Treatment of digital assets under Section 250 final regulations

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October 2020

Overview

Recently released final regulations addressing the Section 250 deduction for foreign-derived intangible income (FDII) provide domestic corporations – including those in the cryptocurrency and digital asset space – potentially a clearer path to reducing the amount of US tax imposed on certain types of 'foreign-derived' income.  In appropriate circumstances, a domestic corporation’s income activities related to cryptocurrency could be treated as foreign-derived deduction eligible income (FDDEI), i.e., the type of income for which FDII benefits can be available. 

Determining whether income qualifies as FDDEI requires analysis of both general US tax characterization rules and applicable FDDEI sales or services rules. Taxpayers wishing to claim FDII benefits also should consider how they may be able to obtain requisite information to substantiate that the income was derived from a FDDEI transaction.   

The takeaway

Taxpayers dealing with cryptocurrency should analyze the final regulations and seek guidance in order to properly implement the rules to recognize all available deductions. The final regulations help provide more stability and greater certainty in the application of Section 250, a relaxed set of substantiation requirements, and more clarity on how to apply the rules to sales of digital content, electronically provided services, and transactions involving intangible property.

Contact us

Doug McHoney

International Tax Services Leader, PwC US

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