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314-315. The taxpayer-subsidiary got receivables, inventory, and
machinery and equipment located in the unrelated entity’s
manufacturing facility. Idem.
As part of the sale, the unrelated entity agreed to continue
manufacturing the drug for the taxpayer-subsidiary using the
unrelated entity’s facility and labor, and using the raw
materials and equipment furnished by the taxpayer-subsidiary.
Id. at 316. We found that the employees of the unrelated entity
“performed every task required in the manufacturing process,
including the supervision thereof, * * * without the right or
ability of * * * [the taxpayers] to manage, direct, or control
any part of the manufacturing process.” Id. at 339. Indeed,
except for the MedChem cases themselves, the taxpayers had
consistently reported in all instances that the unrelated entity
was the drug’s manufacturer. Id. at 340. As a reflection of
this, the labels which the taxpayer-subsidiary used during one of
the years at issue in MedChem designated the unrelated entity as
the manufacturer of the drug. Id. at 315-316. We concluded that
all of the business activities related to the manufacture of the
drug were directed and controlled by the unrelated entity out of
its Puerto Rico-based operation, and by the taxpayer-parent, out
of its U.S.-based facility. Id. at 338.
The taxpayer-parent distributed, marketed, and sold the drug
in the United States. Id. at 339. We found that the taxpayer-
subsidiary “was expressly prohibited by the processing agreement
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