SECTION 1. PURPOSE

This revenue procedure provides a safe harbor under section 118(a) of the Internal Revenue Code for the treatment of certain grants to corporations from the Rural Utilities Service (RUS) of the Department of Agriculture under the Broadband Initiatives Program (BIP) and from the National Telecommunications and Information Administration (NTIA) of the Department of Commerce under the Broadband Technology Opportunities Program (BTOP) as authorized by the American Recovery and Reinvestment Act of 2009 (ARRA).

the copyrighted article that is the subject of the back-to-back licensing arrangement; and (C) for each payment made by a sublicensee under the sublicense agreement with respect to which foreign gross-basis withholding tax is imposed, the sublicensee uses the right to the intellectual property or the copyrighted article that is the subject of the sublicense agreement in a trade or business within the meaning of § 1.367(a)–2T(b)(2). For purposes of clause (B), the head licensee or the sublicensee shall be considered to be regularly engaged in the business of developing, producing, exploiting, distributing or marketing the intellectual property or the copyrighted article that is the subject of the back-to-back licensing arrangement if any member of its worldwide affiliated group is so engaged with respect to that specific intangible.

2. Relief from application of section 901(l)(1)(A) for certain retail distribution arrangements made in the ordinary course of business

Under a typical business arrangement involving retail distribution of certain copyrighted articles, a domestic corporation owns a copyright which is used to produce copyrighted articles. In the ordinary course of its trade or business, the corporation, which may or may not hold the copyrighted articles for the minimum holding period described in section 901(l)(1)(A), transfers such copyrighted articles directly or indirectly through U.S. affiliates to retail customers in foreign jurisdictions. The transactions with retail customers would generally be treated as sales in determining whether for U.S. tax purposes the income is from sources within the United States. See, e.g., § 1.861–18. Retail customers in foreign jurisdictions make payments to the domestic corporation or its U.S. affiliate that, nevertheless, may be subject to foreign gross-basis withholding taxes.

a. Covered copyrighted articles

Pursuant to the authority granted under section 901(l)(3), the Treasury Department and the IRS have determined that the application of section 901(l)(1)(A) to foreign gross-basis withholding taxes imposed on payments in a retail distribution arrangement for covered copyrighted articles (as

that term is defined in section 1(a) of this notice) entered into in the ordinary course of business (as that term is defined in section 2(c) of this notice) is not necessary to carry out the purposes of section 901(l).

b. Retail distribution arrangement

For purposes of this notice, a “retail distribution arrangement for covered copyrighted articles” is a transaction in which: (1) a domestic corporation owns a copyright which is used to produce a covered copyrighted article; (2) the domestic corporation transfers directly or indirectly through one or more U.S. affiliates the covered copyrighted article to foreign retail customers; and (3) such arrangement is in the ordinary course of business of the domestic corporation and, if appropriate, its U.S. affiliate(s). For purposes of this notice, a U.S. affiliate is any member of the domestic corporation’s affiliated group as defined in section 1504(a).

c. Ordinary course of business

For purposes of this notice, a retail distribution arrangement for covered copyrighted articles is in the “ordinary course of business” if: (A) the arrangement is consistent with the normal business practices of the domestic corporation with respect to sales of copyrighted articles of the type that is the subject of the retail distribution arrangement (as defined in section 2(a) of this notice) independent of U.S. federal tax considerations; and (B) the domestic corporation, or the U.S. affiliate in the case of a domestic corporation that transfers the covered copyrighted articles indirectly through such affiliate, is regularly engaged in a trade or business, within the meaning of § 1.367(a)–2T(b)(2), of selling the covered copyrighted articles that are the subject of the retail distribution arrangement.

EFFECT ON OTHER DOCUMENTS

This notice supplements but does not modify or affect the application of the exception described in Notice 2005–90.

EFFECTIVE DATE

The regulations described in this notice will apply to amounts that are paid or

2010–41 I.R.B. 426 October 12, 2010