Internal Revenue Code:Sec. 1442. Withholding of tax on foreign corporations

From TaxAlmanac

Location in Internal Revenue Code

     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 3 - WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN
             CORPORATIONS
         Subchapter A - Nonresident Aliens and Foreign Corporations
       

Statute

    Sec. 1442. Withholding of tax on foreign corporations
 
    (a) General rule
      In the case of foreign corporations subject to taxation under
    this subtitle, there shall be deducted and withheld at the source
    in the same manner and on the same items of income as is provided
    in section 1441 a tax equal to 30 percent thereof.  For purposes of
    the preceding sentence, the references in section 1441(b) to
    sections 871(a)(1)(C) and (D) shall be treated as referring to
    sections 881(a)(3) and (4), the reference in section 1441(c)(1) to
    section 871(b)(2) shall be treated as referring to section 842 or
    section 882(a)(2), as the case may be, the reference in section
    1441(c)(5) to section 871(a)(1)(D) shall be treated as referring to
    section 881(a)(4), the reference in section 1441(c)(8) to section
    871(a)(1)(C) shall be treated as referring to section 881(a)(3),
    the references in section 1441(c)(9) to sections 871(h) and
    871(h)(3) or (4) shall be treated as referring to sections 881(c)
    and 881(c)(3) or (4), the reference in section 1441(c)(10) to
    section 871(i)(2) shall be treated as referring to section 881(d), 
    and the references in section 1441(c)(12) to sections 871(a) and
    871(k) shall be treated as referring to sections 881(a) and 881(e) 
    (except that for purposes of applying subparagraph (A) of 
    section 1441(c)(12), as so modified, clause (ii) of section 881(e)(1)(B)
    shall not apply to any dividend unless the regulated investment 
    company knows that such dividend is a dividend referred to in such clause).

    (b) Exemption
      Subject to such terms and conditions as may be provided by
    regulations prescribed by the Secretary, subsection (a) shall not
    apply in the case of a foreign corporation engaged in trade or
    business within the United States if the Secretary determines that
    the requirements of subsection (a) impose an undue administrative
    burden and that the collection of the tax imposed by section 881 on
    such corporation will not be jeopardized by the exemption.
    (c) Exception for certain possessions corporations
       (1)  Guam, american samoa, the northern mariana islands, and
        the virgin islands.--For purposes of this section, the term
        ''foreign corporation'' does not include a corporation created
        or organized in Guam, American Samoa, the Northern Mariana Islands,
        or the Virgin Islands or under the law of any such possession
        if the requirements of subparagraphs (A), (B), and (C) of
        section 881(b)(1) are met with respect to such corporation.
       (2) Commonwealth of puerto rico.--
          (A) In general.--If dividends are received during 
           a taxable year by a corporation--
             (i) created or organized in, or under the 
                 law of, the Commonwealth of Puerto Rico, and
             (ii) with respect to which the requirements 
                 of subparagraphs (A), (B), and (C) of section 
                 881(b)(1) are met for the taxable year,
           subsection (a) shall be applied for such taxable year by 
           substituting `10 percent' for `30 percent'.
          (B) Applicability.--If, on or after the date of 
           the enactment of this paragraph, an increase in the rate 
           of the Commonwealth of Puerto Rico's withholding tax 
           which is generally applicable to dividends paid to 
           United States corporations not engaged in a trade or 
           business in the Commonwealth to a rate greater than 10 
           percent takes effect, this paragraph shall not apply to 
           dividends received on or after the effective date of the 
           increase.

 

Sources

    (Aug. 16, 1954, ch. 736, 68A Stat. 358; Pub. L. 89-809, title I,
    Sec. 104(c), Nov. 13, 1966, 80 Stat. 1557; Pub. L. 92-178, title
    III, Sec. 313(e), Dec. 10, 1971, 85 Stat. 528; Pub. L. 92-606, Sec.
    1(e)(2), Oct. 31, 1972, 86 Stat. 1497; Pub. L. 94-455, title XIX,
    Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369,
    div.  A, title I, Sec. 127(e)(2), 130(b), title IV, Sec.
    474(r)(29)(I), July 18, 1984, 98 Stat. 652, 661, 845; Pub. L.
    99-514, title XII, Sec. 1273(b)(2)(B), title XVIII, Sec.
    1810(d)(3)(E), Oct. 22, 1986, 100 Stat. 2596, 2825; Pub. L.
    100-647, title I, Sec. 1012(g)(7), Nov. 10, 1988, 102 Stat. 3501;
    Pub. L. 103-66, title XIII, Sec. 13237(c)(5), Aug. 10, 1993, 107
    Stat. 508.)
 

