eral Reserve Foreign Credit Restraint Program, or to any program instituted by the Board under section 2 of Executive Order 11387.

(c) Nothing contained in this part shall be construed to limit the right of a person within the United States to make a bona fide transfer of capital or earnings in the ordinary course of business to a foreign national in respect of an interest in such person held by such foreign national.

(d) In addition to all other powers reserved to the Secretary in this part, the Secretary may in his discretion, as to any direct investor, amend or revoke the

authorizations set forth in this part by reducing the amount of positive direct investment, positive net transfers of capital and reinvestment of earnings authorized in any scheduled area during a year, by limiting the application of such authorizations and exemptions and of § 1000.201 from "during any year" to periods shorter than a year, and by otherwise imposing such conditions as the Secretary shall deem appropriate to carry out the purposes of this part. In exercising his discretion with respect to any direct investor, the Secretary may consider, among other factors, the following:

(1) Whether the positive direct investment, positive net transfers of capital or reinvestment of earnings by such direct investor in any scheduled area during any quarter is, or may reasonably be estimated to be, materially in excess of 25 percent of the amount thereof generally authorized to such direct investor during the year;

(2) Whether the transactions resulting in such excess during such quarter are in accordance with the customary business practices of the direct investor; and

(3) Whether the direct investor has complied with the provisions of Subpart F of this part.

[33 F.R. 8659, June 13, 1968, as amended at 33 F.R. 11070, Aug. 17, 1968; 34 F.R. 9067, June 7, 1969]

deposits of such a bank, negotiable instruments, nonnegotiable instruments acquired after June 30, 1968 and commercial paper of an unaffiliated foreign national (other than negotiable instruments, nonnegotiable instruments or commercial paper arising from the export by the direct investor of goods or services from the United States to foreign nationals) and securities issued or guaranteed by a foreign country.

(2) The term "liquid foreign balances" means foreign balances (as defined in subparagraph (1) of this paragraph) other than (i) those negotiable instruments, nonnegotiable instruments, commercial paper and securities which are acquired on or before June 30, 1968, and which are not redeemable at the option of the direct investor and are not transferable and readily marketable; (ii) bank deposits, negotiable instruments, nonnegotiable instruments, commercial paper and securities with a period of more than 1 year remaining to maturity when acquired by the direct investor and which are not redeemable in full at the option of the direct investor within a period of 1 year after such acquisition; (iii) foreign balances which are subject to restrictions of a foreign country on liquidation and transfer; and (iv) foreign balances which have been pledged or hypothecated in connection with borrowings by a direct investor or its affiliated foreign nationals.

(3) [Reserved]

(4) Foreign balances shall be deemed to be held by a direct investor if title to such balances is held (i) by any person (including an affiliated foreign national of the direct investor) principally formed or availed of for the purpose of holding title to such balances; or (ii) by any person (including an affiliated foreign national of the direct investor), if such balances are returnable to the direct investor on its demand without material conditions and if the holding of such balances is unrelated to the business needs of such person.

(5) Negotiable instruments, non-negotiable instruments, commercial paper and securities constituting foreign balances shall be valued at their respective fair market values or, if evidence of fair market value is not readily available, at the cost to the direct investor.

(b) Each direct investor shall maintain books and records that identify separately all proceeds of long-term foreign

borrowing received with respect to each long-term foreign borrowing made by the direct investor and the uses to which such proceeds have been put.

(c) Except as provided in paragraph (e) (1) of this section or as permitted by the Secretary by means of authorizations, exemptions or otherwise, each direct investor is hereby required, on or before June 30, 1968, to reduce the amount of liquid foreign balances (other than available proceeds, as defined in § 1000.324 (d), held in the form of liquid foreign balances) held by such direct investor to an amount not in excess of the average end-of-month amounts of such balances held by such direct investor during 1965 and 1966 (whether or not a direct investor at that time); and, thereafter, to limit the amount of such balances held by such direct investor at the end of any month to such reduced amount.

