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direct-labor test for purchases and resales, set forth in
subclauses (I), (II), and (III), respectively, of section
936(h)(5)(B)(ii). However, the final flush language of section
936(h)(5)(B)(ii) provides that, if the possessions corporation
claims the profit split method with respect to a product that the
possessions corporation produces in whole or in part in the
possession, then the possessions corporation does not have a
significant business presence in that possession--
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.
Respondent refers to the alternative tests set out in the
three subclauses of section 936(h)(5)(B)(ii) as “the first
prong”, and refers to the test set out in the final flush
language of section 936(h)(5)(B)(ii) as “the second prong”. That
terminology appears to be helpful, and we use it in the instant
opinion.
2. Parties’ Contentions
Many of the parties’ contentions on this issue are similar
to those that they made with respect to the active-conduct-of-a-
trade-or-business issue. In particular, respondent contends that
petitioners’ partial summary judgment motion must be denied
because (1) “as a matter of law * * * Petitioners cannot
attribute the activities of the PPI [employees] or EA employees
to EAPR” to satisfy the significant-business-presence test under
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