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operations through a foreign subsidiary generally does not pay
Federal tax on the income from those operations until the
subsidiary's income is repatriated to the domestic parent.
General Dynamics Corp. & Subs. v. Commissioner, 108 T.C. 107, 116
(1997).
Under the DISC provisions, Congress created intercompany
pricing rules for the purpose of limiting the amount of income
that the parent (related supplier) could allocate to the DISC,
thus limiting the amount of tax incentive by means of income
deferral. These rules provided for the price at which the
related supplier was deemed to have sold its products to the
DISC, regardless of whether any price was actually paid. Id. at
117. Section 994(a) provided three alternative pricing methods
for DISC's. The first two methods were safe harbors, created so
that taxpayers might avoid the complexities of section 482. Sec.
994(a)(1) and (2); Brown-Forman Corp. v. Commissioner, 94 T.C.
919, 926 (1990), affd. 955 F.2d 1037 (6th Cir. 1992). However,
under section 994(a)(3), taxpayers could use the rules of section
482 to allocate an arm's-length profit to the DISC if those rules
would allow a greater allocation of profit to the DISC than
either safe harbor. Sec. 994(a)(3); Brown-Forman Corp. v.
Commissioner, supra at 926.
The parent corporation either sold its product to the DISC
for resale in foreign markets, a buy-sell DISC, or paid a
commission to the DISC for selling goods in foreign markets, a
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