Internal Revenue Code:Sec. 960. Special rules for foreign tax credit
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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 F - Controlled Foreign Corporations
Statute
Sec. 960. Special rules for foreign tax credit
(a) Taxes paid by a foreign corporation
(1) Deemed paid credit
For purposes of subpart A of this part, if there is included
under section 951(a) in the gross income of a domestic
corporation any amount attributable to earnings and profits of a
foreign corporation which is a member of a qualified group (as
defined in section 902(b)) with respect to the domestic
corporation, then, except to the extent provided in regulations,
section 902 shall be applied as if the amount so included were a
dividend paid by such foreign corporation (determined by applying
section 902(c) in accordance with section 904(d)(3)(B)).
(2) Taxes previously deemed paid by domestic corporation
If a domestic corporation receives a distribution from a
foreign corporation, any portion of which is excluded from gross
income under section 959, the income, war profits, and excess
profits taxes paid or deemed paid by such foreign corporation to
any foreign country or to any possession of the United States in
connection with the earnings and profits of such foreign
corporation from which such distribution is made shall not be
taken into account for purposes of section 902, to the extent
such taxes were deemed paid by a domestic corporation under
paragraph (1) for any prior taxable year.
(3) Taxes paid by foreign corporation and not previously deemed
paid by domestic corporation
Any portion of a distribution from a foreign corporation
received by a domestic corporation which is excluded from gross
income under section 959(a) shall be treated by the domestic
corporation as a dividend, solely for purposes of taking into
account under section 902 any income, war profits, or excess
profits taxes paid to any foreign country or to any possession of
the United States, on or with respect to the accumulated profits
of such foreign corporation from which such distribution is made,
which were not deemed paid by the domestic corporation under
paragraph (1) for any prior taxable year.
(b) Special rules for foreign tax credit in year of receipt of
previously taxed earnings and profits
(1) Increase in section 904 limitation
In the case of any taxpayer who -
(A) either (i) chose to have the benefits of subpart A of
this part for a taxable year beginning after September 30,
1993, in which he was required under section 951(a) to include
any amount in his gross income, or (ii) did not pay or accrue
for such taxable year any income, war profits, or excess
profits taxes to any foreign country or to any possession of
the United States,
(B) chooses to have the benefits of subpart A of this part
for any taxable year in which he receives 1 or more
distributions or amounts which are excludable from gross income
under section 959(a) and which are attributable to amounts
included in his gross income for taxable years referred to in
subparagraph (A), and
(C) for the taxable year in which such distributions or
amounts are received, pays, or is deemed to have paid, or
accrues income, war profits, or excess profits taxes to a
foreign country or to any possession of the United States with
respect to such distributions or amounts,
the limitation under section 904 for the taxable year in which
such distributions or amounts are received shall be increased by
the lesser of the amount of such taxes paid, or deemed paid, or
accrued with respect to such distributions or amounts or the
amount in the excess limitation account as of the beginning of
such taxable year.
(2) Excess limitation account
(A) Establishment of account
Each taxpayer meeting the requirements of paragraph (1)(A)
shall establish an excess limitation account. The opening
balance of such account shall be zero.
(B) Increases in account
For each taxable year beginning after September 30, 1993, the
taxpayer shall increase the amount in the excess limitation
account by the excess (if any) of -
(i) the amount by which the limitation under section 904(a)
for such taxable year was increased by reason of the total
amount of the inclusions in gross income under section 951(a)
for such taxable year, over
(ii) the amount of any income, war profits, and excess
profits taxes paid, or deemed paid, or accrued to any foreign
country or possession of the United States which were
allowable as a credit under section 901 for such taxable year
and which would not have been allowable but for the
inclusions in gross income described in clause (i).
Proper reductions in the amount added to the account under the
preceding sentence for any taxable year shall be made for any
increase in the credit allowable under section 901 for such
taxable year by reason of a carryback if such increase would
not have been allowable but for the inclusions in gross income
described in clause (i).
