§ 520.105 - Control of a domestic enterprise by a Swedish enterprise.

Article III of the convention provides that if a Swedish enterprise by reason of its control of a domestic business imposes conditions different from those which would result from normal bargaining between independent enterprises, the accounts between the enterprises will be adjusted so as to ascertain the true net income of the domestic enterprises. The purpose is to place the controlled domestic enterprise on a tax parity with an uncontrolled domestic enterprise by determining, according to the standard of an uncontrolled enterprise, the true net income from the property and business of the controlled enterprise. The convention contemplates that if the accounting records do not truly reflect the net income from the property and business of such domestic enterprise the Commissioner shall intervene and, by making such distributions, apportionments or allocations as he may deem necessary of gross income or deductions or of any item or element affecting net income as between such domestic enterprise and the Swedish enterprise by which it is controlled or directed, determine the true net income of the domestic enterprise. The provisions of Regulations 103 (26 CFR 1938 ed. Supps. 19.45-1), [Regulations 111 (26 CFR 1949 ed. Supps. 29.45-1) and Regulations 118 (§ 39.45-1, 26 CFR, Rev. 1953, Parts 1-79, and Supps.)] shall, insofar as applicable, be followed in the determination of the net income of the domestic business.