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TITLE 26-INTERNAL REVENUE CODE Ing stock of an export trade corporation (as defined in section 971), and the export trade corporation, during a taxable year beginning before January 1, 1976, transfers property, without receiving consider- ation, to a DISC (as defined in section 992(a)) all of whose outstanding stock is owned by the parent, and if the amount transferred by the export trade corpo- ration is not less than the amount of its untaxed subpart F income (as defined In paragraph (2) of this subsection) at the time of such transfer, then- "(A) notwithstanding section 367 or any other provision of chapter 1, no gain or loss to the export trade corporation, the parent, or the DISC shall be recognized by reason of such transfer; "(B) the earnings and profits of the DISC shall be increased by the amount transferred to it by the export trade corporation and such amount shall be Included in the accumulated DISC income, and for purposes of section 861(a)(2)(D) shall be considered to be qualified export receipts; "(C) the adjusted basis of the assets transferred to the DISC shall be the same in the hands of the DISC as in the hands of the export trade corpora- tion; "(D) the earnings and profits of the export trade corporation shall be reduced by the amount trans- ferred to the DISC, to the extent thereof, with the reduction being applied first to the untaxed sub- part F income and then to the other earnings and profits in the order in which they were most re- cently accumulated; "(E the basis of the parent's stock in the export trade corporation shall be decreased by the amount obtained by multiplying its basis in such stock by a fraction the numerator of which is the amount transferred to the DISC and the denomi- nator of which is the aggregate adjusted basis of all the assets of the export trade corporation im- mediately before such transfer; "(F) the basis of the parent's stock in the DISC shall be increased by the amount of the reduction under subparagraph (E) of its basis in the stock of the export trade corporation; "(0) the property transferred to the DISC shall not be considered to reduce the Investments of the export trade corporation in export trade assets for purposes of applying section 970(b); and "(H) any foreign Income taxes which would have been deemed under section 902 to have been paid by the parent if the transfer had been made to the parent shall be treated as foreign income taxes paid by the DISC. For purposes of this section, the amount transferred by trhe export trade corporation to the DISC shall be the aggregate of the adjusted basis of the properties transferred, with proper adjustment for any indebt- edness secured by such property or assumed by the DISC in connection with the transfer. For purposes of this section, a foreign corporation which qualified as an export trade corporation for any 3 taxable years beginning before November 1, 1971, shall be treated as an export trade corporation. "(2) Definition of untaxed subpart F income.-For purposes of this section, the term 'untaxed subpart F income' means with respect to an export trade cor- poration the amount by which- "(A) the sum of the amount by which the sub- part F income of such corporation was reduced for the taxable year and all prior taxable years under section 970(a) and the amounts not included in subpart P Income (determined without regard to subpart 0 of subchapter N of chapter 1) for all prior taxable years by reason of the application of section 972, exceeds "(B) the sum of the amounts which were includ- ed In the gross income of the shareholders of such corporation under section 951(a)(1)(A)(Il) and under the provision of section 970(b) for all prior taxable years, determined without regard to the transfer of property described in paragraph (1) of this subsection. "(3) Special cases.-If the provisions of paragraph (1) of this subsection are not applicable solely be- cause the export trade corporation or the DISC, or both, are not owned in the manner prescribed in such paragraph, the provisions shall nevertheless be applicable in such cases to the extent, and In accor- dance with such rules, as iray be prescribed by the Secretary or his delegate. "(4) Treatment of export trade assets.-If the pro- visions of this subsection are applicable, accounts re- ceivable held by an export trade corporation and transferred to a DISC, to the extent such receivables were export trade assets in the hands of the export trade corporation, shall be treated as qualified export assets for purposes of section 993(b)." § 971. Definitions (a) Export trade corporations For purposes of this subpart, the term "export trade corporation" means- (1) In general A controlled foreign corporation (as defined in section 957) which satisfies the following conditions: (A) 90 percent or more of the gross Income of such corporation for the 3-year period immediately preceding the close of the taxable year (or such part of such period subsequent to the effective date of this subpart during which the corporation was in existence) was derived from sources without the United States, and (B) 75 percent or more of the gross income of such corporation for such period constituted gross income in respect of which such corporation derived export trade income. (2) Special rule If 50 percent or more of the gross income of a controlled foreign corporation in the period specified in subsection (a)(1)(A) Is gross income in respect of which such corporation derived export trade income in respect of ag- ricultural products grown in the United States, it may qualify as an export trade cor- poration although It does not meet the re- quirements of subsection (a)(1)(B). (3) Limitation No controlled foreign corporation may qualify as an export trade corporation for any taxable year beginning after October 31, 1971, unless it qualified as an export trade corpora- tion for any taxable year beginning before such date, If a corporation fails to qualify as an export trade corporation for a period of any 3 consecutive taxable years beginning after such date, it may not qualify as an export trade corporation for any taxable year beginning after such period. (b) Export trade income For the purposes of this subpart, the term "export trade income" means net income from- (1) the sale to an unrelated person for use, consumption, or disposition outside the United States of export property (as defined in subsection (e)), or from commissions, fees, compensation, or other income from the per- formance of commercial, Industrial, financial, technical, scientific, managerial, engineering, architectural, skilled, or other services in re- spect to such sales or in respect of the Instal- Page 617