(C) Decreases in account
For each taxable year beginning after September 30, 1993, for
which the limitation under section 904 was increased under
paragraph (1), the taxpayer shall reduce the amount in the
excess limitation account by the amount of such increase.
(3) Distributions of income previously taxed in years beginning
before October 1, 1993
If the taxpayer receives a distribution or amount in a taxable
year beginning after September 30, 1993, which is excluded from
gross income under section 959(a) and is attributable to any
amount included in gross income under section 951(a) for a
taxable year beginning before October 1, 1993, the limitation
under section 904 for the taxable year in which such amount or
distribution is received shall be increased by the amount
determined under this subsection as in effect on the day before
the date of the enactment of the Revenue Reconcilation (FOOTNOTE
1) Act of 1993.
(FOOTNOTE 1) So in original. Probably should be
''Reconciliation''.
(4) Cases in which taxes not to be allowed as deduction
In the case of any taxpayer who -
(A) chose to have the benefits of subpart A of this part for
a taxable year in which he was required under section 951(a) to
include in his gross income an amount in respect of a
controlled foreign corporation, and
(B) does not choose to have the benefits of subpart A of this
part for the taxable year in which he receives a distribution
or amount which is excluded from gross income under section
959(a) and which is attributable to earnings and profits of the
controlled foreign corporation which was included in his gross
income for the taxable year referred to in subparagraph (A),
no deduction shall be allowed under section 164 for the taxable
year in which such distribution or amount is received for any
income, war profits, or excess profits taxes paid or accrued to
any foreign country or to any possession of the United States on
or with respect to such distribution or amount.
(5) Insufficient taxable income
If an increase in the limitation under this subsection exceeds
the tax imposed by this chapter for such year, the amount of such
excess shall be deemed an overpayment of tax for such year.
Sources
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1020;
amended Pub. L. 94-455, title X, Sec. 1031(b)(1), 1033(b)(2),
1037(a), Oct. 4, 1976, 90 Stat. 1622, 1628, 1633; Pub. L. 99-514,
title XII, Sec. 1202(b), Oct. 22, 1986, 100 Stat. 2530; Pub. L.
103-66, title XIII, Sec. 13233(b)(1), Aug. 10, 1993, 107 Stat. 502;
Pub. L. 105-34, title XI, Sec. 1113(b), Aug. 5, 1997, 111 Stat.
971.)
References in Text
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1993, referred to in subsec. (b)(3), is the date of enactment of
Pub. L. 103-66, which was approved Aug. 10, 1993.
Miscellaneous
AMENDMENTS
1997 - Subsec. (a)(1). Pub. L. 105-34 amended heading and text of
par. (1) generally. Prior to amendment, text read as follows:
''For purposes of subpart A of this part, if there is included,
under section 951(a), in the gross income of a domestic corporation
any amount attributable to earnings and profits -
''(A) of a foreign corporation (hereafter in this subsection
referred to as the 'first foreign corporation') at least 10
percent of the voting stock of which is owned by such domestic
corporation, or
''(B) of a second foreign corporation (hereinafter in this
subsection referred to as the 'second foreign corporation') at
least 10 percent of the voting stock of which is owned by the
first foreign corporation, or
''(C) of a third foreign corporation (hereinafter in this
subsection referred to as the 'third foreign corporation') at
least 10 percent of the voting stock of which is owned by the
second foreign corporation,
then, except to the extent provided in regulations, such domestic
corporation shall be deemed to have paid a portion of such foreign
corporation's post-1986 foreign income taxes determined under
section 902 in the same manner as if the amount so included were a
dividend paid by such foreign corporation (determined by applying
section 902(c) in accordance with section 904(d)(3)(B)). This
paragraph shall not apply with respect to any amount included in
the gross income of such domestic corporation attributable to
earnings and profits of the second foreign corporation or of the
third foreign corporation unless, in the case of the second foreign
corporation, the percentage-of-voting-stock requirement of section
902(b)(3)(A) is satisfied, and in the case of the third foreign
corporation, the percentage-of-voting-stock requirement of section
902(b)(3)(B) is satisfied.''
