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TITLE 26-INTERNAL REVENUE CODE SECTION REFEaRRE TO IN OTHER SECTIONS This section is referred to in sections 37, 62, 172, 2M, 220, 406, 407, 412, 414, 415, 1379, 3121, 3306. 3401, 4972, 4975, 6047, 6104, 7476 of this title; title 29 sections 1103, 1132; title 42 section 409. § 406. Certain employees of foreign subsidiaries (a) Treatment as employees of domestic corporation For purposes of applying this part with re- spect to a pension, profit-sharing, or stock bonus plan described in section 401(a), an annu- ity plan described in section 403(a), or a bond purchase plan described in section 405(a), of a domestic corporation, an individual who is a citizen of the United States and who is an em- ployee of a foreign subsidiary (as defined in sec- tion 3121(l)(8)) of such domestic corporation shall be treated as an employee of such domes- tic corporation, if- (1) such domestic corporation has entered into an agreement under section 3121() which applies to the foreign subsidiary of which such individual is an employee; (2) the plan of such domestic corporation expressly provides for contributions or bene- fits for individuals who are citizens of the United States and who are employees of its foreign subsidiaries to which an agreement entered into by such domestic corporation under section 3121(t) applies; and (3) contributions under a funded plan of de- ferred compensation (whether or not a plan described in section 401(a), 403(a), or 405(a)) are not provided by any other person with re- spect to the remuneration paid to such indi- vidual by the foreign subsidiary. (b) Special rules for application of section 401(a) (1) Nondiscrimination requirements For purposes of applying section 401(a)(4) and section 410(b) (without regard to para- graph (1)(A) thereof) with respect to an indi- vidual who is treated as an employee of a do- mestic corporation under subsection (a)- (A) if such individual is an officer, share- holder, or person whose principal duties consist in supervising the work of other em- ployees of a foreign subsidiary of such do- mestic corporation, he shall be treated as having such capacity with respect to such domestic corporation; and (B) the determination of whether such in- dividual is a highly compensated employee shall be made by treating such individual's total compensation (determined with the application of paragraph (2) of this subsec- tion) as compensation paid by such domes- tic corporation and by determining such in- dividual's status with regard to such domes- tic corporation. (2) Determination of compensation For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of a domestic corporation under subsection (a)- (A) the total compensation of such indi- vidual shall be the remuneration paid to such individual by the foreign subsidiary which would constitute his total compensa- tion if his services had been performed for such domestic corporation, and the basic or regular rate of compensation of such indi- vidual shall be determined under regula- tions prescribed by the Secretary; and (B) such individual shall be treated as having paid the amount paid by such do- mestic corporation which is equivalent to the tax imposed by section 3101, (c) Termination of status as deemed employee not to be treated as separation from service for pur- poses of capital gain provisions and limitation of tax For purposes of applying subsections (a)(2) and (e) of section 402, and section 403(a)(2) with respect to an individual who is treated as an employee of a domestic corporation under subsection (a), such individual shall not be con- sidered as separated from the service of such domestic corporation solely by reason of the fact that- (1) the agreement entered into by such do- mestic corporation under section 3121(l) which covers the employment of such individ- ual is terminated under the provisions of such section, (2) such individual becomes an employee of a foreign subsidiary with respect to which such agreement does not apply, (3) such individual ceases to be an employee of the foreign subsidiary by reason of which he is treated as an employee of such domestic corporation, if he becomes an employee of an- other corporation controlled by such domes- tic corporation, or (4) the provision of the plan described in subsection (a)(2) is terminated. (d) Deductibility of contributions For purposes of applying sections 404 and 405(c) with respect to contributions made to or under a pension, profit-sharing, stock bonus, annuity, or bond purchase plan by a domestic corporation, or by another corporation which is entitled to deduct its contributions under sec- tion 404(a)(3)(B), on behalf of an individual who is treated as an employee of such domestic corporation under subsection (a)- (1) except as provided in paragraph (2), no deduction shall be allowed to such domestic corporation or to any other corporation which is entitled to deduct its contributions under such sections, (2) there shall be allowed as a deduction to the foreign subsidiary of which such individ- ual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 (or section 405(c)) by the domestic corporation if he were an employee of the domestic corporation, and (3) any reference to compensation shall be considered to be a reference to the total com- pensation of such individual (determined with the application of subsection (b)(2)). Any amount deductible by a foreign subsidiary under this subsection shall be deductible for its taxable year with or within which the taxable year of such domestic corporation ends. (e) Treatment as employee under related provisions An individual who is treated as an employee of a domestic corporation under subsection (a) shall also be treated as an employee of such do- mestic corporation, with respect to the plan de- scribed in subsection (a)(2), for purposes of ap- plying the following provisions of this title: § 406 Page 314