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The Fundamental Principles of Income Attribution are Not Unmoored by Section 865(e)(2)

9 Pages Posted: 20 Oct 2012  

Douglas Stransky

Sullivan & Worcester LLP; Boston University Graduate Tax Program

Date Written: June 11, 2012


In cases where a foreign corporation manufactures goods outside the United States and sells such goods through an office or other fixed place of business in the United States (an “OFPB”), Internal Revenue Code section 865(e)(2)(A) appears to preempt all other sourcing provisions in the Code so that the entire amount of income relating to the sale of inventory property (the manufacturing profit and the distribution profit) by such OFPB is treated as U.S.-source income and subject to U.S. federal income tax. In this article, Mr. Stransky argues that Code section 865(e)(2)(A) should not be read as preempting all of the other sourcing provisions of the Code and the fundamental principles of U.S. international taxation so as to force a result that exceeds the amount that would be treated as income from sources within the United States if the foreign corporation (itself) had sold the goods or merchandise in the United States. In short, Code section 865(e)(2) does not unmoor the fundamental principles of income attribution.

Keywords: Source of Income, International Taxation, U.S. Trade or Business, Transfer Pricing, Income Attribution

JEL Classification: H25

Suggested Citation

Stransky, Douglas, The Fundamental Principles of Income Attribution are Not Unmoored by Section 865(e)(2) (June 11, 2012). Tax Notes International, Vol. 66, No. 11, June 2012. Available at SSRN:

Douglas Stransky (Contact Author)

Sullivan & Worcester LLP ( email )

One Post Office Square
Boston, MA 02109
United States

Boston University Graduate Tax Program ( email )

765 Commonwealth Avenue
Suite 1670
Boston, MA 02215
United States

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