SEC. H SPECIAL RULES answer change if all of the shares of Southcal were owned by residents of Belgium? 2. Labelle, a French corporation, is engaged in the cosmetic business in France and the United States. The U.S. business is conducted through a branch. During each of the preceding four years, 35 percent of the gross income of Labelle was effectively connected with its U.S. business. If Labelle pays a dividend to its sole shareholder, a French holding company, is there any basis for characterizing all or a portion as U.S.-source income? 3. Galaxy, a U.S. corporation engaged in the engineering business, performed services under a contract with a Canadian corporation. The erm ployee of Galaxy who performed the services spent 25 working days in Canada and 50 working days in the United States. Because the work in the United States was largely routine supervision of drafting of plans while the work in and presence above the Arctic Circle, Galaxy charged $50,000 for the work in Canada and $50,000 for the work in the United States. Assume that Galaxy would like to maximize the amount of income treated as foreign-source because the income will be exempt from Canadian tax, and Galaxy has other income that generates exces foreign tax credits (see 1 5230). How much of the gross income for services can Galaxy treat as foreign-source gross income? 4. Cosmos, a U.S. corporation engaged in the manufacture, sale and leasing of computer equipment, has a Paris branch office engaged in market ing its computers in Europe. The Paris branch leases a computer to the Paris branch office of a German company. What is the source of the rental income? Bolivar, a Panamanian corporation, owns a U.S. patent. Bolivar grants a nonexclusive license under the patent to Trimingham, a Bermuda corporation, in exchange for a royalty equal to three percent of the net sales by Trimingham of products incorporating the patented invention. What is the source of the royalty paid by Trimingham to Bolivar? 6. Suncare, a wholly owned U.S. sales subsidiary of Soin de Soleil, a French corporation, purchases a variety of skin care products from unrelated U.S. suppliers and sells them at a profit to unrelated distributors in Europe Suncare also manufactures cosmetics in the United States and sells them to unrelated distributors in Europe. Finally, Suncare purchases a computer from an unrelated U.S. supplier and resells it at a profit to Soin de Soleil, which will use the computer in its treasurer's office in Paris. Title on all of the sales passes from Suncare to the purchaser at the international airport in France when the goods arrive. What is the source of the income realized by Sund rom these transactions? 7. Fabulous, a U.S. corporation, sells all of its rights to a German patent to Erfurt A.G. (Erfurt), a German corporation, for $1 million, payable in ten equal annual installments with interest at ten percent on the deferred payments. Title is passed to Erfurt in Germany. The patent had an original cost basis of $400,000 and had been subject to total amortization adjustments of $200,000, all of which had been deducted in calculating German-source 112215 SEC. H SPECIAL RULES answer change if all of the shares of Southcal were owned by residents of Belgium? 2. Labelle, a French corporation, is engaged in the cosmetic business in France and the United States. The U.S. business is conducted through a branch. During each of the preceding four years, 35 percent of the gross income of Labelle was effectively connected with its U.S. business. If Labelle pays a dividend to its sole shareholder, a French holding company, is there any basis for characterizing all or a portion as U.S.-source income? 3. Galaxy, a U.S. corporation engaged in the engineering business, performed services under a contract with a Canadian corporation. The erm ployee of Galaxy who performed the services spent 25 working days in Canada and 50 working days in the United States. Because the work in the United States was largely routine supervision of drafting of plans while the work in and presence above the Arctic Circle, Galaxy charged $50,000 for the work in Canada and $50,000 for the work in the United States. Assume that Galaxy would like to maximize the amount of income treated as foreign-source because the income will be exempt from Canadian tax, and Galaxy has other income that generates exces foreign tax credits (see 1 5230). How much of the gross income for services can Galaxy treat as foreign-source gross income? 4. Cosmos, a U.S. corporation engaged in the manufacture, sale and leasing of computer equipment, has a Paris branch office engaged in market ing its computers in Europe. The Paris branch leases a computer to the Paris branch office of a German company. What is the source of the rental income? Bolivar, a Panamanian corporation, owns a U.S. patent. Bolivar grants a nonexclusive license under the patent to Trimingham, a Bermuda corporation, in exchange for a royalty equal to three percent of the net sales by Trimingham of products incorporating the patented invention. What is the source of the royalty paid by Trimingham to Bolivar? 6. Suncare, a wholly owned U.S. sales subsidiary of Soin de Soleil, a French corporation, purchases a variety of skin care products from unrelated U.S. suppliers and sells them at a profit to unrelated distributors in Europe Suncare also manufactures cosmetics in the United States and sells them to unrelated distributors in Europe. Finally, Suncare purchases a computer from an unrelated U.S. supplier and resells it at a profit to Soin de Soleil, which will use the computer in its treasurer's office in Paris. Title on all of the sales passes from Suncare to the purchaser at the international airport in France when the goods arrive. What is the source of the income realized by Sund rom these transactions? 7. Fabulous, a U.S. corporation, sells all of its rights to a German patent to Erfurt A.G. (Erfurt), a German corporation, for $1 million, payable in ten equal annual installments with interest at ten percent on the deferred payments. Title is passed to Erfurt in Germany. The patent had an original cost basis of $400,000 and had been subject to total amortization adjustments of $200,000, all of which had been deducted in calculating German-source 112215