On February 27, 2008, the Treasury Department and the Internal Revenue Service released proposed regulations that provide comprehensive guidance on the treatment of contract manufacturing arrangements under the foreign base company sales income (FBCSI) rules of subpart F. The proposed regulations represent an effort on the government’s part to resolve a number of longstanding and controversial issues raised under subpart F by modern global business models employed by U.S.-based multinational companies that sell products abroad. The proposed regulations present a range of new opportunities and risks for taxpayers operating under modern global business models. The vast majority of U.S.-based multinational companies that sell products abroad will find it necessary or advantageous to revisit their structures in light of this new guidance, in order to seize these opportunities and reduce these risks. In addition, the proposed regulations leave a number of important issues open to interpretation, and thus many companies will find it desirable to submit comments seeking clarification of these issues.
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