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(3) Active conduct. Whether a trade or
business is actively conducted must be determined under
all the facts and circumstances. In general, a
corporation actively conducts a trade or business only
if the officers and employees of the corporation carry
out substantial managerial and operational activities.
A corporation may be engaged in the active conduct of a
trade or business even though incidental activities of
the trade or business are carried out on behalf of the
corporation by independent contractors. In determining
whether the officers and employees of the corporation
carry out substantial managerial and operational
activities, however, the activities of independent
contractors shall be disregarded. On the other hand,
the officers and employees of the corporation are
considered to include the officers and employees of
related entities who are made available to and
supervised on a day-to-day basis by, and whose salaries
are paid by (or reimbursed to the lending related
entity by), the transferee foreign corporation. * * *
The rule of this paragraph (b)(3) is illustrated by the
following example.
Example. X, a domestic corporation, and Y, a
foreign corporation not related to X, transfer property
to Z, a newly formed foreign corporation organized for
the purpose of combining the research activities of X
and Y. Z contracts all of its operational and research
activities to Y for an arm’s-length fee. Z’s
activities do not constitute the active conduct of a
trade or business.
(4) Outside of the United States. Whether a
foreign corporation conducts a trade or business
outside of the United States must be determined under
all the facts and circumstances. Generally, the
primary managerial and operational activities of the
trade or business must be conducted outside the United
States and immediately after the transfer the
transferred assets must be located outside the United
States. Thus, the exception provided by this section
would not apply to the transfer of the assets of a
domestic business to a foreign corporation if the
domestic business continued to operate in the United
States after the transfer. In such a case, the primary
operational activities of the business would continue
to be conducted in the United States. Moreover, the
transferred assets would be located in the United
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