Global Dealing Regulations Treat Capital as a Routine Contribution

In 1982 the IRS released proposed regulations on the taxation of "global dealing operations" conducted by multinational banking and securities firms. The proposed regulations specified methods for determining the arms-length allocation of global dealing profits among the businesses that participate in the global operation. The same method would be used to determine how much of a foreign dealer"s income is attributable to the dealer's US branch and taxed by the US. The regulations would apply to taxable years beginning after the day the final regulations are published.The proposed regulations defined a global healing operation as the execution of customer transactions in derivatives and other "financial partners" by a "regular dealer in securities" when "related activities" are performed by a commonly control corporation or foreign branch. A "regular dealer in securities" includes a taxpayer that "regularly and actively offers to, and in fact does, enter into, assume, offset, assign, or otherwise terminate positions in securities with customers who are not controlled entities in the ordinary course of a trade or business." Securities for this purpose consists of foreign currency and "securities" as defined by section 475(c) of the Internal Revenue Code. Global dealing, for purposes of these regulations, does not include proprietary trading, lending, or dealing in commodities. The "participants" in a global dealing operation are the regular dealer plus the other entities that perform "related activities." For this purpose, "related activities" are sales, marketing, pricing, risk management, and brokering. The methods specified by the proposed regulations for global dealing operations include the Comparable Uncontrolled Financial Transaction Method, the Gross Margin and Gross Markup Methods, and the Total and Residual Profit Split Methods