EXAMPLE 1:
Corporation A owns 60% of Corporation B's voting stock and 30% of Corporation C's voting stock. Corporation B owns 30% of Corporation C's voting stock. A, B and C are affiliated.
EXAMPLE 2:
Corporation A owns 40% of corporation B's voting stock and 30% of Corporation C's voting stock. Corporation B owns 60% of Corporation C's stock. A is not affiliated with B and C.
EXAMPLE 1: Corporation A has interest expense of $100, of which $15 is assignable to foreign investment pursuant to subsections (4) and (5) of this regulation.
A receives qualifying dividends in the amount of $10 of which $7.50 ($10 x 75% = $7.50) is deductible pursuant to Revenue and Taxation Code Section 24411.
For taxable years beginning prior to January 1, 1997, the amount of interest offset pursuant to Revenue and Taxation Code section 24344, subdivision (c), shall be $7.50.
For taxable years beginning on or after January 1, 1997, the amount of interest offset pursuant to Revenue and Taxation Code section 24344(c) shall be $5.63.
Qualifying dividends defined in Revenue and Taxation Code section 24411 | $10 |
Multiply by applicable section 24411 percentage | 75% |
Equals dividends deductible under section 24411 | $7.50 |
Interest expenses assignable to foreign investments | $15 |
Enter lesser of dividend deductible under section 24411 or interest expense assignable to foreign investments | $7.50 |
Multiply by applicable section 24411 percentage | 75% |
Equals section 24344(c) foreign investment interest offset | $5.63 |
EXAMPLE 2. Assume the same facts as in Example 1, except Corporation A receives qualifying dividends of $30, of which $22.50 ($30 x 75% = $22.50) is deductible pursuant to Revenue and Taxation Code section 24411.
For taxable years beginning prior to January 1, 1997, the amount of interest expense pursuant to Revenue and Taxation Code section 24344, subdivision (c), shall be $15.
For taxable years beginning on or after January 1, 1997, the amount of interest offset pursuant to Revenue and Taxation Code section 24344, subdivision (c), shall be $11.25.
Qualifying dividends defined in section 24411 | $30 |
Multiply by applicable section 24411 percentage | 75% |
Equals dividends deductible under section 24411 | $22.50 |
Interest expenses assignable to foreign investments | $15 |
Enter lesser of dividend deductible under section 24411 or interest expense assignable to foreign investments | $15 |
Multiply by applicable section 24411 percentage | 75% |
Equals section 24344(c) foreign investment interest offset | $11.25 |
Even though the above facts and circumstances are present in substance as well as in form, a deduction for interest shall not be considered definitely related to specific property where the motive for structuring the transaction in the manner described above was without any economic significance.
EXAMPLE: Corporation A has total interest expense of $1,200. Specifically assigned interest expense is $200. A has foreign investments valued at $500 and total assets valued at $5,600. The $200 of specifically assigned interest expense relates to assets of $600, none of which is foreign investment. Corporation A receives qualifying dividends as defined by Revenue and Taxation Code section 24411 $50 of which $37.50 ($50 dividends x 75% = $37.50) is deductible.
The amount of unassigned interest expense attributable to foreign investment is calculated as follows: total interest expense--less specifically assigned interest expense = equals unassigned interest expense ($1,200 - $200 = $1,000). Unassigned interest expense multiplied by the ratio of the value of unassigned foreign investment to the value of unassigned total assets equals Interest Expense Assignable to foreign investment ($1,000 x ($500/$5,000) = $100).
The amount of unassigned interest expense subject to offset against dividends deductible pursuant to Revenue and Taxation Code section 24411 is $100.
Only $37.50 of the qualifying dividends received was deductible pursuant to Revenue and Taxation Code section 24411. For taxable years beginning prior to January 1, 1997, the interest offset pursuant to Revenue and Taxation Code section 24344, subdivision (c), is limited to $37.50 (the lessor of the $100 interest expense assignable to foreign investment or $37.50 dividend deductible pursuant to Revenue and Taxation Code section 24411).
For taxable years beginning on or after January 1, 1997, the interest offset pursuant to Revenue and Taxation Code section 24344, subdivision (c), is limited to $28.13.
Qualifying dividends defined in Revenue and Taxation Code section 24411 | $50 |
Multiply by applicable section 24411 percentage | 75% |
Equals dividends deductible under section 24411 | $37.50 |
Interest expenses assignable to foreign investments | $100 |
Enter lesser of dividend deductible under section 24411 or interest expense assignable to foreign investments | $37.50 |
Multiply by applicable section 24411 percentage | 75% |
Equals section 24344(c) foreign investment interest offset | $28.13 |
Cal. Code Regs. Tit. 18, § 24344(c)
2. Change without regulatory effect amending section and NOTE filed 3-12-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 11).
3. Amendment of subsections (2)(A)1.a. and (2)(G) filed 10-9-2002; operative 11-8-2002 (Register 2002, No. 41).
Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 24344, Revenue and Taxation Code.
2. Change without regulatory effect amending section and Notefiled 3-12-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 11).
3. Amendment of subsections (2)(A)1.a. and (2)(G) filed 10-9-2002; operative 11-8-2002 (Register 2002, No. 41).