1. (a) Income from intercompany transactions, including the receipt or payment of dividends and royalties, among members of the water's edge combined group must be eliminated.

2. (b) Dividends and royalties received by members of the water's edge combined group from a corporation incorporated outside the United States that is not included in the water's edge combined return

   1. (1) are business income if they are received from an affiliated corporation or meet the requirements of 15 AAC 19.031; and
   2. (2) must be included as business income of the water's edge combined group even if paid from earnings of years before the current tax year when the payors were members of the taxpayer's worldwide combined group.
3. (c) Proration of a deduction under 15 AAC 19.041 will not be made to the foreign dividends and royalties excluded by AS 43.20.145(b)(1) and (3).
4. (d) Under Internal Revenue Code section 482 (26 U.S.C. 482), the department will, in its discretion, reallocate a deduction to a corporation excluded from the water's edge combined group.

(Eff. 7/9/93, Register 127; am 3/6/98, Register 145)