Tax Court Ends the ‘Cascading Royalty’ Problem
86 Journal of Taxation 108 (February 1997)
5 Pages Posted: 10 Jul 2015
Date Written: February 1, 1997
The Service’s assault on back-to-back royalties was dealt a serious blow by a recent Tax Court decision which suggests that royalties paid by one foreign person to another cannot ever be U.S.-source income even if the rights are licensed for use in the U.S. The court expressed concern with cascading royalties, in which multiple taxation might be imposed on the same royalty as it makes its way up a chain of sublicensees, and held that there was no indication that Congress intended that result.
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