Rev. Rul. 69-433

A United States corporation has a Virgin Islands subsidiary that satisfies the requirements of Virgin Islands law and the conditions set forth in section 934 of the Internal Revenue Code of 1954. Therefore, the Virgin Islands subsidiary has received, under the Virgin Islands Industrial Incentive Program, a nontaxable subsidy equal to 75 percent of the income tax liability paid to the Virgin Islands during the taxable year.

Held, in computing the accumulated profits of the Virgin Islands subsidiary for purposes of section 902(a)(2) of the Code, the amount of the subsidy is not an item of gains, profits, or income but is considered merely a reduction in the amount of the taxes paid to the Virgin Islands. Held further, for purposes of section 902(a)(2) of the Code, the income tax paid by such subsidiary to the Virgin Islands is the amount of income tax paid to the Virgin Islands less the subsidy granted.