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Branch Rule Complexity Continued

2009-05-12

Stop reading if you are tired of hearing about long sentences.  The sentences with 165 and 173 words in the prior post were from regulations promulgated in 1964.  It appears that the Treasury is trying to out-do itself with long sentences.  Treasury Decision 9438, published December 24, 2008 [Merry Christmas], amends the regulations for the branch rules and includes a sentence with 235 words.  Here it is from Temp. Treas. Reg. § 1.954-3(b)(2)(ii)(a):

For purposes of applying the rules of this paragraph (b)(2)(ii) and §1.954-3(b)(2)(ii), a branch or similar establishment of a controlled foreign corporation treated as a separate corporation purchasing or selling on behalf of the remainder of the controlled foreign corporation under paragraph (b)(2)(ii)(b) of this section, or the remainder of the controlled foreign corporation treated as a separate corporation purchasing or selling on behalf of a branch or similar establishment of the controlled foreign corporation under §1.954-3(b)(2)(ii)(c), will include any other branch or similar establishment or remainder of the controlled foreign corporation that would not be treated as a separate corporation (apart from the branch or similar establishment of a controlled foreign corporation that is treated as performing purchasing or selling activities on behalf of the remainder of the controlled foreign corporation under paragraph (b)(2)(ii)(b) of this section or the remainder of the controlled foreign corporation that is treated as performing purchasing or selling activities on behalf of the branch or similar establishment under §1.954-3(b)(2)(ii)(c)) if the effective rate of tax imposed on the income of the purchasing or selling branch or similar establishment, or purchasing or selling remainder of the controlled foreign corporation, were tested under the principles of §1.954-3(b)(1)(i)(b) or (b)(1)(ii)(b) against the effective rate of tax that would apply to such income if it were considered derived by such other branch or similar establishment or the remainder of the controlled foreign corporation.

Further, I can't figure out any difference between "this paragraph (b)(2)(ii) and §1.954-3(b)(2)(ii)."  It appears to me that "this paragraph (b)(2)(ii)" is "§1.954-3(b)(2)(ii)."  Similar references are made twice in Temp. Treas. Reg. § 1.954-3T(b)(2)(i)(d).  Either I am missing something or the Treasury is trying to be redundantly confusing.

[UPDATE:  I realized that the difference between the two references is that the reference to "this paragraph" is for the temporary regulations and the other reference is for the final regulations.]

I haven't flowcharted this one yet.

Andrew Mitchel is an international tax attorney who advises businesses and individuals with cross-border activities.

Tags: 951 Subpart F Income