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activities in Puerto Rico through Alcon P.R., a contract
manufacturer. Petitioners argue that activities performed
through a contract manufacturer such as Alcon P.R. are imputed to
the other party to the contract, in this case, MedChem P.R.
We agree with respondent that MedChem P.R. does not qualify
for the possession tax credit because it failed the active
conduct of a trade or business requirement of section
936(a)(2)(B). As we read section 936(a), a domestic corporate
taxpayer may elect to determine its Federal income tax liability
by using the possession tax credit if it meets two requirements.
The credit equals the amount of tax attributable to the sum of
the taxpayer’s qualified possession-source investment income plus
the taxpayer’s non-U.S.-source income that it earned from: (1)
Its active conduct of a trade or business in a U.S. possession or
(2) its sale or exchange of substantially all of the assets used
in the active conduct of that trade or business. The two
requirements are the 80-percent test of section 936(a)(2)(A) and
the 75-percent test of section 936(a)(2)(B). We concern
ourselves only with the 75-percent test of section 936(a)(2)(B)
because the parties agree that MedChem P.R. has met the 80-
percent test. Under the 75-percent test, MedChem P.R. qualified
for the possession tax credit if at least 75 percent of its gross
income for the 3-year period ended August 31, 1992, was derived
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