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The parent corporation either sells its product to the DISC
for resale in foreign markets, a buy-sell DISC, or pays a
commission to the DISC for selling goods in foreign markets, a
commission DISC. Brown-Forman Corp. v. Commissioner, 94 T.C.
919, 926 (1990), affd. 955 F.2d 1037 (6th Cir. 1992). The DISC
in this case is a commission DISC. Although the section 994(a)
pricing rules literally apply only to a buy-sell DISC, they have
been adopted for commission DISC’s pursuant to statutory
authority granted to the Secretary. Sec. 994(b)(1); sec. 1.994-
1(d)(2)(i), Income Tax Regs.; see sec. 925(b)(1); sec. 1.925(a)-
1T(d)(2), Temporary Income Tax Regs., 52 Fed. Reg. 6447 (Mar. 3,
1987). In the case of a commission DISC, CTI is computed using
the gross receipts on the sale, lease, or rental of the property
on which the commissions arose. Sec. 993(f).
2. Regulatory Requirement
CTI equals the excess of the DISC's gross receipts from
export sales over the total costs of the DISC and the parent that
relate to the DISC's gross receipts. Sec. 1.994-1(c)(6), Income
Tax Regs.; see sec. 1.925(a)-1T(c)(6)(i), Temporary Income Tax
Regs., 52 Fed. Reg. 6446 (Mar. 3, 1987). Section 1.994-1(c)(6),
Income Tax Regs., provides rules for determining which costs
relate to export sales:
In determining the gross receipts of the DISC and the
total costs of the DISC and related supplier which
relate to such gross receipts, the following rules
shall be applied:
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