(d) (1) Except as provided in paragraph (e) (2) of this section, or as permitted by the Secretary by means of authorizations, exemptions or otherwise, a direct investor which holds available proceeds, as defined in § 1000.324(d), in the form of foreign balances or in the form of securities (including debt obligations, equity interests and any other type of investment contract) of foreign nationals or in the form of any other foreign property as of the end of any year commencing with the year 1969 shall be prohibited from making a positive net transfer of capital to any scheduled area for such year, but only to the extent such positive net transfer of capital results in positive direct investment in such scheduled area for such year that is not authorized by § 1000.1002: Provided, That this subparagraph shall not apply to a direct investor which elects to be governed by § 1000.503 for such year: And provided further, That for purposes of this subparagraph, allocations to positive direct investment under § 1000.306 (e) or subparagraph (2) of this paragraph and reallocations under subparagraph (3) of this paragraph shall be deemed to reduce any positive net transfer of capital to a scheduled area and thereafter to reduce any reinvested earnings in such scheduled

area.

(2) A direct investor which, during 1968 or any succeeding year, expends proceeds of long-term foreign borrowing and makes a deduction from net transfer of capital to a scheduled area under

§ 1000.313 (d) (1), may thereafter deduct, during 1969 or any succeeding year, from positive direct investment in a different scheduled area, an amount equal to all or a part of such expended proceeds as are allocated pursuant to this subparagraph. Proceeds shall be allocated in a different scheduled area pursuant to this subparagraph if (i) an entry is made in the books and records maintained by the direct investor under paragraph (b) of this section and § 1000.601; (ii) the allocation and the deduction from positive direct investment in a different scheduled area are reported on the next annual report of the direct investor (Form FDI-102F) filed for the year for which the deduction is made; and (iii) the proceeds with respect to which such deduction is made, as of the end of the year for which the deduction is made and thereafter, are not held, directly or indirectly, in the form of foreign balances or in the form of securities (including debt obligations, equity interests and any other type of investment contract) of foreign nationals or in the form of any other foreign property: Provided, That such proceeds may remain expended in an affiliated foreign national or again be expended at any time in making transfers of capital to affiliated foreign nationals, but if so again expended, §1000.313 (d) (1) shall not apply. The direct investor shall be deemed at the time of such deduction from positive direct investment in a different scheduled area to have made a transfer of capital equal to the amount of such deduction to the scheduled area in which the deduction from net transfer of capital under § 1000.313 (d) (1) was previously made. The direct investor may thereafter continue to change the scheduled area in which a deduction from positive direct investment is made, up to the amount of proceeds of long-term foreign borrowing expended in making the original transfer of capital for which a deduction under § 1000.313 (d) (1) was made: Provided, That each time such change occurs, the direct investor shall be deemed to have made a transfer of capital to the immediately previous scheduled area in the amount of the deduction from positive direct investment in the subsequent scheduled area.

(3) A direct investor which, during 1968 or any succeeding year, allocates proceeds of long-term foreign borrowing and deducts the amount of such proceeds from positive direct investment in a

scheduled area under § 1000.306 (e), may, during 1969 or any succeeding year, reallocate all or part of such proceeds of long-term foreign borrowing to positive direct investment in another scheduled area. The direct investor which makes a reallocation under this subparagraph (3) shall be deemed at the time of such reallocation to have made a transfer of capital equal to the amount so reallocated to the scheduled area in which the proceeds of long-term foreign borrowing were allocated immediately prior thereto. The direct investor may thereafter continue to reallocate to different scheduled areas, up to the amount of proceeds of long-term foreign borrowing previously allocated: Provided, That each time such reallocation occurs, the direct investor shall be deemed to have made a transfer of capital equal to the amount so reallocated to the scheduled area to which the proceeds of long-term foreign borrowing were allocated or reallocated or immediately prior to such reallocation.

(e) (1) Commencing with July 1, 1969, a direct investor which, as of the end of any month, has total liquid foreign balances (other than available proceeds held in the form of liquid foreign balances) not exceeding $25,000, shall not be subject to the provisions of paragraph (c) of this section with respect to such month.

(2) A direct investor which, as of the end of any year, holds available proceeds in the form described in paragraph (d) (1) of this section in an aggregate amount not in excess of $25,000, shall not be subject to the provisions of paragraph (d) (1) with respect to such year. [33 F.R. 8660, June 13, 1968, as amended at 33 F.R. 11271, Aug. 8, 1968; 34 F.R. 12175, July 23, 1969]

Anything in this part to the contrary notwithstanding, any transaction for the purpose of, or which has the effect of, evading or avoiding any of the provisions set forth in this part may be disregarded in whole or in part for purposes of measuring compliance with the provisions of this part.

