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) Each direct investor is hereby required to limit the amount of liquid foreign balances held at the end of any month (other than those that are Canadian foreign balances, as defined in § 1000.1105 (a), or are available proceeds, as defined in § 1000.324 (d) to the greater of (1) 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) or (2) $100,000.

(d) (1) A direct investor which holds available proceeds, as defined in § 1000.324 (d), in excess of $100,000 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 1971 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 for such year by § 1000.503 or § 1000.507: 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.

[33 F.R. 8660, June 13, 1968, as amended at 33 F.R. 11271, Aug. 8, 1968; 34 F.R. 12175, July 23, 1969; 35 F.R. 7225, May 7, 1970; 36 F.R. 975, Jan. 21, 1971]

§ 1000.204 Evasion.

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) [Reserved]

(d) Any territory which is controlled or occupied by the military, naval or

(a) The term "foreign national" means a foreign country (as defined in § 1000.301) 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, as amended at 35 F.R. 7225, May 7, 1970]

§ 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 national, Can

ada 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.

(c) Notwithstanding the provisions of paragraphs (a) and (b) of this section, a corporation, partnership or 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 (1) 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 or partnership organized under the laws of a foreign country or in a business venture conducted within a foreign country as described in § 1000.304. [33 F.R. 11708, Aug. 17, 1968]

§ 1000.306 Positive and negative direct investment.

(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 investor's share in the total reinvested earnings of incorporated affiliated foreign nationals for any year (including the years 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 na

tionals 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 purposesof 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 ex-ceed 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 or accumulated earnings (other than liquidating dividends). The amount of a dividend paid shall be calculated before deducting foreign withholding taxes. A dividend shall be deemed to have been paid to a direct investor or an affiliated foreign national, as the case may be, when entered on the books of account of the recipient as actually having been paid in cash or as being subject to payment upon demand, whichever first

occurs.

(e) (1) There shall be deducted from positive direct investment in a scheduled area during any year, as calculated under paragraph (a) of this section, an amount equal to any available proceeds (as defined in § 1000.324(d)) allocated by the direct investor to such positive direct investment for such year. Available proceeds shall be allocated to such positive direct investment for such year if (i) an entry is made in the books and records maintained by the direct investor under §§ 1000.203 (b) and 1000.601; (ii) the allocation and deduction is 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, as of the end of the year for which the deduction is made, 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.

(2) A direct investor which allocates available proceeds as provided in subparagraph (1) of this paragraph is prohibited from thereafter holding such proceeds in any form prohibited by subdivision (iii) of that subparagraph: Provided, That such proceeds may thereafter be expended in making transfers of capital to affiliated foreign nationals, but if so expended, § 1000.313 (d) (1) shall not apply.

(3) A deduction made pursuant to subparagraph (1) of this paragraph from positive direct investment in all scheduled areas by a direct investor electing to be governed by § 1000.503 for any year, commencing with the year 1969, shall be deemed to have been made in each scheduled area in the same proportions as the amount of positive direct investment (calculated as provided in paragraph (a) of this section and, in the case of positive direct investment in the year 1969, disregarding each scheduled area's proportionate share of aggregate annual losses, as defined in § 1000.503(b) in effect for the year 1969) in such scheduled area during such year. A deduction made pursuant to subparagraph (1) of this paragraph or § 1000.203 (d) (2) or (3) from positive direct investment in Schedules B and C by a direct investor electing to be governed by § 1000.507 for any year, commencing with the year 1970, shall be deemed to have been made in each such scheduled area in the same proportions as the amount of positive direct investment (calculated as provided in paragraph (a) of this section) made by the direct investor in such scheduled area during such year. The Secretary may, upon application pursuant to § 1000.801, permit a direct investor to apportion such deductions in some other manner reasonably reflecting the direct investor's interests in each scheduled area during such year.

[33 F.R. 8660, June 13, 1968, as amended at 34 F.R. 12176, July 23, 1969; 35 F.R. 7225, May 7, 1970; 36 F.R. 9506, May 26, 1971]

§ 1000.307

Person; corporation.

(a) The term "person" means an individual, corporation, partnership, business venture, trust, or estate.

(b) The term "corporation” means an organization or entity incorporated under the laws of the United States or a foreign country and any other organization or entity not so incorporated but which is organized under the laws of the United States or a foreign country and has all or a substantial part of the legal characteristics commonly attributed to corporations under the laws of the United States.

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

The term "transfer" means any act or transaction, whether or not evidenced by writing and whether or not done or performed within the United States, the purpose, intent, or effect of which is to create, surrender, release, transfer, or alter, directly or indirectly, any right, remedy, power, privilege, or interest with respect to any property wherever located.

[33 F.R. 11708, Aug. 17, 1968] § 1000.309

Property, property interest.

The terms "property" and "property interest" include any property, real, personal, or mixed, tangible or intangible (including the value of services performed), or interest or interests therein, present, future or contingent.

[33 F.R. 8661, June 13, 1968] § 1000.310 Interest.

The term "interest" when used with respect to property shall mean an interest of any nature whatsoever, direct or indirect.

[33 F.R. 51, Jan. 3, 1968] § 1000.311

[Reserved]

§ 1000.312 Transfers of capital.

(a) Transfers of capital by direct investor. Except as otherwise provided in paragraph (c) of this section, a transfer of capital by a direct investor to an affiliated foreign national means any transfer of funds or other property by or on behalf or for the benefit of a direct investor directly or indirectly to or on behalf or for the benefit of an affiliated foreign national (including a transfer described in § 1000.505); and any trans