I am wondering if a foreign company be obliged to pay fees or taxes if its website is hosted and served by servers located on US ground?
Does it matter if monetary transactions are made on that website/application?
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There are generally two ways for a foreign company to become subject to U.S. federal income tax. First, the United States taxes foreign companies on specified categories of U.S.-source income, such as interest and dividends. Second, if a foreign company is engaged in a trade or business in the United States, then the foreign company must pay federal income tax on income that is effectively connected with that trade or business.
Unfortunately, whether a foreign company is engaged in a U.S. trade or business depends on a somewhat murky test under the tax law. In order to make this determination, courts look to a foreign person's economic activities in the United States, and have held that such activity must be "considerable, continuous and regular" in order to be a U.S. trade or business. Amodio v. Comm'r, 34 T.C. 894 (1960). All of the facts and circumstances surrounding a particular activity are relevant to the determination.
Whether operating a business through a website on a server in the U.S. constitutes a U.S. trade or business is an open question under the tax law, which often lags behind the real world by a factor of decades. That said, it seems unlikely to me that simply hosting a site on a server in the U.S. would cause a foreign company to be engaged in a U.S. trade or business--but if that website actively conducts commerce within the United States, then I think it certainly would be a U.S. trade or business.
If the foreign company is engaged in a U.S. trade or business, then there may be some relief under a tax treaty between the U.S. and the foreign company's country of residence. Usually, under the applicable provisions of a tax treaty, the United States declines to tax a foreign company engaged in a U.S. trade or business unless that company has a permanent establishment in the United States, which usually means the company has an office or other fixed place of business. Whether a server located in the United States could be considered a permanent establishment is another open question.
Finally, the foreign company may be subject to state and local income and sales taxes, regardless of whether it is subject to federal taxes. The individual states are not obliged to follow the federal government in these matters. It's worth noting that many states have been aggressively trying to expand their taxing authority since the beginning of the digital age.
Unfortunately, as noted above, the IRS and other tax authorities in the United States have been slow to respond to the economic developments precipitated by the Internet. It is likely that definitive answers to these questions will not be available anytime soon.
This post is for informational purposes only--As always, it is imperative to consult with a qualified tax advisor who has detailed knowledge of you company's operations when conducting business in the United States.
The location of the hosting service has nothing to do with where taxes must be paid. There are two locations where taxes may be due, and those are the originating country, and the destination country. For example, if the company is in Germany, and shipping to the U.K., there will most likely be custom duties paid to the U.K. and sales taxes paid to Germany, even if the hosting website is in the United States of America. Note that taxes, if any, must be paid to the United States for services rendered in the United States, such that the hosting company that's located in the United States would have to charge taxes to the German company for services rendered.