(2) Deemed giving organization . The latest obtaining organization is going to be managed as acquiring for possessions the fresh new inventory off a corporation (deemed providing enterprise) subject to the fresh giving organization if, in connection with the acquisition to own property regarding inventory of your providing organization of the getting corporation, the issuing organization obtained inventory of your own considered giving company that have a primary reason for preventing the application of area 304 to the fresh considered issuing organization.
Example step 1 . (i) Activities . P, a residential corporation, completely owns CFC1, a managed international firm that have large obtained earnings and you will payouts. CFC1 was prepared within the Nation X, and therefore imposes a higher rate from taxation to your income out of CFC1. P together with entirely has CFC2, a controlled overseas organization which have gathered money and you will earnings out of $200x. CFC2 was structured into the Nation Y, hence imposes a reduced speed regarding tax to the earnings away from CFC2. P wants to own each one of its international providers inside the an effective direct chain and repatriate the money off CFC2. To avoid needing to obtain Country X acceptance to possess the purchase away from CFC1 (a nation X company) by the CFC2 (a nation Y company) and also to prevent the dividend shipping out of CFC2 to help you P one create result in the event the CFC2 were the newest obtaining corporation, P reasons CFC2 in order to create CFC3 in the Country X in order to lead $100x to CFC3.