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ada shall be deemed to be in a scheduled of this section shall not be considered an area other than Schedule B.

affiliated foreign national of a person (b) (1) A corporation or partnership within the United States if the operations referred to in paragraph (a) (1) of of such corporation, partnership or busithis section is an affiliated foreign na- ness venture consist solely of charitable, tional in the scheduled area in which the educational, religious, scientific, literary foreign country under whose laws it is or other similar activities not engaged organized is located. A business venture in for profit. referred to in paragraph (a) (2) and (d) Notwithstanding the provisions of (ili) of this section is an affiliated foreign paragraphs (a) and (b) of this section, national in the scheduled area in which a business venture referred to in parathe business is conducted: Provided, graph (a) (2) or (3) of this section That, if such a business venture is con- shall not be considered an affiliated ducted in more than one scheduled area foreign national of a person within the during any year, the scheduled area in United States during any year if (1) the which the business venture is conducted business venture does not have or infor the greatest period of time during volve, at any time during such year, gross such year shall, for purposes of this sec- assets of more than $50,000 (valued at tion, be deemed the only scheduled area the greatest of cost, book value, replacein which the business venture is con- ment value or market value); or (ii) the ducted during such year.

business venture is commenced during (2) The term “10 percent interest," such year and is not reasonably expected when used with respect to any corpora

to be conducted within one or more tion, partnership or business venture foreign countries for more than 12 conreferred to in paragraph (a) of this secutive months; or (iii) the business section, means (i) 10 percent or more of venture is terminated during such year the total combined voting power of all

and was not in fact conducted within one outstanding securities of such corpora

or more foreign countries for more than tion or (ii) 10 percent or more of the

12 consecutive months. profits interest in such partnership or 133 F.R. 11708, Aug. 17, 1968) business venture. Whether a person with

§ 1000.305 Direct investor. in the United States directly or indirectly owns a 10 percent interest in a corpora

The term "direct investor" means any tion, partnership or business venture person within the United States which referred to in paragraph (a) of this

directly or indirectly owns or acquires section shall be determined in accord- a 10-percent interest in a corporation ance with the provisions of $$ 1000.901 or partnership organized under the laws and 1000.902.

of a foreign country or in a business (3) For purposes of this part, the term venture conducted within foreign "incorporated affiliated foreign national”

country as described in § 1000.304. includes a corporation described in para- (33 F.R. 11708, Aug. 17, 1968) graph (a) (1) of this section and the

§ 1000.306 Positive and negative direct term “unincorporated affiliated foreign

investment. national” includes a partnership described in paragraph (a) (1) (i) of this

(a) Direct investment by a direct insection and a business venture described

vestor in all affiliated foreign nationals in paragraph (a) (2) and (3) of this

in any scheduled area during any period section.

means: (4) Notwithstanding the provisions of

(1) The net transfer of capital (as deparagraph (a) of this section and the

fined in $ 1000.313(c)) made during such foregoing provisions of this paragraph

period by the direct investor to all in(b), the Secretary retains full power,

corporated and unincorporated affiliated with respect to any person within the

foreign nationals in such scheduled area; United States, to determine that any

and person is an affiliated foreign national of (2) The direct investor's share in the such person within the United States and

total reinvested earnings of all incorpoto determine the scheduled area in which

rated affiliated foreign nationals in such such affiliated foreign national is located.

scheduled area during such period (com(c) Notwithstanding the provisions of

puted in accordance with paragraphs (b) paragraphs (a) and (b) of this section, a and (c) of this section). corporation, partnership or business (3) If the sum of subparagraphs (1) venture referred to in paragraph (a) and (2) of this paragraph is in excess of

a

zero, the direct investment during such tionals as a group. In computing such period shall be positive direct investment; total earnings and losses, there shall be if a negative amount, it shall be nega- excluded all dividends paid during such tive direct investment.

year to such affiliated foreign nationals (b) A direct investor's share in the by incorporated foreign nationals of the total reinvested earnings of all incor- direct investor in the same or other porated affiliated foreign nationals in scheduled areas and all earnings of uninany scheduled area during any period corporated affiliated foreign nationals of means the direct investor's share in the the direct investor in other scheduled total earnings or losses during such pe- areas. Earnings and losses shall be comriod of such incorporated affiliated for- puted without regard to U.S. taxes and eign nationals (computed in accordance foreign withholding taxes on the paywith paragraph (c) of this section) less ment of dividends. Earnings shall not be an amount (which may be positive or

reduced by application or provision by the negative) obtained by subtracting (1)

direct investor of reserves for devaluation the sum of (i) the direct investor's share or impairment of investment. Notwithof all dividends paid during such year

standing the foregoing, the Secretary to such affiliated foreign nationals by

shall have the right, generally or specifiincorporated affiliated foreign nationals

cally, in his discretion to disapprove any of the direct investor in other sched

such accounting principles determined by uled areas and (ii) the direct investor's

