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Section 1.954-3(a)(4)(i), Income Tax Regs., provides the
following basic general rule:
Foreign base company sales income does not include
income of a controlled foreign corporation derived in
connection with the sale of personal property manufactured,
produced, or constructed by such corporation in whole or in
part from personal property which it has purchased.
[Emphasis added.]
The remaining language in subparagraph (4) expands on this basic
general rule. Petitioners’ focus on the text of these expansions
ignores the context provided by the general rule, that the
property must have been manufactured or produced by the
corporation that is the subject of the inquiry.
Section 1.936-5(b)(6), Q&A-1, Income Tax Regs., requires in
each of its alternatives, that the activity be performed “by the
possessions corporation”. Respondent’s focus on this phrase
ignores the fact that corporations pay persons (individuals or
other entities) to actually do things, and that the regulation
does not tell us whether we are to take into account for these
purposes only those things done by employees or officers of the
corporation that is the subject of the inquiry.
Neither of the foregoing regulations explicitly allows or
disallows “attribution”, even though both of these regulations
require that the corporation being tested be the manufacturer or
the producer. Thus, both regulations present the same question
of interpretation in almost the same words. In this respect, the
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