US vs Whirlpool, May 2020, US tax court, Case No. 13986-17

Category: General Anti-Avoidance Rules (GAAR), Tax Avoidance Schemes, Tax Planning (Aggressive) | Tag: , , , , , ,
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The US tax authorities had increased Whirlpool US’s taxable because income allocated to Whirlpool Luxembourg for selling appliances was considered taxable foreign base company sales income/CFC income to the parent company in the U.S. under “the manufacturing branch rule” under US tax code Section 951(a).

The income from sales of appliances had been allocated to Whirlpool Luxembourg  through a manufacturing and distribution arrangement under which it was the nominal manufacturer of household appliances made in Mexico, that were then sold to Whirlpool US and to Whirlpool Mexico. According to the arrangement the income allocated to Luxembourg was not taxable in Mexico nor in Luxembourg.

Whirlpool challenged IRS’s assessment and brought the case to the US Tax Court.

The tax court ruled in favor of the IRS.

“If Whirlpool Luxembourg had conducted its manufacturing operations in Mexico through a separate entity, its sales income would plainly have been FCBSI [foreign base company sales income] under section 954(d)(1),â€. The income should therefore be treated as FBCSI under the tax code, writing that “Section 954(d)(2) prevents petitioners from avoiding this result by arranging to conduct those operations through a branch.â€

 

Whirlpool-050520-TC-Opinion





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