Legal Question in Business Law in Minnesota

Postscript Re: can a forein company only host website in US?

I got to thinking a little more about your question and offer a few additional comments on taxes:

In draft comments to the OECD Model Tax Treaty, the OECD is planning to take the position that a Web site is not itself tangible property and therefore cannot constitute a place of business (permanent establishment). However, the server on which a Web site is stored is tangible property and can constitute a permanent establishment of the business that owns or leases the server. In the common Internet Web site hosting arrangement the Web site owner pays fees to an Internet Service Provider ("ISP") to host its Web site on the ISP's server. In this case the Web site owner does not have control over the server or have it at its disposal. Therefore, the Web site owner does not have tangible property in the country where the server is located, and therefore can't be considered to have a permanent establishment. However where the Web site owner actually owns, or leases, and operates the server, the server could give rise to a permanent establishment in the country of its location.

Caution: As far as I can tell these comments continue to be the draft position of the OECD, and the countries who have adopted OECD treaties do not necessarily have to abide by the commentary. But, at least, this may provide you with some undertanding of the direction the law is taking in this. Bottom line, if the server is owned by an entity different from the owner of the website, from a TAX standpoint the owner of the website might not be considered to have a presence in the taxing jurisdiction. This analysis won't necessarily apply when the question is whether the owner of the website can be SUED in the US courts. On that issue, there is as yet very little guidance available from the courts.

Standard disclaimer (again): The above is given based on limited facts and information presented. Conclusions may differ significantly based on different facts. We do not have an attorney-client relationship.

Re: can a forein company only host website in US?

There are of course no laws prohibiting the foreign company from transacting business using a website hosted by a server located here in the US, at least so long as the underlying business activity is not prohibited (e.g. some types of porn or gambling) or regulated (e.g. security sales, insurance, mortgages, etc.) in some way. I would guess your question goes more to whether IF an otherwise legal/unregulated site is hosted here, (1) does that give the US courts jurisdiction over the foreign company, and (2) will the foreign company's website create a "tax presence" in the US?

Several questions need to be answered on this:

Who owns the server? Who is the hosting entity? Is the data residing in the US-based server manipulated or modified in any way, or is it simply parked here? Where are the customers located and where is the content created? Where is the foreign company located (i.e. where is it incorporated and where are its executive offices)?

Looking at this from the jurisdiction angle, if the foreign company locates a website on a server based in (for example) Minnesota, and if through that website the foreign company offers goods or services to Minnesotans, then it is probable the Minnesota court will have jurisdiction over the foreign company. However, if a New York resident accesses the website via the Minnesota server, it is less likely the New York courts will have jurisdiction over the foreign company. The analysis is very fact-specific.

As for a "tax presence," the analysis is somewhat more involved and revolves around whether the website located here could be considered a "permanent establishment" here under applicable tax treaties. This is an evolving area of the law but -- speaking VERY generally -- there must be some economic activity connected with the website here in Minnesota (or other US jurisdiction) to subject the foreign company to tax liability here. If, as you suggest, the economic activity relating to the site is all offshore, it is unlikely (but not necessarily outside the realm of possibility) that the foreign company would be subjected to tax liability here.

To minimize the possibility that the US might try to tax the offshore economic activity, one suggestion might be to form a separate US entity to "own" the website.

Note, the EU recently initiated a directive which requires that ANYONE who sells electronically to persons in an EU state -- no matter where their website is located -- must collect VAT from the EU-based cutomer and remit the payment to the EU.

These comments don't really answer your question, I realize, but this is a complex and evolving area of the law. A lot will depend on the specific facts.

Standard disclaimer: The above is given based on limited facts and information presented. Conclusions may differ significantly based on different facts. We do not have an attorney-client relationship.

That said, good luck to you and let me know if I can be of further assistance.