In a generic legal advice memorandum (GLAM) (AM 2015-002), the IRS Office of Chief Counsel addressed the proper application of the tax rate disparity test under Treas. Reg. Sec. 1.954-3(b)(1)(i)(b). The memorandum provides that, with respect to sales income derived in connection with property manufactured by a controlled foreign corporation (CFC) or a branch of the CFC, the regulations determine whether there is a tax rate disparity by comparing what the effective rate of tax (ERT) was on the sales income in the sales jurisdiction (the "actual ERT") with what the ERT would have been on the sales income if the sales had occurred in the manufacturing jurisdiction (the "hypothetical ERT"). AM 2015-002 illustrates this calculation by applying the tax disparity test to a hypothetical set of facts.
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