Source rules in case of United States-owned foreign corporations
(1) In general
(1)In general#
The following amounts which are derived from a United States-owned foreign corporation and which would be treated as derived from sources outside the United States without regard to this subsection shall, for purposes of this section, be treated as derived from sources within the United States to the extent provided in this subsection:
(A) Any amount included in gross income under— (i) section 951(a) (relating to amounts included in gross income of United States shareholders), or (ii) section 1293 (relating to current taxation of income from qualified funds).
(B) Interest.
(C) Dividends.
(1)(A)#
Any amount included in gross income under—
(i) section 951(a) (relating to amounts included in gross income of United States shareholders), or
(ii) section 1293 (relating to current taxation of income from qualified funds).
(1)(A)(i)#
section 951(a) (relating to amounts included in gross income of United States shareholders), or
(1)(A)(ii)#
(2)Subpart F and passive foreign investment company inclusions#
Any amount described in subparagraph (A) of paragraph (1) shall be treated as derived from sources within the United States to the extent such amount is attributable to income of the United States-owned foreign corporation from sources within the United States.
(3)Certain interest allocable to United States source income#
Any interest which—
(A) is paid or accrued by a United States-owned foreign corporation during any taxable year,
(B) is paid or accrued to a United States shareholder (as defined in section 951(b)) or a related person (within the meaning of section 267(b)) to such a shareholder, and
(C) is properly allocable (under regulations prescribed by the Secretary) to income of such foreign corporation for the taxable year from sources within the United States,
shall be treated as derived from sources within the United States.
(3)(A)#
is paid or accrued by a United States-owned foreign corporation during any taxable year,
(3)(B)#
is paid or accrued to a United States shareholder (as defined in section 951(b)) or a related person (within the meaning of section 267(b)) to such a shareholder, and
(3)(C)#
is properly allocable (under regulations prescribed by the Secretary) to income of such foreign corporation for the taxable year from sources within the United States,
(4)Dividends#
(A) In general The United States source ratio of any dividend paid or accrued by a United States-owned foreign corporation shall be treated as derived from sources within the United States.
(B) United States source ratio For purposes of subparagraph (A), the term “United States source ratio” means, with respect to any dividend paid out of the earnings and profits for any taxable year, a fraction— (i) the numerator of which is the portion of the earnings and profits for such taxable year from sources within the United States, and (ii) the denominator of which is the total amount of earnings and profits for such taxable year.
(4)(A)In general#
The United States source ratio of any dividend paid or accrued by a United States-owned foreign corporation shall be treated as derived from sources within the United States.
(4)(B)United States source ratio#
For purposes of subparagraph (A), the term “United States source ratio” means, with respect to any dividend paid out of the earnings and profits for any taxable year, a fraction—
(i) the numerator of which is the portion of the earnings and profits for such taxable year from sources within the United States, and
(ii) the denominator of which is the total amount of earnings and profits for such taxable year.
(5)Exception where United States-owned foreign corporation has small amount of United States source income#
Paragraph (3) shall not apply to interest paid or accrued during any taxable year (and paragraph (4) shall not apply to any dividends paid out of the earnings and profits for such taxable year) if—
(A) the United States-owned foreign corporation has earnings and profits for such taxable year, and
(B) less than 10 percent of such earnings and profits is attributable to sources within the United States.
For purposes of the preceding sentence, earnings and profits shall be determined without any reduction for interest described in paragraph (3) (determined without regard to subparagraph (C) thereof).
(5)(A)#
the United States-owned foreign corporation has earnings and profits for such taxable year, and
(5)(B)#
less than 10 percent of such earnings and profits is attributable to sources within the United States.
(6)United States-owned foreign corporation#
For purposes of this subsection, the term “United States-owned foreign corporation” means any foreign corporation if 50 percent or more of—
(A) the total combined voting power of all classes of stock of such corporation entitled to vote, or
(B) the total value of the stock of such corporation,
is held directly (or indirectly through applying paragraphs (2) and (3) of section 958(a) and paragraph (4) of section 318(a)) by United States persons (as defined in section 7701(a)(30)).
(6)(A)#
the total combined voting power of all classes of stock of such corporation entitled to vote, or
(6)(B)#
the total value of the stock of such corporation,
(7)Dividend#
For purposes of this subsection, the term “dividend” includes any gain treated as a dividend under section 1248.
(8)Coordination with subsection (f)#
This subsection shall be applied before subsection (f).
(9)Treatment of certain domestic corporations#
In the case of any dividend treated as not from sources within the United States under section 861(a)(2)(A), the corporation paying such dividend shall be treated for purposes of this subsection as a United States-owned foreign corporation.
(10)Coordination with treaties#
(A) In general If— (i) any amount derived from a United States-owned foreign corporation would be treated as derived from sources within the United States under this subsection by reason of an item of income of such United States-owned foreign corporation, (ii) under a treaty obligation of the United States (applied without regard to this subsection and by treating any amount included in gross income under section 951(a)(1) as a dividend), such amount would be treated as arising from sources outside the United States, and (iii) the taxpayer chooses the benefits of this paragraph, this subsection shall not apply to such amount to the extent attributable to such item of income (but subsections (a), (b), and (c) of this section and sections 907 and 960 shall be applied separately with respect to such amount to the extent so attributable).
(B) Special rule Amounts included in gross income under section 951(a)(1) shall be treated as a dividend under subparagraph (A)(ii) only if dividends paid by each corporation (the stock in which is taken into account in determining whether the shareholder is a United States shareholder in the United States-owned foreign corporation), if paid to the United States shareholder, would be treated under a treaty obligation of the United States as arising from sources outside the United States (applied without regard to this subsection).
(10)(A)In general#
If—
(i) any amount derived from a United States-owned foreign corporation would be treated as derived from sources within the United States under this subsection by reason of an item of income of such United States-owned foreign corporation,
(ii) under a treaty obligation of the United States (applied without regard to this subsection and by treating any amount included in gross income under section 951(a)(1) as a dividend), such amount would be treated as arising from sources outside the United States, and
(iii) the taxpayer chooses the benefits of this paragraph,
this subsection shall not apply to such amount to the extent attributable to such item of income (but subsections (a), (b), and (c) of this section and sections 907 and 960 shall be applied separately with respect to such amount to the extent so attributable).
(11)Regulations#
The Secretary shall prescribe such regulations as may be necessary or appropriate for purposes of this subsection, including—
(A) regulations for the application of this subsection in the case of interest or dividend payments through 1 or more entities, and
(B) regulations providing that this subsection shall apply to interest paid or accrued to any person (whether or not a United States shareholder).
(11)(A)#
regulations for the application of this subsection in the case of interest or dividend payments through 1 or more entities, and
(11)(B)#
regulations providing that this subsection shall apply to interest paid or accrued to any person (whether or not a United States shareholder).