Direct or Indirect Relationships

In determining whether a unitary business exists, all direct and indirect relationships may be considered. This is true even when the relationships extend to corporations not includable in the consolidated return.

Example 1: Corporation M is a U.S. company engaged in the marketing of oil and oil products. It has two wholly-owned domestic subsidiaries, Corporations E and R. Corporation E is a drilling company involved in exploration for oil. Corporation R buys the crude oil from E, refines it, and sells the refined oil to M. Although the operations of Corporations E and M are not directly related, they are part of a unitary business by virtue of their indirect relationship through Corporation R.

Example 2: Assume the same facts as in Example 1, except that the refining company, Corporation R, is jointly owned by Corporation M and another oil company (50 percent each). Although Corporation R is no longer includable in the consolidated return (due to less than 80 percent ownership), Corporations E and M are still considered part of a unitary business.

Example 3:

Assume the same facts as in Example 1, except that the refining company, Corporation R, is a foreign subsidiary of Corporation M doing business only in Mexico. In determining whether Corporations E and M are part of a unitary business, the relationships and transactions with Corporation R may be considered.