him to be inconsistent with the purposes share of all earnings remitted during

of this part and to prescribe such prinsuch year to such affiliated foreign na

ciples as he may deem appropriate to tionals by unincorporated affiliated for

carry out the purposes of this part. eign nationals of the direct investor in

(d) For purposes of this part: other scheduled areas from (2) the sum

(1) Earnings of an unincorporated of (x) all dividends paid during such

affiliated foreign national during any peyear by such affiliated foreign nationals

riod shall be deemed to have been remitto the direct investor and (y) the direct

ted to the extent that such earnings ex

ceed the net increase in the net assets of investor's share of all dividends paid during such year by such affiliated for

the unincorporated affiliated foreign naeign nationals to affiliated foreign na

tional during the period. tionals of the direct investor in other

(2) The term “dividends" means cash scheduled areas: Provided, That, in cal

dividends, whether paid out of current culating a direct investor's share in the

or accumulated earnings (other than

liquidating dividends). The amount of a total reinvested earnings of incorporated affiliated foreign nationals for any year

dividend paid shall be calculated before (including the years 1965 and 1966), a

deducting foreign withholding taxes. A

dividend shall be deemed to have been direct investor may elect, in such man

paid to a direct investor or an affiliated ner as the Secretary may determine, to

foreign national, as the case may be, treat dividends paid within 60 days after

when entered on the books of account of the end of the year as having been paid during such year.

the recipient as actually having been

paid in cash or as being subject to pay(c) Computations of earnings or losses of affiliated foreign nationals under this

ment upon demand, whichever first

occurs. section or any other provision of this part

(e) (1) There shall be deducted from shall (except as otherwise provided here

positive direct investment in a scheduled in) be made in accordance with account

area during any year, as calculated under ing principles generally accepted in the United States and consistently applied;

paragraph (a) of this section, an amount to the extent such principles are re

equal to any available proceeds (as de

fined in $ 1000.324(d)) allocated by the flected in reports to stockholders, the

direct investor to such positive direct incomputation shall follow the principles

vestment for such year. Available proused in preparing such reports. The earn- ceeds shall be allocated to such positive ings or loss of each incorporated affiliated direct investment for such year if (i) an foreign national in that scheduled area entry is made in the books and records area shall be added to the earnings or maintained by the direct investor under loss of every other incorporated affiliated $ $ 1000.203(b) and 1000.601; (ii) the alforeign national in that scheduled area location and deduction is reported on in order to determine the total earnings the next annual report of the direct inor losses of such affiliated foreign na- vestor (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 availabie 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. 133 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] $ 1000.308 Transfer.

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 in. vestor 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 transaction or occurrence as a result of or in connection with which the direct investor directly or indirectly acquires or increases a debt or equity interest in the affiliated foreign national or the affiliated foreign national directly or indirectly disposes of or reduces a debt or equity interest in the direct investor held by the affiliated foreign national. Such transfers of capital shall include, but not by way of limitation:

(1) The acquisition by the direct investor of an equity interest in or debt obligation of an affiliated foreign national (including the acquisition of an equity interest in or a debt obligation of a foreign national as a result of which the foreign national becomes an affiliated foreign national of the direct investor).

(2) A contribution by the direct investor to the capital of the affiliated foreign national.

(3) The complete or partial satisfaction by the direct investor of a debt obligation of the direct investor held by the affiliated foreign national.

(4) The reduction of an equity interest in the direct investor held by the affiliated foreign national (as the result of a redemption of stock, liquidating dividend, or like transaction).

(5) A transfer by the affiliated foreign national of an equity interest in or debt obligation of the direct investor held by the affiliated foreign national.

(6) The complete or partial satisfaction by the direct investor of a debt obligation of an affiliated foreign national, whether or not such debt obligation was guaranteed or assumed by the direct investor.

(7) The complete or partial satisfaction by a direct investor of a long-term foreign borrowing made by the direct investor before or after the effective date of the regulations to the extent the proceeds of the borrowing were expended in making transfers of capital on or after January 1, 1965, or were allocated by the direct investor (on the books and records maintained by the direct investor under $ $ 1000.203(b) and 1000.601) to positive direct investment. A transfer of capital resulting from the repayment of a borrowing by a direct investor shall be deemed to have been made to the scheduled area in which such proceeds were expended or to which they were allocated at the time of such repayment and with

respect to which a deduction was made under $ 1000.203(d) (2), $ 1000.203(d) (3), $ 1000.306(e), or $ 1000.313(d) (1); or if deductions were made in two or more scheduled areas with respect to such repaid borrowing, the transfer shall be apportioned among such scheduled areas in the same proportions as the amount of such deductions in each such scheduled area. If any apportionment made by a direct investor hereunder is determined by the Secretary to be inconsistent with the purposes of this part, the Secretary shall have the right, in his discretion, to make an apportionment consistent with the purposes of this part.

