- 55 -
from this definition.
The sales income with which your committee is
primarily concerned is income of a selling subsidiary
(whether acting as principal or agent) which has been
separated from manufacturing activities of a related
corporation merely to obtain a lower rate of tax for
the sales income. * * * [S. Rept. 1881, 87th Cong., 2d
Sess. (1962), 1962-3 C.B. 703, 790.]
In their technical explanations of the bill enacting subpart F,
both the Senate Finance Committee and the House Ways and Means
Committee further explained that the definition of "foreign base
company sales income":
does not apply to income of a controlled foreign cor-
poration from the sale of a product which it manufac-
tures. In a case in which a controlled foreign cor-
poration purchases parts or materials which it then
transforms or incorporates into a final product, income
from the sale of the final product would not be foreign
base company sales income if the corporation substan-
tially transforms the parts or materials, so that, in
effect, the final product is not the property pur-
chased. Manufacturing and construction activities (and
production, processing, or assembling activities which
are substantial in nature) would generally involve
substantial transformation of purchased parts or ma-
terials. [S. Rept. 1881, supra, 1962-3 C.B. at 949;
H. Rept. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B.
at 592-593.]
Under 954(d)(1), if a CFC purchases property from a related
person that it sells to any person for use or consumption outside
the country under which it is organized, a U.S. shareholder of
that CFC is subject to U.S. income tax on that stockholder's pro
rata share of the income generated by such sale unless the prop-
erty sold is manufactured, produced, grown, or extracted in the
Page: Previous 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 NextLast modified: May 25, 2011