Source: http://www.chanrobles.com/usa/uslaws/cfr/title26/26-10.0.1.1.1.0.5.89.php
Timestamp: 2020-01-22 02:13:59
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CHAN ROBLES VIRTUAL LAW LIBRARY : 26 C.F.R. § 1.955A-2 Amount of a controlled foreign corporation's qualified investments in foreign base company shipping operations.
United States> Code of Federal Regulations> Title 26 - Internal Revenue> PART 1--INCOME TAXES> § 1.955A-2 Amount of a controlled foreign corporation's qualified investments in foreign base company shipping operations.
26 C.F.R. § 1.955A-2 Amount of a controlled foreign corporation's qualified investments in foreign base company shipping operations.
(v) Stock or obligations of a less developed country shipping company described in §1.955–5(b), as provided in paragraph (h) of this section.
(3) Definitions. If the meaning of any term is defined or explained in §1.954–6, then such term shall have the same meaning when used in this section.
(A) Such amounts shall be deemed to include an arm's length charge (see §1.954–6(h)(5)) for services performed by such corporation for itself,
(b) Related shipping assets—(1) In general. For purposes of this section, the term “related shipping asset” means any asset which is used (or held for use) for or in connection with the production of income described in §1.954–6(b)(1)(i) or (ii), but only to the extent that such asset is so used (or is so held for use).
(4) Cross-reference. See §1.954–7(c) for additional illustrations bearing on the application of this paragraph.
(3) Definitions. For purposes of this section, the term “trust” means a trust as defined in §301.7701–4.
(2) Excluded charges. For purposes of subparagraph (1) of this paragraph, a liability created principally for the purpose of artificially increasing or decreasing the amount of a controlled foreign corporation's qualified investments in foreign base company shipping operations will not be recognized. Whether a liability is created principally for such purpose will depend upon all the facts and circumstances of each case. One of the factors that will be considered in making such a determination with respect to a loan is whether the loan was both created after November 20, 1974, and is from a related person, as defined in section 954(d)(3) and paragraph (e) of §1.954–1. Another such factor is whether the liability was created after March 29, 1975, in a taxable year beginning before January 1, 1976. For purposes of this paragraph (g)(2), payments on liabilities which are represented by an open account are credited against the account transactions arising earliest in time.
(6) Translation into United States dollars. The amounts determined in accordance with this paragraph shall be translated into United States dollars in accordance with the principles of §1.964–1(e)(4).
(h) Investments in shipping companies under prior law—(1) In general. If an amount invested in stock or obligations of a less developed country shipping company described in §1.955–5(b) is treated as a qualified investment in less developed countries under §1.955–2 (applied without regard to paragraph (b)(5)(ii) thereof) on the applicable determination date for purposes of section 954(g) or section 955(a)(2) with respect to a taxable year beginning after December 31, 1975, then such amount shall be treated as a qualified investment in foreign base company shipping operations on such determination date. See section 955(b)(5).
(2) Effect on prior law. See §1.955–2(b)(5)(ii) for the rule that investments which are treated as qualified investments in foreign base company shipping operations under subparagraph (1) of this paragraph shall not be treated as qualified investments in less developed countries for purposes of section 951(a)(1)(A)(ii).
Example. (a) Throughout the period here involved, controlled foreign corporation X owns 100 percent of the single class of stock of controlled foreign corporation Y, X and Y each use the calendar years as the taxable year. At the close of 1975, X's $50,000 investment in the stock of Y is treated as a qualified investment in less developed countries under §1.955–2 (applied without regard to §1.955–2(b)(5)(ii), and Y is a less developed country shipping company described in §1.955–5(b).
(b) On December 31, 1976, Y is still a less developed country shipping company and X's $50,000 investment in the stock of Y is still treated as a qualified investment in less developed countries under §1.955–2 (applied without regard to §1.955–2(b)(5)(ii). Under subparagraph (1) of this paragraph X's entire $50,000 investment in the stock of Y is treated as a qualified investment in foreign base company shipping operations.
(c) For 1977, Y's gross income is $10,000 and Y's foreign base company shipping income is $7,500. Since Y fails to meet the 80-percent income test of §1.955–5(b)(1), Y is no longer a less developed country shipping company described in §1–955–5(b), and X's investment in the stock of Y is no longer treated as a qualified investment in less developed countries under §1.955–2 (applied without regard to §1.955–2(b)(5)(ii). However, assume that on December 31, 1977, Y's net worth (as defined in paragraph (c)(2)(1) of this section) is $100,000, that Y's qualified investments in foreign base company shipping operations (determined under this section) on December 31, 1977, are $75,000, and that X's investment in the stock of Y (as determined under paragraph (g) of this section) continues to be $50,000. Then $67,500, i.e.,
(d) For 1978, all of Y's gross income is foreign base company shipping income. Although Y is again a less developed country shipping company described in §1.955–5(b), X's investment in the stock of Y is no longer treated as a qualified investment in less developed countries under §1.955–2(b)(5)(iii). Thus, X's investment in the stock of Y is not treated as a qualified investment in foreign base company shipping operations under subparagraph (1) of this paragraph. However, X's investment in the stock of Y may be so treated under another provision of this section, as was the case in item (c) of this example.