Computation of combined taxable income of possession corporations under the profit-split method.

• Position: Tax Executives Institute Commonwealth of Puerto Rico and U.S. Possessions Committee

On June 8, 1994, Tax Executives Institute filed the following comments on proposed regulations und of the Internal Revenue Code, relating to the computation of combined taxable income under the profi possession product is a component product or an end-product form. The Institute's submission was pre of its Commonwealth of Puerto Rico and U.S. Possession Committee, whose chair is Richard E. Federer Materially contributing to the preparation of the comments were Jan E. Krentz of St. Jude Medical, I Osborne of Medtronic, Inc.

On January 11, 1994, the Internal Revenue Service issued proposed regulations under section 936(h)(5) of the Internal Revenue Code, relating to the computation of combined taxable income under the profit-split method when the possession product is a component product or an end-product form. The proposed regulations were published in the Federal Register on January 12, 1994 (59 Fed. Reg. 1690), and in the Internal Revenue Bulletin on February 14, 1994 (1994-7 I.R.B. 56).

For simplicity's sake, the proposed regulations are referred to as the "proposed regulations" and specific provisions are cited as "Prop. Reg. [sections]." References to page numbers are to the proposed regulations (and preamble) as published in the Internal Revenue Bulletin.

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. Our approximately 5,000 members represent 3,000 of the leading corporations in the United States and Canada, including companies with substantial operations in Puerto Rico. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works ae one that is administrable and with which taxpayers can comply.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations under section 936(h)(5) of the Internal Revenue Code, relating to the computation of combined taxable income under the profit-split method when the possession product is a component product or an end-product form.

Overview

Section 936 of the Code generally provides an electing domestic corporation (the "possessions corporation") with a tax credit...