New IRS Publication on Foreign Derived Intangible Income (FDII)
Disclaimer Treasury just issued some new authority on "Foreign Derived Intangible Income" ("FDII") that I think is very interesting. Generally, FDII is taxed at more favorable rates than regular income (13.125% rather than 21%), so the more income that qualifies as FDII, the lower the tax rate paid by the company. Moreover, because the cash income from such sale can be used to fund domestic expenses, the taxpayer may be able to create a situation where some of it's income is taxed at 13.125%, but its deductions generate a benefit at 21%. That means that if a Protocol Sponsor sells tokens for cash, and generates taxable income that is FDII, and then uses that cash to pay deductible expenses that are not allocated to FDII, that Sponsor may effectively shelter 37.5% of other income (e.g., gain on distributions of tokens to shareholders). So for example, if a Sponsor sold tokens for $100 that qualified as FDII, it would owe $13.13 in tax. If it then distri