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I.R.S. Rulings on Manufacturing Branch Rule


Late last year the I.R.S. published PLR 200942034 and PLR 200945036.  Both of these private letter rulings deal with the manufacturing branch rules of Code § 954(d)(2) and Treas. Reg. § 1.954-3(b).  The rulings provide useful insights regarding how the actual effective tax rate and the hypothetical effective tax rate should be measured.

The effective tax rates are computed by considering deductions available under local law.  Consequently, deductions as interest on net equity for local law purposes are considered when calculating the hypothetical rate of tax.  The rulings emphasize that only income taxes are considered.  They also specify that the hypothetical calculation is an annual event, and may only account for items arising during that year.

Today we posted charts of PLR 200942034 and PLR 200945036 on our sister website,

Andrew Mitchel has extensive experience in applying the Code § 954(d)(2) branch rules for large multinationals and in calculating the effective tax rates to determine whether a tax rate disparity exists.

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