Internal Revenue Code:Sec. 902. Deemed paid credit where domestic corporation owns 10 percent or more of voting stock of foreign corporation
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Contents |
Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
Statute
Sec. 902. Deemed paid credit where domestic corporation owns 10
percent or more of voting stock of foreign corporation
(a) Taxes paid by foreign corporation treated as paid by domestic
corporation
For purposes of this subpart, a domestic corporation which owns
10 percent or more of the voting stock of a foreign corporation
from which it receives dividends in any taxable year shall be
deemed to have paid the same proportion of such foreign
corporation's post-1986 foreign income taxes as -
(1) the amount of such dividends (determined without regard to
section 78), bears to
(2) such foreign corporation's post-1986 undistributed
earnings.
(b) Deemed taxes increased in case of certain lower tier
corporations
(1) In general
If -
(A) any foreign corporation is a member of a qualified group,
and
(B) such foreign corporation owns 10 percent or more of the
voting stock of another member of such group from which it
receives dividends in any taxable year,
such foreign corporation shall be deemed to have paid the same
proportion of such other member's post-1986 foreign income taxes
as would be determined under subsection (a) if such foreign
corporation were a domestic corporation.
(2) Qualified group
For purposes of paragraph (1), the term ''qualified group''
means -
(A) the foreign corporation described in subsection (a), and
(B) any other foreign corporation if -
(i) the domestic corporation owns at least 5 percent of the
voting stock of such other foreign corporation indirectly
through a chain of foreign corporations connected through
stock ownership of at least 10 percent of their voting stock,
(ii) the foreign corporation described in subsection (a) is
the first tier corporation in such chain, and
(iii) such other corporation is not below the sixth tier in
such chain.
The term ''qualified group'' shall not include any foreign
corporation below the third tier in the chain referred to in
clause (i) unless such foreign corporation is a controlled
foreign corporation (as defined in section 957) and the domestic
corporation is a United States shareholder (as defined in section
951(b)) in such foreign corporation. Paragraph (1) shall apply
to those taxes paid by a member of the qualified group below the
third tier only with respect to periods during which it was a
controlled foreign corporation.
(c) Definitions and special rules
For purposes of this section -
(1) Post-1986 undistributed earnings
The term ''post-1986 undistributed earnings'' means the amount
of the earnings and profits of the foreign corporation (computed
in accordance with sections 964(a) and 986) accumulated in
taxable years beginning after December 31, 1986 -
(A) as of the close of the taxable year of the foreign
corporation in which the dividend is distributed, and
(B) without diminution by reason of dividends distributed
during such taxable year.
(2) Post-1986 foreign income taxes
The term ''post-1986 foreign income taxes'' means the sum of -
(A) the foreign income taxes with respect to the taxable year
of the foreign corporation in which the dividend is
distributed, and
(B) the foreign income taxes with respect to prior taxable
years beginning after December 31, 1986, to the extent such
foreign taxes were not attributable to dividends distributed by
the foreign corporation in prior taxable years.
(3) Special rule where foreign corporation first qualifies after
December 31, 1986
(A) In general
If the 1st day on which the requirements of subparagraph (B)
are met with respect to any foreign corporation is in a taxable
year of such corporation beginning after December 31, 1986, the
post-1986 undistributed earnings and the post-1986 foreign
income taxes of such foreign corporation shall be determined by
taking into account only periods beginning on and after the 1st
day of the 1st taxable year in which such requirements are met.
(B) Ownership requirements
The requirements of this subparagraph are met with respect to
any foreign corporation if -
(i) 10 percent or more of the voting stock of such foreign
corporation is owned by a domestic corporation, or
(ii) the requirements of subsection (b)(2) are met with
respect to such foreign corporation.
(4) Foreign income taxes
(A) In general
The term ''foreign income taxes'' means any income, war
profits, or excess profits taxes paid by the foreign
corporation to any foreign country or possession of the United
States.
