116 T.C. No. 25
UNITED STATES TAX COURT
MEDCHEM (P.R.), INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
MEDCHEM PRODUCTS, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 4065-98, 4066-98. Filed May 18, 2001.
P-USA is a corporation that is headquartered and
has its manufacturing facility in the United States.
Its wholly owned subsidiary is P-PR, which lists as its
headquarters, officers, and directors the headquarters,
officers, and directors of P-USA. A is a corporation
unrelated to Ps that manufactures in Puerto Rico a drug
named Avitene. On Dec. 18, 1987, A and certain related
entities sold to Ps the equipment, technology, and
other assets (except A’s manufacturing facility in
Puerto Rico) connected to Avitene’s manufacturing. As
part of the sale, A agreed to continue manufacturing
Avitene primarily for P-PR using the facility and labor
furnished by A and the raw materials and equipment
furnished by P-PR. (A also used P-USA’s technology.)
In return, P-PR generally agreed to pay A a fee equal
to its manufacturing costs plus 10 percent. Throughout
most of the relevant period, P-PR had no employees and
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