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certain restrictions, select the most favorable of the
administrative pricing methods of section 925(a) in order to
reallocate income generated by export sales from the parent
corporation to the FSC. The FSC provisions permanently exempt a
portion of FSC profits (approximately 65 percent) from tax. Sec.
923(a). The FSC recognizes the nonexempt portion of its taxable
income as income effectively connected with the conduct of a U.S.
trade or business. Sec. 921(d).
Section 925(a) provides in pertinent part:
SEC. 925 (a). In General.--In the case of a sale
of export property to a FSC by a person described in
section 482, the taxable income of such FSC and such
person shall be based upon a transfer price which would
allow such FSC to derive taxable income attributable to
such sale (regardless of the sales price actually
charged) in an amount which does not exceed the
greatest of--
(1) 1.83 percent of the foreign trading gross
receipts derived from the sale of such property by
such FSC,
(2) 23 percent of the combined taxable income
of such FSC and such person which is attributable
to the foreign trading gross receipts derived from
the sale of such property by such FSC, or
(3) taxable income based upon the sale price
actually charged (but subject to the rules
provided in section 482).
Although section 925(a) applies literally only to buy/sell
FSC's, Congress authorized the Secretary to prescribe regulations
setting forth consistent rules with respect to commission FSC's.
Sec. 925(b); General Dynamics Corp. & Subs. v. Commissioner,
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