimeRuntimeRuntime
ServerServerServerServer
StorageStorageStorageStorage
NetworkingNetworkingNetworkingNetworking
Infrastructure Software
Infrastructure Software
Infrastructure Software
Infrastructure Software
User
Provider
Infr
as
tru
ctu
re
Pla
tfor
mS
oftw
ar
e
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Tax Considerations
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Main Tax Considerations
Development
Life Cycle
Exploitation
Choice of Jurisdiction
Significant people functions
Location of IP
R&D Expenses
Financing
Source of Income
Withholding Tax
Foreign Tax Credits
Permanent Establishment
Transfer Pricing
Preferential Tax Regime
R&D Credits / Grants
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Characterization / Classification
Services
Royalties
Lease
Sale
The characterization of a transaction should generally determine its tax consequences
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The U.S.
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The U.S.
Services vs. Software Transaction
Withholding Tax
Subpart F Income vs. ECI
Permanent Establishment
IL Co(Israel)
Fees
U.S. Co
Access to marketing software via the
cloud
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The U.S.
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Often the transaction is characterized as a service
No direct authority exists
The character of income is determined based on analogous authorities
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Software Regulations
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The direct characterization is limited to services principally related to software development activity
Transfer of aCopyright Right
Transfer of a Copyrighted
Article
Provision ofService
Transfer ofTechnical
Know-how
Have “all substantial rights” in the property been
transferred?
Sale License
YES NO
Have “burdens and benefits” of ownership been
transferred?
Service Transfer ofIntangible
YES NO
Sale Lease
SoftwareCompany
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Leasing / Renting vs. Services Rules
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In cloud computing, as the hardware generally remains under the possession and control of the service provider, the transaction is
often characterized as a service.
Physical Possession
Control
Economic Interest
Criteria
Contract Price vs.
Rental Value
Concurrent Use of Property
Risk of Non-Performance
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Domestic Manufacturing - Eligibility for Deduction
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• Only addresses eligibility for deduction• Impact of US Tax Reform
Computer Software Delivered via Tangible Media / Download = License
Online Use of Software = Service
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Israeli Company Doing Business in the U.S.
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U.S. federal income tax issues:
U.S. trade or business / permanent establishment (PE)
What constitutes a PE? Website hosting, ISP, Server (owning, maintaining)
Withholding tax implications
Sourcing of income from U.S. activities
U.S. Co
IL Co
IP
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Israeli Company Doing Business in the U.S.
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(U.S.)
IL Co
IP
U.S. Co
3rd Party Hosting Services
Support & Marketing Services (Cost +)
Distribution of SaaS
PE ? Withholding Tax ?
IL Co
IP
U.S. Co
(U.S.)
3rd Party Hosting Services
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Israel
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Israel
Factors to consider:
1) Customer is able to download the computer program; or
2) Customer is able to use the computer program’s code.
Withholding tax Implications
ILCo
Service Fee ?
Selling Force(U.S.)
CRM Services
Royalties ?
Payments
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Israel (Cont.)
Foreign Tax Credit?
U.S. Co
Payments
Digital Performance-Based Advertisement Services
Tab Oléan(Israel)
Royalties? Services Basket?
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OECD
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The OECD Model Tax Convention
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Services Fee
• The provider uses special knowledge, skill and expertise
• The provision of services involves expenditures by the provider
Royalty Payment
• The licensor granted the right to use a copyright in a digital product
• The product was downloaded by the customer
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Take Away
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Take Away
Structure the transaction (SaaS, etc. as relevant) tax efficiently:
Net arrangements
Licensing vs. Service Agreement
Obtaining a withholding tax exemption certificate
Identification of appropriate group member to enter the transaction
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©2017 Kesselman & Kesselman. All rights reserved.
In this document, “PwC Israel” refers to Kesselman & Kesselman, which is a member firm of PricewaterhouseCoopers International Limited, each
member firm of which is a separate legal entity. Please see www.pwc.com/structure for further details.
This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not
take into account any objectives, financial situation or needs of any recipient. Any recipient should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or
completeness of the information contained in this publication, and, to the extent permitted by law, Kesselman & Kesselman, and any other
member firm of PwC, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any
consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision
based on it, or for any direct and/or indirect and/or other damage caused as a result of using the publication and/or the information contained in it.
Thank You!
Vered Kirshner, Tax Partner, PwC [email protected]: 03-795-4849
Rayla Rappaport, Tax Senior Manager, PwC [email protected]: 03-795-4720