PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

Question

Quizplus · Accepted Answer

Royalties are generally sourced based on the location of the property's use. Since PlantCo uses the formula in Adagio, the royalties would be considered foreign-source income for U.S. tax purposes, not U.S.-source income.

PlantCo Is a Company Based in Adagio