(B) Treatment of deemed taxes
Except for purposes of determining the amount of the
post-1986 foreign income taxes of a sixth tier foreign
corporation referred to in subsection (b)(2), the term
''foreign income taxes'' includes any such taxes deemed to be
paid by the foreign corporation under this section.
(5) Accounting periods
In the case of a foreign corporation the income, war profits,
and excess profits taxes of which are determined on the basis of
an accounting period of less than 1 year, the word ''year'' as
used in this subsection shall be construed to mean such
accounting period.
(6) Treatment of distributions from earnings before 1987
(A) In general
In the case of any dividend paid by a foreign corporation out
of accumulated profits (as defined in this section as in effect
on the day before the date of the enactment of the Tax Reform
Act of 1986) for taxable years beginning before the 1st taxable
year taken into account in determining the post-1986
undistributed earnings of such corporation -
(i) this section (as amended by the Tax Reform Act of 1986)
shall not apply, but
(ii) this section (as in effect on the day before the date
of the enactment of such Act) shall apply.
(B) Dividends paid first out of post-1986 earnings
Any dividend in a taxable year beginning after December 31,
1986, shall be treated as made out of post-1986 undistributed
earnings to the extent thereof.
(7) Constructive ownership through partnerships.--Stock
owned, directly or indirectly, by or for a partnership shall be
considered as being owned proportionately by its partners. Stock
considered to be owned by a person by reason of the preceding
sentence shall, for purposes of applying such sentence, be
treated as actually owned by such person. The Secretary may
prescribe such regulations as may be necessary to carry out the
purposes of this paragraph, including rules to account for
special partnership allocations of dividends, credits, and other
incidents of ownership of stock in determining proportionate
ownership.
(8) Regulations
The Secretary shall provide such regulations as may be
necessary or appropriate to carry out the provisions of this
section and section 960, including provisions which provide for
the separate application of this section and section 960 to
reflect the separate application of section 904 to separate types
of income and loss.
(d) Cross references
(1) For inclusion in gross income of an amount equal to taxes
deemed paid under subsection (a), see section 78.
(2) For application of subsections (a) and (b) with respect
to taxes deemed paid in a prior taxable year by a United States
shareholder with respect to a controlled foreign corporation,
see section 960.
(3) For reduction of credit with respect to dividends paid
out of post-1986 undistributed earnings for years for which
certain information is not furnished, see section 6038.
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 286; Pub. L. 86-780, Sec.
6(b)(2), Sept. 14, 1960, 74 Stat. 1016; Pub. L. 87-834, Sec. 9(a),
Oct. 16, 1962, 76 Stat. 999; Pub. L. 91-684, Sec. 1, 2, Jan. 12,
1971, 84 Stat. 2068, 2069; Pub. L. 94-12, title VI, Sec. 602(c)(6),
Mar. 29, 1975, 89 Stat. 59; Pub. L. 94-455, title X, Sec. 1033(a),
Oct. 4, 1976, 90 Stat. 1626; Pub. L. 99-514, title XII, Sec.
1202(a), Oct. 22, 1986, 100 Stat. 2528; Pub. L. 100-647, title I,
Sec. 1012(b)(1), (2), Nov. 10, 1988, 102 Stat. 3496; Pub. L.
105-34, title XI, Sec. 1113(a), 1163(a), Aug. 5, 1997, 111 Stat.
970, 987.)
References in Text
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (c)(6)(A), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
The Tax Reform Act of 1986, referred to in subsec. (c)(6)(A)(i),
is Pub. L. 99-514, Oct. 22, 1986, 100 Stat. 2085. For complete
classification of this Act to the Code, see Tables.
Miscellaneous
AMENDMENTS
2004 - Subsec.405(a),Pub.L.108-357, amended Sec.902(c)by
redesignating paragraph (7) as paragraph (8) and by inserting after
paragraph (6) the following new paragraph:
"(7) Constructive ownership through partnerships."