(8) A lease of property by a direct investor to an affiliated foreign national, if the property has a remaining useful life when leased of a year or more and is not required or expected to be returned to the direct investor in less than one year.

(9) A pledge, hypothecation or other transfer by a direct investor of foreign balances (as defined in § 1000.203(a) (1)) or equity securities of a foreign corporation owned by the direct investor (other than equity securities of an affiliated foreign national of the direct investor), which pledge, hypothecation or other transfer is made by the direct investor to or with a foreign national, on or after the effective date of the regulations, pursuant to an express or implied agreement with the foreign national whereby the foreign national transfers or agrees to transfer funds or other property, as a loan or otherwise, to an affiliated foreign national of the direct investor or to the direct investor itself for investment in such an affiliated foreign national: Provided, That this subparagraph shall not apply to a pledge, hypothecation or other transfer by a direct investor to a foreign national in connection with a borrowing by the direct investor for investment in an affiliated foreign national, if the borrowing is not a long-term foreign borrowing (as defined in § 1000.324 (a)).

(b) Transfers of capital by afiliated foreign nationals. Except as otherwise provided in paragraph (c) of this section, a transfer of capital by an affiliated foreign national to a direct investor in such affiliated foreign national means any of the following transactions or occurrences as a result of or in connection with which the aifiliated foreign na

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tional directly or indirectly acquires or increases a debt or equity interest in the direct investor or the direct investor directly or indirectly disposes of or reduces a debt or equity interest in the affiliated foreign national held by the direct investor:

(1) The acquisition by an affiliated foreign national of an equity interest in or debt obligation of the direct investor.

(2) A contribution by an affiliated foreign national to the capital of the direct investor.

(3) The complete or partial satisfaction by an affiliated foreign national of a debt obligation of the affiliated foreign national held by the direct investor.

(4) The reduction of an equity interest in an affiliated foreign national held by the direct investor (as the result of a redemption of stock, liquidating dividend, or like transaction):

(5) A transfer by the direct investor of an equity interest in or debt obligation of an affiliated foreign national held by the direct investor.

(6) The complete or partial satisfaction by an affiliated foreign national of a debt obligation of the direct investor, whether or not such debt obligation was guaranteed or assumed by the affiliated foreign national.

(c) Transactions not involving transfer of capital. Notwithstanding the provisions of paragraphs (a) and (b) of this section, the following shall not be deemed transfers of capital:

(1) (i) An acquisition by a direct investor described in paragraph (a) (1) of this section if the acquisition is from a person within the United States acting for its own account and such person was, immediately prior to the acquisition, a direct investor in the affiliated foreign national. If the acquisition is of an equity interest and the acquiring and divesting direct investors each file Form FDI-107 on or before the end of the month following the close of the calendar quarter during which the acquisition occurs, direct investment made by the divesting direct investor in 1965, 1966, and the year of the acquisition that corresponds to the interest transferred shall be deemed to have been made by the acquiring direct investor (except that the provisions of $$1000.203(d) (2) and (3), 1000.306(e) (1) and 1000.313(d) (1) shall be disregarded in calculating such direct investment unless the acquiring direct investor shall have assumed the obligation to re

pay long-term foreign borrowing in con, nection with which deductions under such sections were made), and annual earnings (as defined in § 1000.504(b) (4)) in 1966, 1967, and the year immediately preceding the year of acquisition that correspond to the interest transferred shall be attributed to the acquiring direct investor.

(ii) A transfer of capital shall not be deemed to occur in connection with or as the result of any combination (by merger, consolidation, reorganization otherwise) of two or more direct investors. The surviving direct investor shall file Form FDI-107 on or before the end of the month following the close of the calendar quarter during which the combination occurs. The aggregate amount of direct investment made and liquid foreign balances held by each of the direct investors involved in the combination in 1965, 1966, and the year in which the combination occurs shall be deemed to have been made or held by the surviving direct investor, and the aggregate amount of annual earnings (as defined in $ 1000.504(b) (4)) of each of the direct investors involved in the combination in 1966, 1967, and the year immediately preceding the year in which the combination occurs shall be attributed to the surviving direct investor.

(2) A transfer described in paragraph (a) (5) of this section unless (i) the transferee is the direct investor or (ii) the transferor or transferee is an affiliated foreign national which is an affiliate of the direct investor as defined in § 1000.903(a).

(3) An acquisition by an affiliated for eign national described in paragraph (b) (1) of this section unless the acquisition is from the direct investor.

(4) A transfer described in paragraph (b) (5) of this section unless the transfer is made (i) to a foreign national or (ii) to a bank or other financial institution certified as subject to the Federal Reserve Board Foreign Credit Restraint Program and the transfer is charged against the ceiling of such bank or institution under such Program: Provided, That, if the transfer is of a debt obligation and does. not constitute a transfer of capital because of the preceding sentence, the repayment by the affiliated foreign national of such debt obligation to a person within the United States shall be deemed a. transfer of capital by the affiliated foreign national.

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