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solutions, ophthalmic frames and lenses, scientific instruments,
and other B&L products from related suppliers and sold them
primarily to unrelated customers in Hong Kong, Taiwan, the
Philippines, Singapore, Malaysia, Thailand, and Indonesia.
During those years, B&L Hong Kong's largest selling products were
sunglasses that it purchased from B&L and that it did not as-
semble in Hong Kong, and its largest sales market for those
sunglasses was Hong Kong. Throughout the period 1972 through
1981, B&L Hong Kong, and not B&L Inc., made the decisions affect-
ing B&L Hong Kong's operations that related to its (1) leasing
facilities, (2) personnel, (3) selection of the B&L product lines
it offered, (4) B&L product inventory levels, (5) processing and
billing of customer orders, and (6) account management. During
those years, B&L Hong Kong expanded its sales of B&L products
from approximately $300,000 to $10 million.
B&L's management was aware that the tax rates in Hong Kong
were lower than the tax rates in the United States during and
immediately prior to the years at issue, and B&L's management
made efforts during those years to reduce its overall tax burden.
B&L Sunglasses
B&L began producing sunglasses in 1930 in response to an
inquiry from the U.S. Army Air Corps, whose pilots needed protec-
tion from the glare of the sun while flying above the clouds.
B&L began marketing sunglasses to the general public in 1936.
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