Electronic Arts, Inc. and Subsidiaries - Page 59




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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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