26 U.S.C. § 245A

Current through P.L. 118-47 (published on www.congress.gov on 03/23/2024)

Section 245A - Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations

(a) In general

In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such dividend.

(b) Specified 10-percent owned foreign corporation

For purposes of this section-

(1) In general

The term "specified 10-percent owned foreign corporation" means any foreign corporation with respect to which any domestic corporation is a United States shareholder with respect to such corporation.

(2) Exclusion of passive foreign investment companies

Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which is not a controlled foreign corporation.

(c) Foreign-source portion

For purposes of this section-

(1) In general

The foreign-source portion of any dividend from a specified 10-percent owned foreign corporation is an amount which bears the same ratio to such dividend as-

(A) the undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to

(B) the total undistributed earnings of such foreign corporation.

(2) Undistributed earnings

The term "undistributed earnings" means the amount of the earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986)-

(A) as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and

(B) without diminution by reason of dividends distributed during such taxable year.

(3) Undistributed foreign earnings

The term "undistributed foreign earnings" means the portion of the undistributed earnings which is attributable to neither-

(A) income described in subparagraph (A) of section 245(a)(5), nor

(B) dividends described in subparagraph (B) of such section (determined without regard to section 245(a)(12)).

(d) Disallowance of foreign tax credit, etc.

(1) In general

No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section.

(2) Denial of deduction

No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N).

(e) Special rules for hybrid dividends

(1) In general

Subsection (a) shall not apply to any dividend received by a United States shareholder from a controlled foreign corporation if the dividend is a hybrid dividend.

(2) Hybrid dividends of tiered corporations

If a controlled foreign corporation with respect to which a domestic corporation is a United States shareholder receives a hybrid dividend from any other controlled foreign corporation with respect to which such domestic corporation is also a United States shareholder, then, notwithstanding any other provision of this title-

(A) the hybrid dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the receiving controlled foreign corporation for the taxable year of the controlled foreign corporation in which the dividend was received, and

(B) the United States shareholder shall include in gross income an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the subpart F income described in subparagraph (A).

(3) Denial of foreign tax credit, etc.

The rules of subsection (d) shall apply to any hybrid dividend received by, or any amount included under paragraph (2) in the gross income of, a United States shareholder.

(4) Hybrid dividend

The term "hybrid dividend" means an amount received from a controlled foreign corporation-

(A) for which a deduction would be allowed under subsection (a) but for this subsection, and

(B) for which the controlled foreign corporation received a deduction (or other tax benefit) with respect to any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States.

(f) Special rule for purging distributions of passive foreign investment companies

Any amount which is treated as a dividend under section 1291(d)(2)(B) shall not be treated as a dividend for purposes of this section.

(g) Regulations

The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations for the treatment of United States shareholders owning stock of a specified 10 percent ¹ owned foreign corporation through a partnership.

¹ So in original. Probably should be "10-percent".

26 U.S.C. § 245A

Added Pub. L. 115-97, title I, §14101(a), Dec. 22, 2017, 131 Stat. 2189.

STATUTORY NOTES AND RELATED SUBSIDIARIES

EFFECTIVE DATE Pub. L. 115-97, title I, §14101(f), Dec. 22, 2017, 131 Stat. 2192, provided that: "The amendments made by this section [enacting this section and amending sections 246, 904, 951, 957, and 1059 of this title] shall apply to distributions made after (and, in the case of the amendments made by subsection (d) [amending section 904 of this title], deductions with respect to taxable years ending after) December 31, 2017."

Secretary: The term "Secretary" means the Secretary of the Treasury or his delegate.
corporation: The term "corporation" includes associations, joint-stock companies, and insurance companies.
shareholder: The term "shareholder" includes a member in an association, joint-stock company, or insurance company.
stock: The term "stock" includes shares in an association, joint-stock company, or insurance company.
taxable year: The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
taxpayer: The term "taxpayer" means any person subject to any internal revenue tax.