ment. Gross revenues are taken into account before taking returns or allowances, and
are taken into account before determining the cost of goods sold or operating ex-
penses. “Gross revenues” do not include borrowings, lendings, or the receipt of pas-
sive dividend income.
The definition of the gross revenues of an industry segment is taken from the def-
inition of the gross revenues of an industry segment in Treasury Regulation Section
1.6038A-3(c)(7)(ii).
(viii) Worldwide Gross Revenues. Revenues of the taxpayer and the related-party
group are to be determined reflecting worldwide gross revenues on an aggregate
basis, whether the activities giving rise to the income are located within the United
States or are located outside the United States.
(ix) Operating Profit of the Industry Segment. The operating profit of the industry
segment is the gross revenue of the industry segment minus all operating expenses of
the industry segment. The following items cannot be added to or subtracted from op-
erating profit:
- Revenue earned at the corporate level and not derived from operations of any in-
dustry segment, such as passive income. - General corporate expenses, except as allocated and apportioned under Treasury
Regulation Section 1.861 et seq. - Interest expense
- Domestic and foreign income taxes
This definition of operating profit of the industry segment is taken from the definition
of “operating profit of industry segment” in Treasury Regulation Section 1.6038A-
3(c)(7)(v).
(x) Worldwide Operating Profit. Worldwide operating profit of the taxpayer and the
related-party group are to be determined reflecting worldwide operating profit on an
aggregate basis, whether the activities giving rise to the income are located within the
United States or are located outside the United States.
(xi) Operating Expenses of the Industry Segment. Operating expenses as to an indus-
try segment include all expenses of the segment, except for
- General corporate expenses, except as allocated and apportioned under section
1.861 et seq. - Interest expense
- Domestic and foreign income taxes
This definition of operating expenses of the industry segment is extracted from the
termoperating expensesin Treasury Regulation Section 1.6038A-3(c)(7)(v) but is
not further defined in that section.
(xii) Worldwide Operating Expenses. Worldwide operating expenses of the taxpayer
and the related-party group are to be determined reflecting worldwide operating ex-
29.20 THE STANDARD INITIAL TRANSFER PRICING REQUEST 29 • 29