[33 F.R. 50, Jan. 3, 1968]

Subpart C-General Definitions

§ 1000.301 Foreign country.

The term "foreign country" includes, but not by way of limitation:

(a) The state and the government of

any foreign country as well as any political subdivision, agency, or instrumentality thereof or any territory, dependency, colony, protectorate, mandate, dominion, possession or place subject to the jurisdiction thereof.

(b) Any other government (including any political subdivision, agency, or instrumentality thereof) to the extent and only to the extent that such government exercises or claims to exercise control, authority, jurisdiction or sovereignty over territory which constitutes such foreign country.

(c) Any person to the extent that such person is, or to the extent that there is reasonable cause to believe that such person is, acting or purporting to act directly or indirectly for the benefit or on behalf of any of the foregoing.

(d) Any territory which is controlled or occupied by the military, naval or police forces or other authority of a foreign country.

[33 F.R. 50, Jan. 3, 1968]

§ 1000.302 Foreign national.

(a) The term "foreign national" means a foreign country (as defined in § 1000.301 (a), (b), and (c)) and any person which is not a person within the United States (as defined in § 1000.322), including a corporation or partnership organized under the laws of a foreign country (as defined in § 1000.304 (a) (1) (i)), a business venture conducted within a foreign country (as defined in § 1000.304 (a) (1) (ii) and (iii)), and a foreign bank (as defined in § 1000.317 (b)).

(b) Notwithstanding the provisions of paragraph (a) of this section, the Secretary retains full power to determine that any person is a foreign national. [33 F.R. 11708, Aug. 17, 1968]

§ 1000.304 Affiliated foreign national.

(a) Except as provided in paragraphs (b)(4) (c), and (d) of this section, the term "affiliated foreign national" of a person within the United States includes each of the following in which such person owns, directly or indirectly, a 10percent interest:

(1) A corporation or partnership organized under the laws of a foreign country (including all business ventures conducted by employees or partners of such corporation or partnership on behalf of such corporation or partnership

within any foreign countries assigned to the same scheduled area as the country of organization);

(2) A business venture conducted within a foreign country on behalf of such person within the United States by such person or by employees or partners of such person; and

(3) A business venture conducted on behalf of a corporation or partnership organized under the laws of a foreign country by employees or partners of such corporation or partnership if the business venture is conducted within a foreign country which is not assigned to the same scheduled area as the country of organization.

For purposes of determining whether a business venture conducted on behalf of a foreign corporation or partnership is a separate affiliated foreign nationai, Canada shall be deemed to be in a scheduled area other than Schedule B.

(b) (1) A corporation or partnership referred to in paragraph (a)(1) of this section is an affiliated foreign national in the scheduled area in which the foreign country under whose laws it is organized is located. A business venture referred to in paragraph (a)(2) and (iii) of this section is an affiliated foreign national in the scheduled area in which the business is conducted: Provided, That, if such a business venture is conducted in more than one scheduled area during any year, the scheduled area in which the business venture is conducted for the greatest period of time during such year shall, for purposes of this section, be deemed the only scheduled area in which the business venture is conducted during such year.

(2) The term "10 percent interest," when used with respect to any corporation, partnership or business venture referred to in paragraph (a) of this section, means (i) 10 percent or more of the total combined voting power of all outstanding securities of such corporation or (ii) 10 percent or more of the profits interest in such partnership or business venture. Whether a person within the United States directly or indirectly owns a 10 percent interest in a corporation, partnership or business venture referred to in paragraph (a) of this section shall be determined in accordance with the provisions of §§ 1000.901 and 1000.902.

(3) For purposes of this part, the term "incorporated affiliated foreign national" includes a corporation described in paragraph (a)(1) of this section and the term "unincorporated affiliated foreign national" includes a partnership described in paragraph (a) (1) (i) of this section and a business venture described in paragraph (a) (2) and (3) of this section.

(4) Notwithstanding the provisions of paragraph (a) of this section and the foregoing provisions of this paragraph (b), the Secretary retains full power, with respect to any person within the United States, to determine that any person is an affiliated foreign national of such person within the United States and to determine the scheduled area in which such affiliated foreign national is located.

or

(c) Notwithstanding the provisions of paragraphs (a) and (b) of this section, a corporation, partnership business venture referred to in paragraph (a) of this section shall not be considered an affiliated foreign national of a person within the United States if the operations of such corporation, partnership or business venture consist solely of charitable, educational, religious, scientific, literary or other similar activities not engaged in for profit.