1997 - Subsec. (b). Pub. L. 105-34, Sec. 1113(a)(1), amended
subsec. (b) generally. Prior to amendment, subsec. (b) consisted
of pars. (1) to (3) relating to deemed taxes increased in case of
certain 2nd and 3rd tier foreign corporations.
Subsec. (c)(2)(B). Pub. L. 105-34, Sec. 1163(a), substituted
''attributable to'' for ''deemed paid with respect to''.
Subsec. (c)(3). Pub. L. 105-34, Sec. 1113(a)(2)(C), substituted
''where foreign corporation first qualifies'' for ''where domestic
corporation acquires 10 percent of foreign corporation'' in
heading.
Pub. L. 105-34, Sec. 1113(a)(2)(D), struck out ''ownership''
after ''on which the'' and ''in which such'' in subpar. (A) and
before ''requirements of this subparagraph'' in introductory
provisions of subpar. (B).
Subsec. (c)(3)(B). Pub. L. 105-34, Sec. 1113(a)(2)(A), inserted
''or'' at end of cl. (i), added cl. (ii), and struck out former
cls. (ii) and (iii) which read as follows:
''(ii) the requirements of subsection (b)(3)(A) are met with
respect to such foreign corporation and 10 percent or more of the
voting stock of such foreign corporation is owned by another
foreign corporation described in clause (i), or
''(iii) the requirements of subsection (b)(3)(B) are met with
respect to such foreign corporation and 10 percent or more of the
voting stock of such foreign corporation is owned by another
foreign corporation described in clause (ii).''
Subsec. (c)(4)(B). Pub. L. 105-34, Sec. 1113(a)(2)(B),
substituted ''sixth tier foreign corporation'' for ''3rd foreign
corporation''.
1988 - Subsec. (c)(1). Pub. L. 100-647, Sec. 1012(b)(2),
substituted ''sections 964(a) and 986'' for ''sections 964 and
986''.
Subsec. (c)(7). Pub. L. 100-647, Sec. 1012(b)(1), substituted
''section 960'' for ''secton 960'' and ''this section and section
960'' for second reference to ''this section''.
1986 - Pub. L. 99-514 amended section generally, substituting
''Deemed paid credit where domestic corporation owns 10 percent or
more of voting stock of foreign corporation'' for ''Credit for
corporate stockholder in foreign corporation'' as section catchline
and substituting present provisions generally relating to post-1986
earnings and taxes for former provisions which had provided in
subsec. (a) for a general rule with respect to treatment of taxes
paid by foreign corporations, in subsec. (b) for treatment of taxes
by a foreign subsidiary of first and second foreign corporations,
in subsec. (c) for rules defining accumulated profits and
determining accounting periods, and in subsec. (d) for cross
references.
1976 - Pub. L. 94-455, Sec. 1033(a), struck out provisions by
which dividends from less developed country corporations are not
grossed-up by the amount of foreign taxes paid on the underlying
income and the deemed-paid foreign tax credits attributable to
those dividends are reduced proportionately, struck out subsec. (d)
which defined less developed country corporations, and redesignated
subsec. (e) as (d).
1975 - Subsec. (d). Pub. L. 94-12 substituted ''paragraph (3) or
(4)'', ''paragraph (3)'', ''paragraph (3)(A)'', and ''paragraph
(3)(B)'' for ''section 955(c)(1) or (2)'', ''section 955(c)(1)'',
''section 955(c)(1)(A)'', and ''section 955(c)(1)(B)'',
respectively, in existing provisions and added pars. (3), (4), and
(5) and provisions following par. (5).
1971 - Subsec. (b). Pub. L. 91-684, Sec. 1, substituted ''Foreign
subsidiary of first and second foreign corporation'' for ''Foreign
subsidiary of foreign corporation'' in heading, designated existing
provisions as par. (1) and inserted terminology denominating
corporations involved as first foreign corporation and second
foreign corporation, and reduced the ownership percentage
requirement in voting stock from 50 percent to 10 percent between
the first and second foreign corporations, and added pars. (2) and
(3).
