2009-05-12
I have a habit of counting the number of words in a sentence when I come across a really long one. Today I was creating a flowchart of the foreign base company sales income rules (one of the types of subpart F income), when I came across a particularly long sentence. This sentence has 165 words.
My flowchart has 9 separate steps for the single sentence. I like to create a citation to authority for each step in my flowcharts. I realized how long the sentence was when I was trying to create the citations. All 9 boxes cite to the same sentence. I usually like to be as specific as possible in my citations, but I haven’t yet determined a method to cite to different items within a sentence.
The über sentence is found in the sales branch rules that apply to foreign base company sales income -- Treas. Reg. § 1.954-3(b)(1)(i)(b) [second sentence]:
The use of the branch or similar establishment for such activities will be considered to have substantially the same tax effect as if it were a wholly owned subsidiary corporation of the controlled foreign corporation if the income allocated to the branch or similar establishment under the immediately preceding sentence is, by statute, treaty obligation, or otherwise, taxed in the year when earned at an effective rate of tax that is less than 90 percent of, and at least 5 percentage points less than, the effective rate of tax which would apply to such income under the laws of the country in which the controlled foreign corporation is created or organized, if, under the laws of such country, the entire income of the controlled foreign corporation were considered derived by the corporation from sources within such country from doing business through a permanent establishment therein, received in such country, and allocable to such permanent establishment, and the corporation were managed and controlled in such country.
P.S. I just remembered that there is a similar sentence in the manufacturing branch rules. It turns out that this sentence has even more words -- 173. See Treas. Reg. § 1.954-3(b)(1)(ii)(b) [second sentence].
Andrew Mitchel is an international tax attorney who advises businesses and individuals with cross-border activities.