(d) Notwithstanding the provisions of paragraphs (a) and (b) of this section, a business venture referred to in paragraph (a) (2) or (3) of this section shall not be considered an affiliated foreign national of a person within the United States during any year if (i) the business venture does not have or involve, at any time during such year, gross assets of more than $50,000 (valued at the greatest of cost, book value, replacement value or market value); or (ii) the business venture is commenced during such year and is not reasonably expected to be conducted within one or more foreign countries for more than 12 consecutive months; or (iii) the business venture is terminated during such year and was not in fact conducted within one or more foreign countries for more than 12 consecutive months.

[33 F.R. 11708, Aug. 17, 1968]

§ 1000.305 Direct investor.

The term "direct investor" means any person within the United States which directly or indirectly owns or acquires a 10-percent interest in a corporation

(a) Direct investment by a direct investor in all affiliated foreign nationals in any scheduled area during any period means:

(1) The net transfer of capital (as defined in § 1000.313(c)) made during such period by the direct investor to all incorporated and unincorporated affiliated foreign nationals in such scheduled area; and

(2) The direct investor's share in the total reinvested earnings of all incorporated affiliated foreign nationals in such scheduled area during such period (computed in accordance with paragraphs (b) and (c) of this section).

(3) If the sum of subparagraphs (1) and (2) of this paragraph is in excess of zero, the direct investment during such period shall be positive direct investment; if a negative amount, it shall be negative direct investment.

(b) A direct investor's share in the total reinvested earnings of all incorporated affiliated foreign nationals in any scheduled area during any period means the direct investor's share in the total earnings or losses during such period of such incorporated affiliated foreign nationals (computed in accordance with paragraph (c) of this section) less an amount (which may be positive or negative) obtained by subtracting (1) the sum of (i) the direct investor's share of all dividends paid during such year to such affiliated foreign nationals by incorporated affiliated foreign nationals of the direct investor in other scheduled areas and (ii) the direct investor's share of all earnings remitted during such year to such affiliated foreign nationals by unincorporated affiliated foreign nationals of the direct investor in other scheduled areas from (2) the sum of (x) all dividends paid during such year by such affiliated foreign nationals to the direct investor and (y) the direct investor's share of all dividends paid during such year by such affiliated foreign nationals to affiliated foreign nationals of the direct investor in other scheduled areas: Provided, That, in calculating a direct in

vestor's share in the total reinvested earnings of incorporated affiliated foreign nationals for any year (including the years 1964, 1965, and 1966), a direct investor may elect, in such manner as the Secretary may determine, to treat dividends paid within 60 days after the end of the year as having been paid during such year.

(c) Computations of earnings or losses of affiliated foreign nationals under this section or any other provision of this part shall (except as otherwise provided herein) be made in accordance with accounting principles generally accepted in the United States and consistently applied; to the extent such principles are reflected in reports to stockholders, the computation shall follow the principles used in preparing such reports. The earnings or loss of each incorporated affiliated foreign national in that scheduled area area shall be added to the earnings or loss of every other incorporated affiliated foreign national in that scheduled area in order to determine the total earnings or losses of such affiliated foreign nationals as a group. In computing such total earnings and losses, there shall be excluded all dividends paid during such year to such affiliated foreign nationals by incorporated foreign nationals of the direct investor in the same or other scheduled areas and all earnings of unincorporated affiliated foreign nationals of the direct investor in other scheduled areas. Earnings and losses shall be computed without regard to U.S. taxes and foreign withholding taxes on the payment of dividends. Earnings shall not be reduced by application or provision by the direct investor of reserves for devaluation or impairment of investment. Notwithstanding the foregoing, the Secretary shall have the right, generally or specifically, in his discretion to disapprove any such accounting principles determined by him to be inconsistent with the purposes of this part and to prescribe such principles as he may deem appropriate to carry out the purposes of this part.

(d) For purposes of this part:

(1) Earnings of an unincorporated affiliated foreign national during any period shall be deemed to have been remitted to the extent that such earnings exceed the net increase in the net assets of the unincorporated affiliated foreign national during the period.

(2) The term "dividends" means cash dividends, whether paid out of current