- 18 -
tax credit equal to the tax attributable to 38 cents per unit of
concentrate sold.
Example 2
When the concentrate is sold as a component of a beverage
product to unrelated third parties, CTI is determined as follows:
Item Amount
Gross income from the sale
of concentrate as a component
of syrup $2.24
Total USA expenses (1.48)
Production costs incurred per
unit of possession product .10
Total production costs
incurred per unit of
integrated product .80
PCR 12.5%
Expense allocation after
applying the PCR (.19)
Combined taxable income 2.05
If the possession product is a component product, as here,
combined taxable income is determined under Q&A-12. The plain
language of Q&A-12 requires (1) the determination of five factors
relating to sales, costs, and expenses and (2) the application of
those factors when using the allocation and apportionment method
provided therein. The five factors to be determined under Q&A-12
are as follows:
(1) The electing corporation must determine the sale price
of the component product. The sale price is derived from either
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