Foreign Use Under the Proposed FDII Regulations

[...]the related party sales rules that apply to general property do not apply to intangible property33 Foreign use of intangible property and the relevant documentation requirements depend on whether the sale is in exchange for periodic payments or a lump sum. If the payments are considered lump sum payments, the seller may rely on its own projections of the revenues the seller would have reasonably expected to earn. [...]even if the intangible property never ultimately generates revenues, seller should be able to rely on reasonable projections to establish foreign use. [...]the consumer of the final cell phone, laptop, or tablet most likely has no idea what the intangible property was. [...]the consumer of the final cell phone, laptop, or tablet wants a product that works and does not care about the intangible property embedded in the chip. The proposed regulations only provide that, in case of a transaction that includes elements of both a sale and a service, the transaction is classified according to its overall predominant character.42 The end user requirement only applies to intangible property used in the development, manufacture, sale, or distribution of "a product." [...]the end user requirement does not apply to service transactions that incorporate intangible property.