- 39 - 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 agreementPage: Previous 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Next
Last modified: May 25, 2011