Subsec. (c)(1)(A). Pub. L. 91-684, Sec. 2(1), substituted
''(b)(1)(A), and (b)(2)(A)'' for ''and (b)(1)''.
Subsec. (c)(1)(B). Pub. L. 91-684, Sec. 2(2), substituted
''(b)(1)(B), and (b)(2)(B)'' for ''and (b)(2)''.
1962 - Subsec. (a). Pub. L. 87-834 limited provisions which
required a domestic corporation owning at least 10 per cent of the
voting stock of a foreign corporation from which it receives
dividends in any taxable year to be deemed to have paid the same
proportion of any income, war profits, or excess profits taxes paid
or deemed to be paid by such foreign corporation to any foreign
country or to any possession of the United States which the amount
of such dividends bears to the amount of accumulated profits to
those cases where a foreign corporation paid such dividends out of
accumulated profits of a year for which such foreign corporation is
a less developed country corporation, and inserted provisions
requiring, in the case of a domestic corporation which owns at
least 10 percent of the voting stock of a foreign corporation from
which it receives dividends in a taxable year, to the extent such
dividends are paid by such foreign corporation out of accumulated
profits of a year for which such foreign corporation is not a less
developed country corporation, to be deemed to have paid the same
proportion of any income, war profits, or excess profits taxes paid
or deemed to be paid by such foreign corporation to any foreign
country or to any possession of the United States on or with
respect to such accumulated profits, which the amount of such
dividends (determined without regard to section 78) bears to the
amount of such accumulated profits in excess of such income, war
profits, and excess profits taxes (other than those deemed paid).
Subsec. (b). Pub. L. 87-834 substituted ''from which such
dividends were paid which -
''(1) for purposes of applying subsection (a)(1), the amount of
such dividends bears to the amount of the accumulated profits (as
defined in subsection (c)(1)(A)) of such other foreign
corporation from which such dividends were paid in excess of such
income, war profits, and excess profits taxes, or
''(2) for purposes of applying subsection (a)(2), the amount of
such dividends bears to the amount of the accumulated profits (as
defined in subsection (c)(1)(B)) of such other foreign
corporation from which such dividends were paid''
for ''from which such dividends were paid, which the amount of such
dividends bears to the amount of such accumulated profits''.
Subsec. (c). Pub. L. 87-834 defined ''accumulated profits'' for
purposes of subsecs. (a)(1) and (b)(1) as meaning the amount of its
gains, profits, or income computed without reduction by the amount
of the income, war profits, and excess profits taxes imposed on or
with respect to such profits or income by and foreign country or
any possession of the United States, and limited provisions
defining ''accumulated profits'' as the amount of its gains,
profits, or income in excess of the income, war profits, and excess
profits taxes imposed on or with respect to such profits or income
to subsecs. (a)(2) and (b)(2).
Subsec. (d). Pub. L. 87-834 substituted provisions defining
''less developed country corporation'' for provisions which
established special rules for certain wholly-owned foreign
corporations.
Subsec. (e). Pub. L. 87-834 designated existing provisions as
par. (3) and added pars. (1) and (2).
1960 - Subsec. (e). Pub. L. 86-780 added subsec. (e).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1113(c) of Pub. L. 105-34 provided that:
''(1) In general. - The amendments made by this section (amending
this section and section 960 of this title) shall apply to taxes of
foreign corporations for taxable years of such corporations
beginning after the date of enactment of this Act (Aug. 5, 1997).
''(2) Special rule. - In the case of any chain of foreign
corporations described in clauses (i) and (ii) of section
902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended by
this section), no liquidation, reorganization, or similar
transaction in a taxable year beginning after the date of the
enactment of this Act shall have the effect of permitting taxes to
be taken into account under section 902 of the Internal Revenue
Code of 1986 which could not have been taken into account under
such section but for such transaction.''
