– Refer to BOLD Italics for response.
From: Verne, B. Michael
Sent: Tuesday, November 01, 2011 9:06 AM
Subject: RE: Item 5
My answers in [BoldItalic}
This is a request forclarification on how to report certain manufacturing revenues under the newItem 5. It arises from my efforts to reconcile (a) the guidance on the FTC Websitethat directs filers to report the sale of foreign-manufactured products to acontrolled US entity at the transfer price, with (b) my understanding that oneof the aims of the new Item 5 rules is to eliminate the"double-counting" that used to result from the old rules' approach tointercompany transfers and downstream sales.
Assume that the filer,Company A, has manufacturing operations both in the U.S. and abroad, and thatthose manufacturing operations make the same product --Widgets. Company A sellsWidgets from its manufacturing plants in the US to customers located both inthe US and abroad. Company A also makes intercompany transfers of Widgets fromits foreign plants to its facilities in the US at an intercompany transferprice. Company A then sells the foreign-manufactured widgets to customers bothin the US and abroad.
Given this pattern, Ihave several questions about how Company A would fill out Item 5:
(1)Would Company A report the intercompany sales of Widgets from foreign plants tocontrolled US facilities at the transfer price?
[If the transfer price is the way it is captured -yes. If not,report the final sale price.]
(2)If the answer to (1) is "yes," would Company A use a manufacturingcode (I believe it would)?
[Yes inboth instances above you would report a manufacturing code}
(3)If the answer to (1) is "yes," would Company A then also report thesale of the same foreign manufactured Widgets from a US facility to customersdownstream, even though this would amount to double-counting?
[No If you reported the transfer to the US entity that is allthat is reported.}
(4)If the answer to (3) is "yes," would Company A report only thedownstream sales of foreign manufactured widgets from a U.S. facility tocustomers in the US, or also the downstream sales of foreign manufacturedWidgets from a US facility to customers abroad?
[See above -do not report the subsequent sale to either USor foreign customers.}
(5)If the answer to (3) is "yes," would Company A use a manufacturingcode or a wholesale/retail code to report those downstream sales offoreign-manufactured Widgets from a US facility?