107 T.C. No. 10
UNITED STATES TAX COURT
SDI NETHERLANDS B.V., f.k.a.
SDI INTERNATIONAL B.V., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23747-94. Filed October 2, 1996.
P was the licensee of a Bermuda corporation (SDI
Bermuda) of worldwide rights to use computer software.
P in turn licensed those rights for use in the United
States to a U.S. corporation (SDI USA). P received
royalties from SDI USA as well as from other licensees.
P paid specified percentages of the royalties it
received from its licensees to SDI Bermuda. P, SDI
USA, and SDI Bermuda were members of a group of
corporations under common control. Held, the two
licenses were separate and distinct from each other
with the result that the royalties paid to P by SDI USA
did not retain their U.S. source character as part of
the royalties paid by P to SDI Bermuda. Consequently,
they were not income "received from sources within the
United States by" SDI Bermuda within the meaning of
sec. 881 (a), I.R.C., so as to subject P to withholding
tax as provided in secs. 1441(a) and 1442(a), I.R.C.
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