(a) The term subsidiary means a corporation over 50 percent of the voting stock of which is owned by the taxpayer. The term voting stock means shares of stock of a corporation, issued and outstanding, which entitle the holders thereof to vote for the election of the corporation's directors or trustees. The determination of whether or not particular shares of a corporation's stock entitle the holders of such shares to vote for the election of directors or trustees of the corporation depends on the actual legal situation with respect to voting rights, as it exists from time to time.

A taxpayer owns all the common stock of a corporation, which in ordinary circumstances is the only class of stock entitled to vote for the election of directors. The corporation also has outstanding an issue of preferred stock the holders of which, in certain circumstances, are entitled to vote for the election of directors either together with or exclusive of the holders of the common stock. The preferred stock will be treated as voting stock if, and so long as, its holders are entitled to vote. The common stock will not be treated as voting stock if, and so long as, its holders are not entitled to vote.

(b) The test of ownership is actual beneficial ownership, rather than mere record title as shown by the stock books of the issuing corporation. Actual beneficial ownership of stock does not mean indirect ownership or control of a corporation through a structure consisting of several tiers and/or chains of corporations and/or partnerships. A corporation will not be considered to be a subsidiary merely because more than 50 percent of the shares of its voting stock is registered in the taxpayer's name, unless the taxpayer is the actual beneficial owner of such stock. However, a corporation will not be considered a subsidiary if more than 50 percent of the shares of its voting stock is not registered in the taxpayer's name, unless the taxpayer submits proof that it is the actual beneficial owner of such stock.

Corporation A is engaged in a stock brokerage business. Corporation A holds record title in street name to 60 percent of the voting stock of Corporation X, a publicly traded corporation. Corporation A holds record title to this stock on behalf of 100 corporate customers, none of which owns more than one percent of the stock of Corporation X. These 100 corporations are the actual beneficial owners of the stock of Corporation X which is held in street name by Corporation A. Even though Corporation A is the record title holder of more than 50 percent of the voting stock of Corporation X, Corporation X is not a subsidiary of Corporation A because Corporation A is not the actual beneficial owner of the stock.

Corporation C is the record title holder of 100 percent of the voting stock of Corporation D. Corporation C has the right to sell or pledge such stock. Corporation C receives all dividends paid by Corporation D. Corporation C enjoys the economic benefits, and bears the risk of economic loss, deriving from the sale of such stock. Corporation C is the actual beneficial owner of Corporation D's voting stock. Corporation D is a subsidiary of Corporation C.

Corporation B is the owner of 100 percent of the voting stock of Corporation C. Corporation B is not the actual beneficial owner of Corporation D's voting stock merely by virtue of the fact that, through its ownership of the voting stock of Corporation C, Corporation B has practical control of the activities of Corporation D. Corporation D is not a subsidiary of Corporation B.

Corporation C is a 60 percent partner in Partnership P. Corporation D has 100 shares of stock issued and outstanding entitling the holders thereof to vote for the election of the corporation's directors. P owns 60 shares of D and C owns the remaining 40 shares. Corporation D is not a subsidiary of C because C does not directly own more than 50 percent of the shares of stock of D entitling the holders thereof to vote for the election of Corporation D's directors.

(c) A corporation is a subsidiary for purposes of article 9-A of the Tax Law if the taxpayer is the actual beneficial owner of more than 50 percent of the shares of such corporation's voting stock, even though the taxpayer has conferred the right to vote such stock on others, by means of a proxy, voting trust agreement or otherwise.

(d) In any case where the record holder of shares of voting stock of a corporation is not the actual beneficial owner of the stock, or where the right to vote such stock is not possessed by the record holder or by the actual beneficial owner of the stock, a full and complete statement of all relevant facts must be submitted.

(e) A corporation will be treated as a subsidiary of a taxpayer only for that part of the taxable year during which the taxpayer is the owner of more than 50 percent of the shares of stock of such corporation which, during that period, entitle the holders to vote for the election of directors or trustees.