Software As A Service Withholding Tax. There are a number of international tax issues that affect providers and purchasers of cloud computing software one of which is the characterization of software payments. Software-The term software is not defined under the provisions of the Act.
However software or information that is delivered electronically is exempt. Commentary to Organization for Economic Co-operation and Development OECD Model Tax Convention on Income and on Capital referred to as OCED Model Tax Convention 2014 states that Software may be described as a program or series of programs containing instructions for a computer required either for the operational processes of the computer itself operational software or for the accomplishment of other tasks application. 1Withholding tax exemption for software payments was granted under section 134 of the Income Tax Act ITA.
States broadly interpret their sales-and-use-tax statutes as they apply to SaaS transactions and either 1 explicitly enumerate that SaaS receipts are a taxable service.
However software or information that is delivered electronically is exempt. With the rights-based approach the withholding tax exemptions granted for software payments1and payments for the use of or the right to use information and digitised goods2 will no longer be necessary. There are a number of international tax issues that affect providers and purchasers of cloud computing software one of which is the characterization of software payments. So to say that many of the rules governing software taxation lack clarity is a bit of an understatement.