Miscellaneous

                                 AMENDMENTS
    
    2004 - Pub.L. 108-357 Sec 420(b).  Subsection (c) of section 1442
    (relating to withholding of tax on foreign corporations) is amended
    by striking ``For purposes'' and inserting the following:
      "(1) Guam, american samoa, the northern mariana islands, 
        and the virgin islands.--For purposes", and
     by adding at the end the following new paragraph:
       "(2) Commonwealth of puerto rico.--"

    2004 - Pub.L. 108-357 Sec 411(a)(3)(B).  Section 1442(a) (relating to
    withholding of tax on foreign corporations) is amended--
    (i) by striking ``and the reference in section 1441(c)(10)'' and inserting
     ``the reference in section 1441(c)(10)'', and
    (ii) by inserting before the period at the end the following: ``, and the
     references in section 1441(c)(12) to sections 871(a) and 871(k) shall be 
     treated as referring to sections 881(a) and 881(e) (except that for
     purposes of applying subparagraph (A) of section 1441(c)(12), as so
     modified, clause (ii) of section 881(e)(1)(B) shall not apply to 
     any dividend unless the regulated investment company knows that
     such dividend is a dividend  referred to in such clause).

      1993 - Subsec. (a). Pub. L. 103-66 substituted ''871(h)(3) or
    (4)'' for ''871(h)(3)'' and ''881(c)(3) or (4)'' for ''881(c)(3)''.
      1988 - Subsec. (a). Pub. L. 100-647 struck out ''and'' after ''to
    section 881(a)(3),'' and inserted before period at end '', and the
    reference in section 1441(c)(10) to section 871(i)(2) shall be
    treated as referring to section 881(d)''.
      1986 - Subsec. (a). Pub. L. 99-514, Sec. 1810(d)(3)(E),
    substituted ''871(h)'' for ''871(h)(2)'', ''881(c)'' for
    ''881(c)(2)'', and ''1441(c)(9)'' for ''1449(c)(9)''.
      Subsec. (c). Pub. L. 99-514, Sec. 1273(b)(2)(B), amended subsec.
    (c) generally, substituting reference to ''certain possessions
    corporations'' for reference to ''certain Guam and Virgin Islands
    corporations'' in heading, and in text extending ''foreign
    corporation'' exception so as to not include corporation created or
    organized in Guam, American Samoa, Northern Mariana Islands, or the
    Virgin Islands, and striking out par. (2) which declared that par.
    (1) not apply to tax imposed in Guam, and par. (3) which referred
    to sections 934 and 943a for tax imposed in Virgin Islands.
      1984 - Subsec. (a). Pub. L. 98-369, Sec. 474(r)(29)(I), struck
    out ''or section 1451'' after ''provided in section 1441'' and
    struck out ''; except that, in the case of interest described in
    section 1451 (relating to tax-free covenant bonds), the deduction
    and withholding shall be at the rate specified therein'' after ''a
    tax equal to 30 percent thereof''.
      Pub. L. 98-369, Sec. 127(e)(2), struck out ''and'' after
    ''section 881(a)(4),'' and inserted '', and the references in
    section 1449(c)(9) to sections 871(h)(2) and 871(h)(3) shall be
    treated as referring to sections 881(c)(2) and 881(c)(3)''.
      Subsec. (c). Pub. L. 98-369, Sec. 130(b), substituted provision
    relating to exception for certain Guam and Virgin Islands
    corporations for provision relating to exception for Guam
    corporations.
      1976 - Subsec. (b). Pub. L. 94-455 struck out ''or his delegate''
    after ''Secretary'' in two places.
      1972 - Subsec. (c). Pub. L. 92-606 added subsec. (c).
      1971 - Subsec. (a). Pub. L. 92-178 provided that reference in
    section 1441(c)(8) to section 871(a)(1)(C) shall be treated as
    referring to section 881(a)(3).
      1966 - Pub. L. 89-809 limited the withholding of tax at the 30
    percent rate to items of fixed or determinable United States source
    income not effectively connected with the conduct of a trade or
    business in the United States and authorized the granting of an
    exemption from the withholding requirement in the case of a foreign
