Minimum holding period for certain taxes on dividends
(1) Withholding taxes
(1)Withholding taxes#
(A) In general In no event shall a credit be allowed under subsection (a) for any withholding tax on a dividend with respect to stock in a corporation if— (i) such stock is held by the recipient of the dividend for 15 days or less during the 31-day period beginning on the date which is 15 days before the date on which such share becomes ex-dividend with respect to such dividend, or (ii) to the extent that the recipient of the dividend is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.
(B) Withholding tax For purposes of this paragraph, the term “withholding tax” includes any tax determined on a gross basis; but does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis.
(1)(A)In general#
In no event shall a credit be allowed under subsection (a) for any withholding tax on a dividend with respect to stock in a corporation if—
(i) such stock is held by the recipient of the dividend for 15 days or less during the 31-day period beginning on the date which is 15 days before the date on which such share becomes ex-dividend with respect to such dividend, or
(ii) to the extent that the recipient of the dividend is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.
(1)(A)(i)#
(2)Deemed paid taxes#
In the case of income, war profits, or excess profits taxes deemed paid under section 853 or 960 through a chain of ownership of stock in 1 or more corporations, no credit shall be allowed under subsection (a) for such taxes if—
(A) any stock of any corporation in such chain (the ownership of which is required to obtain credit under subsection (a) for such taxes) is held for less than the period described in paragraph (1)(A)(i), or
(B) the corporation holding the stock is under an obligation referred to in paragraph (1)(A)(ii).
(2)(A)#
any stock of any corporation in such chain (the ownership of which is required to obtain credit under subsection (a) for such taxes) is held for less than the period described in paragraph (1)(A)(i), or
(2)(B)#
the corporation holding the stock is under an obligation referred to in paragraph (1)(A)(ii).
(3)45-day rule in the case of certain preference dividends#
In the case of stock having preference in dividends and dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days, paragraph (1)(A)(i) shall be applied—
(A) by substituting “45 days” for “15 days” each place it appears, and
(B) by substituting “91-day period” for “31-day period”.
(3)(A)#
by substituting “45 days” for “15 days” each place it appears, and
(3)(B)#
by substituting “91-day period” for “31-day period”.
(4)Exception for certain taxes paid by securities dealers#
(A) In general Paragraphs (1) and (2) shall not apply to any qualified tax with respect to any security held in the active conduct in a foreign country of a business as a securities dealer of any person— (i) who is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934, (ii) who is registered as a Government securities broker or dealer under section 15C(a) of such Act, or (iii) who is licensed or authorized in such foreign country to conduct securities activities in such country and is subject to bona fide regulation by a securities regulating authority of such country.
(B) Qualified tax For purposes of subparagraph (A), the term “qualified tax” means a tax paid to a foreign country (other than the foreign country referred to in subparagraph (A)) if— (i) the dividend to which such tax is attributable is subject to taxation on a net basis by the country referred to in subparagraph (A), and (ii) such country allows a credit against its net basis tax for the full amount of the tax paid to such other foreign country.
(C) Regulations The Secretary may prescribe such regulations as may be appropriate to carry out this paragraph, including regulations to prevent the abuse of the exception provided by this paragraph and to treat other taxes as qualified taxes.
(4)(A)In general#
Paragraphs (1) and (2) shall not apply to any qualified tax with respect to any security held in the active conduct in a foreign country of a business as a securities dealer of any person—
(i) who is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934,
(ii) who is registered as a Government securities broker or dealer under section 15C(a) of such Act, or
(iii) who is licensed or authorized in such foreign country to conduct securities activities in such country and is subject to bona fide regulation by a securities regulating authority of such country.
(5)Certain rules to apply#
For purposes of this subsection, the rules of paragraphs (3) and (4) of section 246(c) shall apply.
(6)Treatment of bona fide sales#
If a person’s holding period is reduced by reason of the application of the rules of section 246(c)(4) to any contract for the bona fide sale of stock, the determination of whether such person’s holding period meets the requirements of paragraph (2) with respect to taxes deemed paid under section 960 shall be made as of the date such contract is entered into.
(7)Taxes allowed as deduction, etc.#
Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection.