The services received by the CFC would be treated as FBCSI
because they were not performed in the country of incorporation of the CFC and the U.
If the tax-rate-disparity test is satisfied, the CFC is deemed to have conducted the activities of the manufacturing branch and, thus, the sale of products by the CFC does not result in FBCSI
because the manufacturing branch is not treated as an entity separate from the CFC.
TEI is concerned, however, that the grouping provision may also be interpreted as grouping the income of those branches for purposes of determining the actual amount of FBCSI
A transfer of software classified as a sale of property must be assessed for potential FBCSI
if the property:
The proposed regulations relate primarily to the application of the FBCSI
rules to a CFC's sale of property manufactured under a contract manufacturing arrangement.
Arguably, another basis for claiming the manufacturing exception is available under the statute, which provides that FBCSI
is defined as "income .
The question of whether a controlled foreign corporation (CFC) may enter into a contract manufacturing arrangement while still meeting the manufacturing exception to the FBCSI
rules has been a matter of contention between taxpayers and the IRS for over three decades.
The branch rule will not cause income to be FBCSI
if that income otherwise would not be FBCSI
Treatment of European Union as One Country for FBCSI
If the above three explicit exceptions were the only exceptions from FBCSI
characterization, the contract manufacturing issue would not be so contentious.
Under the objective test, current regulations specify that income from services performed by a CFC outside its country of incorporation is considered FBCSI
if the cost of services provided by a related person is at least 50% of the CFC's total cost of performing the services.
The IRS has advised that it is amending the regulations that define "substantial assistance" for purposes of determining FBCSI
under subpart F.