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.
 

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