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An Overview of the Subpart F Foreign Base Company Sales Income Rules

An Overview of the Subpart F Foreign Base Company Sales Income Rules
Product Code - TMA80
Speaker(s): Rafic Barrage, Meyer Brown LLP
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The webinar will provide an overview of the subpart F foreign base company sales income rules, including a description of the general rule and the types of transactions to which it applies, followed by a discussion of the various exceptions to the rule. The webinar will then focus on deferral planning through contract manufacturing arrangements, including the “substantial contribution test” and the “branch” rules.

I. Overview of different types of manufacturing arrangements:

  • Buy/sell or contracting manufacturing
  • Toll/consignment manufacturing
II. Overview of section 954(d)
  • Manufacturing exception
  • Same-country manufacture exception
  • Product sold for use in the CFC’s country of organization exception
  • Branch rule 
III. Detailed discussion of substantial contribution test:
  • Activities considered, e.g., quality control
  • Through the CFC’s own “employees”
  • Employees on payroll of a related company? 
IV. Practical issues:
  • How should companies substantiate their compliance with the regulations, especially in light of their relatively young vintage/no audit history:
    • Documentation, e.g., visits to contract manufacturers, follow-up reports, interviews with employees, logs, etc. 
  • Tension between ensuring sufficient activities to satisfy the substantial contribution test and avoiding a permanent establishment in the country of the contract manufacturer
  • Use of a tax treaty jurisdiction with a favorable PE article whenever possible 
V. Related branch rule issues:
  • Discussion of basic branch rule:
    • Sales branch
    • Manufacturing branch 
  • December 2011 finalization of branch rule regulations
  • Multiple branches and/or remainder of CFC involved in manufacturing

Attendees will gain an in-depth understanding of the subpart F foreign base company sales income (“FBCSI”)/section 954(d) rules, including:

  • A general overview of subpart F foreign base company income—transactions in which it may arise 
  • The exceptions to FBCSI
  • How the rules apply to contract manufacturing arrangements
  • Practical aspects

As a special offer, all webinar registrants may apply a $200 discount to the upcoming two-day CITE conference, U.S. Tax Planning for CFCs Under Subpart F on April 25 & 26 in Chicago, IL. More details will be provided following the webinar.

Rafic Barrage, Meyer Brown LLP

Rafic Barrage is a tax partner in the Washington DC office of Mayer Brown, where his tax practice is concentrated in the area of international tax issues of US corporations operating overseas and foreign corporations and individuals operating and investing in the United States, including planning, structuring/restructuring, tax examinations, appeals, litigation, regulations, rulings, and legislative work. His practice involves structuring, restructuring, deferral/subpart F, foreign tax credit, source of income, tax treaties, trade or business/permanent establishment, withholding tax, and other issues.

Rafic has spoken and written on a wide variety of US international tax issues, including for the Organization for International Investment, the Tax Executives Institute, and ATLAS (the Alliance for Tax, Legal & Accounting Seminars). Prior to joining Mayer Brown, Rafic was an associate with a large, international law firm in Washington, DC, and prior to that, a senior associate in the International Tax Services group of Deloitte & Touche, LLP, in New York.