International Tax Aspects of Foreign Currency Transactions

processes orders and maintains separate books and records.Each branch is a separate QBU.(ii)However, the QBU’s activities cannot be merely ancillaryto the taxpayer’s trade or business.1) Reg. § 1.989(a)-1(e), Example 3 – US Parent hires aFrench employee to serve as a courier for salesdocuments. Since employee’s activities are merelyancillary to US Parent’s trade or business, they donot constitute the QBU.(iii)Activities conducted by agents can also give rise to a QBU.C. § 985 – Selection of the Functional Currency1) Reg. § 1.989(a)-1(e), Example 6 – A hires anindependent broker to manage and trade itsinvestment portfolio. The broker maintains separatebooks and records for the portfolio in a foreigncurrency. This constitutes a QBU.2) FSA 200217002. Corporation B was the principalto certain derivatives transactions effected regularlyon its behalf by an affiliate, Corporation C. TheService ruled that: (i) Corporation C’s activities asagent constituted a trade or business of B and aQBU; and (ii) Corporation C’s activities would beimputed to B for subpart J purposes, even if C werean “independent agent.” The Service also found, asa factual matter, that B maintained separate booksand records satisfying the requirements of § 989 forthe derivatives trades effected by its agent,Corporation C.(1) The determination of a QBU’s functional currency looks to the facts andcircumstances set out in Reg. § 1.985-1(c)(2)(i). These facts andcircumstances are similar to those identified in FAS 52, Appendix A:Reg. § 1.985-1(c)(2)Currencies of QBU’s principalplace of businessFAS 52, Appendix A–2© 2013 William R. Skinner, Esq.Fenwick & West LLPwrskinner@fenwick.com