Section 1163(c) of Pub. L. 105-34 provided that: ''The amendments
made by this section (amending this section and section 904 of this
title) shall take effect on the date of the enactment of this Act
(Aug. 5, 1997).''
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
Section 1202(e) of Pub. L. 99-514 provided that: ''The amendments
made by this section (amending this section and sections 960 and
6038 of this title) shall apply to distributions by foreign
corporations out of, and to inclusions under section 951(a) of the
Internal Revenue Code of 1986 attributable to, earnings and profits
for taxable years beginning after December 31, 1986.''
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1033(c) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendments made by this section (amending this section and sections
78, 535, 545, and 960 of this title) shall apply -
''(1) in respect of any distribution received by a domestic
corporation after December 31, 1977, and
''(2) in respect of any distribution received by a domestic
corporation before January 1, 1978, in a taxable year of such
corporation beginning after December 31, 1975, but only to the
extent that such distribution is made out of the accumulated
profits of a foreign corporation for a taxable year (of such
foreign corporation) beginning after December 31, 1975.
For purposes of paragraph (2), a distribution made by a foreign
corporation out of its profits which are attributable to a
distribution received from a foreign corporation to which section
902(b) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954)
applies shall be treated as made out of the accumulated profits of
a foreign corporation for a taxable year beginning before January
1, 1976, to the extent that such distribution was paid out of the
accumulated profits of such foreign corporation for a taxable year
beginning before January 1, 1976.''
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years of foreign
corporations beginning after Dec. 31, 1975, and to taxable years of
United States shareholders (within the meaning of section 951(b) of
this title) within which or with which such taxable years of such
foreign corporations end, see section 602(f) of Pub. L. 94-12, set
out as an Effective Date note under section 955 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 3 of Pub. L. 91-684 provided that: ''The amendments made
by this Act (amending this section) shall apply with respect to all
taxable years of domestic corporations, ending after the date of
enactment of this Act (Jan. 12, 1971), but only in respect of
dividends paid by one corporation to another corporation after the
date of the enactment of this Act.''
EFFECTIVE DATE OF 1962 AMENDMENT
Section 9(e) of Pub. L. 87-834 provided that: ''The amendments
made by this section (enacting section 78 of this title and
amending this section and sections 535, 545, 861, and 901 of this
title) shall apply -
''(1) in respect of any distribution received by a domestic
corporation after December 31, 1964, and
''(2) in respect of any distribution received by a domestic
corporation before January 1, 1965, in a taxable year of such
corporation beginning after December 31, 1962, but only to the
extent that such distribution is made out of the accumulated
profits of a foreign corporation for a taxable year (of such
foreign corporation) beginning after December 31, 1962.
For purposes of paragraph (2), a distribution made by a foreign
corporation out of its profits which are attributable to a
distribution received from a foreign subsidiary to which section
902(b) applies shall be treated as made out of the accumulated
profits of a foreign corporation for a taxable year beginning
before January 1, 1963, to the extent that such distribution was
paid out of the accumulated profits of such foreign subsidiary for
a taxable year beginning before January 1, 1963.''
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-780 applicable to taxable years beginning
after Dec. 31, 1960, see section 6(c) of Pub. L. 86-780), set out
as an Effective Date note under section 6038 of this title.
INCREASE IN EARNINGS AND PROFITS OF FOREIGN CORPORATIONS UNDER
SECTION 1023(E)(3)(C) OF PUB. L. 99-514
Section 1012(b)(3) of Pub. L. 100-647 provided that: ''For
purposes of sections 902 and 960 of the 1986 Code, the increase in
earnings and profits of any foreign corporation under section
1023(e)(3)(C) of the Reform Act (Pub. L. 99-514, set out as an
Effective Date note under section 846 of this title) shall be taken
into account ratably over the 10-year period beginning with the
corporation's first taxable year beginning after December 31,
1986.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 78, 245, 535, 545,
814, 865, 901, 904, 905, 906, 907, 908, 954, 960, 1248, 1291, 6038
of this title.
