Thus, for example, a trawler, a factory ship, and an oil drilling ship are not considered to be used in foreign commerce. On the other hand, a cruise ship which visits one or more foreign ports is considered to be so used. Notwithstanding subdivision (i)(B) of this paragraph (b)(3), foreign base company income does not include income derived from, or in connection with, the use of an aircraft or vessel in transportation of property or passengers between a port (or airport) in a foreign country and another port (or airport) in the same country if both the foreign corporation is created or organized and the aircraft or vessel is registered in that country.
Description of charges | Amount billed to customer and collected by S | Revenue collected by S on behalf of an unrelated party | Costs paid to unrelated 3d party and absorbed by S |
Ocean freight | $1,420 | ||
Trucking charge of empty equipment to shipper's facility | 50 | $50 | |
Trucking charges Hamar to Oslo | 60 | 60 | |
Trucking charges Oslo to Gothenburg | $315 | ||
Trucking charges Genoa to Milan | 180 | 180 | |
Brokerage Commission in Europe | 71 | ||
Total | 1,710 | 290 | 386 |
is foreign base company shipping income (determined without regard to this subparagraph). Thus, for example, if 80 percent of the gross income derived by a controlled foreign corporation at a stevedoring facility is treated as foreign base company shipping income under subparagraph (2) of this paragraph, then the remaining 20 percent is treated as foreign base company shipping income under this subparagraph.
Example.
(1) Gross income derived from persons unrelated to X | $20 |
(2) Gross income derived from persons related to X | 10 |
(3) Actual gross income (line (1) plus line (2)) | 30 |
(4) Hypothetical gross income derived from division A (determined by the application of subdivision (i) of this subparagraph) | 70 |
(5) Total reconstructed gross income (line (3) plus line (4)) | 100 |
but only to the extent that such dividends, interest, and gains are attributable to foreign base company shipping income of the foreign corporations listed in subdivision (ii) of this paragraph (f)(1).
to the extent that such items would have been includible in its foreign base company shipping income had they been realized by it directly.
$200 of P's gross income is $100, all of which is includible in X's gross income. If X had realized its distributive share of $100 directly, then the amount which would have been includible in X's foreign base company shipping income under this paragraph is the portion allocable to the months of January, February, and March of 1976. Such amount, $25 (i.e., 1/2 * $200 * 3 months/12 months), is included in X's foreign base company shipping income for its taxable year ending December 31, 1976. Similarly, X is entitled under this paragraph to a deduction from foreign base company shipping income of $20 (i.e., 1/2 * $160 * 3 months/12 months). Since foreign base company shipping income does not include amounts earned by a foreign corporation (not a less developed country shipping corporation) in a taxable year beginning before January 1, 1976, Y has no foreign base company shipping income (under this paragraph or otherwise) for its taxable year beginning on July 1, 1975.
26 C.F.R. §1.954-6