    corporation engaged in trade or business within the United States
    if the Secretary or his delegate determines that the withholding
    imposes an undue administrative burden and that the collection of
    the tax will not be jeopardized by the exemption.
                      EFFECTIVE DATE OF 1993 AMENDMENT
      Amendment by Pub. L. 103-66 applicable to interest received after
    Dec. 31, 1993, see section 13237(d) of Pub. L. 103-66, set out as a
    note under section 871 of this title.
                      EFFECTIVE DATE OF 1988 AMENDMENT
      Amendment by Pub. L. 100-647 effective, except as otherwise
    provided, as if included in the provision of the Tax Reform Act of
    1986, Pub. L. 99-514, to which such amendment relates, see section
    1019(a) of Pub. L. 100-647, set out as a note under section 1 of
    this title.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Amendment by section 1273(b)(2)(B) of Pub. L. 99-514 applicable
    to taxable years beginning after Dec. 31, 1986, with certain
    exceptions and qualifications, see section 1277 of Pub. L. 99-514,
    set out as a note under section 931 of this title.
      Amendment by section 1810(d)(3)(E) of Pub. L. 99-514 effective,
    except as otherwise provided, as if included in the provisions of
    the Tax Reform Act of 1984, Pub. L. 98-369, div.  A, to which such
    amendment relates, see section 1881 of Pub. L. 99-514, set out as a
    note under section 48 of this title.
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Amendment by section 127(e)(2) of Pub. L. 98-369 applicable to
    interest received after July 18, 1984, with respect to obligations
    issued after such date, in taxable years after such date, see
    section 127(g)(1) of Pub. L. 98-369, set out as a note under
    section 871 of this title.
      Amendment by section 130(b) of Pub. L. 98-369 applicable to
    payments made after Mar. 1, 1984, in taxable years ending after
    such date, see section 130(d) of Pub. L. 98-369, set out as a note
    under section 881 of this title.
      Amendment by section 474(r)(29)(I) of Pub. L. 98-369 not
    applicable with respect to obligations issued before Jan. 1, 1984,
    see section 475(b) of Pub. L. 98-369, set out as a note under
    section 33 of this title.
                      EFFECTIVE DATE OF 1972 AMENDMENT
      Section 2 of Pub. L. 92-606 provided in part that: ''The
    amendment made by section 1(e)(2) (amending this section) shall
    take effect on the day after the date of enactment of this Act
    (Oct. 31, 1972).''
                      EFFECTIVE DATE OF 1971 AMENDMENT
      Amendment by Pub. L. 92-178 applicable with respect to payments
    occurring on or after Apr. 1, 1972, see section 313(f) of Pub. L.
    92-178, set out as a note under section 871 of this title.
                      EFFECTIVE DATE OF 1966 AMENDMENT
      Amendment by Pub. L. 89-809 applicable with respect to taxable
    years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
    89-809, set out as a note under section 11 of this title.
             PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
      For provisions directing that if any amendments made by subtitle
    A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
    XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
    any plan, such plan amendment shall not be required to be made
    before the first plan year beginning on or after Jan. 1, 1989, see
    section 1140 of Pub. L. 99-514, as amended, set out as a note under
    section 401 of this title.
     WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
      For provisions relating to withholding of tax on nonresident
    aliens and foreign corporations, see Pub. L. 97-248, title III,
    Sec. 342, Sept. 3, 1982, 96 Stat. 635, set out as a note under
    section 1441 of this title.
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 12, 565, 814, 860G, 881,
    884, 885, 1276, 1278, 1444, 3402, 7701 of this title.