Associated foreign corporation
Associated foreign corporation -
(1) In general. A foreign corporation is an associated foreign corporation with respect to a taxable year of the DISC if -
(i) On each day during such taxable year of the DISC on which the foreign corporation has stock issued and outstanding, the DISC, or one or more members of the same controlled group of corporations (as defined in subparagraph (2) of this paragraph) as the DISC, owns (within the meaning of section 1563 (d) and (e)) stock of the foreign corporation possessing less than 10 percent of the total combined voting power of all classes of stock of the foreign corporation entitled to vote, as determined under the principles of § 1.957-1(b), or owns no stock of such corporation, and
(ii) The ownership of stock, or of securities (as defined in § 1.993-2(g)), of the foreign corporation by the DISC or by one or more members of such controlled group of corporations reasonably furthers a transaction or transactions giving rise to qualified export receipts for the DISC.
(2) Controlled group of corporations. For purposes of this paragraph, the term “controlled group of corporations” has the same meaning assigned to the term in section 1563(a) and not section 993(a)(3) and § 1.993-1(k). Thus, for purposes of this paragraph, the test of control is 80 percent control and, since the rules of section 1563(b) apply, only domestic members are considered to be members of the controlled group.
(3) Furtherance of qualified export receipts. Ownership of stock or securities of a foreign corporation will be considered as reasonably furthering a transaction or transactions giving rise to qualified export receipts for a DISC if -
(i) The ownership is necessary to obtain or maintain the foreign corporation as a customer of the DISC or of a related supplier, as defined in § 1.994-1(a)(3)(ii) of the DISC or to aid the sales distribution system of the DISC or of such related supplier, and
(ii) The amount of the investment in the foreign corporation bears a reasonable relationship to the amount of the DISC's annual net profit from transactions in its trade or business which it may reasonably expect to derive on account of such ownership.