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its relevant taxable income under one of the methods described in
section 936(h)(5)(C)--the cost sharing method or the profit split
method--but only if the possessions corporation “has a
significant business presence” in a possession. Sec.
936(h)(5)(B)(i). Section 936(h)(5)(B)(ii) provides that a
possessions corporation “has a ‘significant business presence’”
in a possession if the corporation satisfies any one of three
statutory tests. These three tests are (1) the 25-percent-value
-added test, (2) the direct-labor-production test, and (3) the
12(...continued)
goods not produced in whole or in part
by any member of the affiliated group
and sold by the electing corporation to
persons other than members of the
affiliated group, no less than 65
percent of the total direct labor costs
of the affiliated group in connection
with all purchases and sales of such
goods sold during the taxable year by
such electing corporation is incurred by
such electing corporation and is
compensation for services performed in
the possession.
Notwithstanding satisfaction of one of the
foregoing tests, an electing corporation
shall not be treated as having a significant
business presence in a possession with
respect to a product produced in whole or in
part by the electing corporation in the
possession, for purposes of an election to
use the method specified in subparagraph
(C)(ii), [the profit split method] unless
such product is manufactured or produced in
the possession by the electing corporation
within the meaning of subsection (d)(1)(A) of
section 954.
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