Whirlpool’s Subpart F Position Was Inconsistent With Congressional Intent

Abstract

The Whirlpool case involved a profit-shifting structure that utilized a Luxembourg CFC with a Mexican manufacturing branch (actually a disregarded entity subsidiary plus certain property owned by the CFC). Whirlpool’s tax reporting did not apply the branch rule. After an IRS adjustment to reflect application of the manufacturing branch rule (Reg section 1.954-3(b)(1)(ii)), both the Tax Court and the Sixth Circuit upheld the IRS findings.

Certain McDermott Will & Emery attorneys, who had been involved in assisting the National Association of Manufactures with their Amicus brief supporting Whirlpool’s petition for a writ of certiorari (denied in November 2022), claimed in an April 2023 article that the CFC’s income should not have been found to be subpart F income.

In short, I wrote this new article because of my concern about several matters in the MWE article’s discussion that they believe support their conclusion. These matters are either insufficiently discussed or do not cover issues that I believe should have been disclosed to interested readers. These matters include:

• The actual intent of Whirlpool’s structuring

• What sales activities took place and where they were performed

• Factual determination of the allocation of a CFC’s income between the portion allocable to the manufacturing branch and the portion allocable to the remainder of the CFC

• Need for more regulatory guidance

Keywords: Subpart F, Branch Rule, Manufacturing Branch Rule, Maquiladoras, International Taxation, Whirlpool, foreign base company sales income, FBCSI

JEL Classification: H21, H25, K34, E62