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79.26 gallons of syrup, or 515 gallons of soft drink, petitioner
incurs approximately the same amount of expense with respect to
each product. Petitioner argues, however, that the regulations
under section 936 contain only one provision prescribing the
manner of calculating combined taxable income with respect to a
component product; i.e., Q&A-12. Under the plain meaning of this
regulation, Q&A-12 controls the computation of combined taxable
income with respect to possession products that are component
products, according to petitioner. The concentrate produced by
CRI, which is converted into syrup or into bottle and can soft
drinks before sale to unrelated parties, is a component product.
According to petitioner, under the plain, unambiguous terms of
the regulation, Q&A-12 governs the computation of combined
taxable income with respect to such concentrate, mandating the
application of the production cost ratio.
Petitioner further asserts that the application of Q&A-12 to
component concentrate is consistent with the regulatory scheme in
general. In petitioner’s view, the language in the question
portion of Q&A-12 is broad and unqualified, and nothing in the
regulations under section 936 indicates that any other rules may
apply with respect to component products, according to
petitioner.
Petitioner argues that the language in Q&A-12 clearly states
that the role of Q&A-1, with respect to component products, is to
determine U.S. affiliate expenses at the integrated product
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