1993 - Subsec. (b). Pub. L. 103-66 added pars. (1) to (3),
redesignated former pars. (3) and (4) as (4) and (5), respectively,
and struck out former par. (1) relating to increase in section 904
limitation and former par. (2) relating to the amount of increase.
1986 - Subsec. (a)(1). Pub. L. 99-514 substituted ''then, except
to the extent provided in regulations, such domestic corporation
shall be deemed to have paid a portion of such foreign
corporation's post-1986 foreign income taxes determined under
section 902 in the same manner as if the amount so included were a
dividend paid by such foreign corporation (determined by applying
section 902(c) in accordance with section 904(d)(3)(B))'' for
''then, under regulations prescribed by the Secretary, such
domestic corporation shall be deemed to have paid the same
proportion of the total income, war profits, and excess profits
taxes paid (or deemed paid) by such foreign corporation to a
foreign country or possession of the United States for the taxable
year on or with respect to the earnings and profits of such foreign
corporation which the amount of earnings and profits of such
foreign corporation so included in gross income of the domestic
corporation bears to the entire amount of the earnings and profits
of such corporation for such taxable year''.
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1033(b)(2), 1037(a),
substituted ''bears to the entire amount of the earnings and
profits of such foreign corporation for such taxable year'' for
''bears to-'' after ''gross income of the domestic corporation'',
struck out subpars. (C) and (D) relating to corporations which are
and are not less developed country corporations, inserted in
subpar. (A) ''(hereafter in this subsection referred to as the
'first foreign corporation')'' after ''foreign corporation'',
substituted in subpar. (B) ''of a second foreign corporation
(hereinafter in this subsection referred to as the 'second foreign
corporation') at least 10 percent of the voting stock of which is
owned by the first foreign corporation, or'' for ''of a foreign
corporation at least 50 percent of the voting stock of which is
owned by a foreign corporation at least 10 percent of the voting
stock of which in turn owned by such domestic corporation'' after
''(B)'', added subpar. (C), and inserted at end ''This paragraph
shall not apply with respect to any amount included in the gross
income of such domestic corporation attributable to earning and
profits of the second foreign corporation or of the third foreign
corporation unless, in the case of the second foreign corporation,
the percentage-of-voting-stock requirement of section 902(b)(3)(A)
is satisfied, and in the case of the third foreign corporation, the
percentage-of-voting-stock requirement of section 902(b)(3)(B) is
satisfied.''
Subsec. (b). Pub. L. 94-455, Sec. 1031(b)(1), struck out
''applicable'' in par. (1) after ''amount, the'', in par. (2) after
''increase of the'', and in subpar. (A) of par. (2) after ''by
which the''.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with special rule, to
taxes of foreign corporations for taxable years of such
corporations beginning after Aug. 5, 1997, see section 1113(c) of
Pub. L. 105-34, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13233(b)(2) of Pub. L. 103-66 provided that: ''The
amendment made by paragraph (1) (amending this section) shall apply
to taxable years beginning after September 30, 1993.''
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to distributions by
foreign corporations out of, and to inclusions under section 951(a)
of this title attributable to, earnings and profits for taxable
years beginning after Dec. 31, 1986, see section 1202(e) of Pub. L.
99-514, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1031(b)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 1031(c) of
Pub. L. 94-455, set out as a note under section 904 of this title.
Amendment by section 1033(b)(2) of Pub. L. 94-455 applicable in
respect of any distribution received by a domestic corporation
after Dec. 31, 1977, and in respect of any distribution received by
a domestic corporation before Jan. 1, 1978, in a taxable year of
such corporation beginning after Dec. 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 beginning after
Dec. 31, 1975, see section 1033(c) of Pub. L. 94-455, set out as a
note under section 902 of this title.
Section 1037(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendment made by this section (amending this section) shall apply
with respect to earnings and profits of a foreign corporation,
included, under section 951(a) of the Internal Revenue Code of 1986
(formerly I.R.C. 1954), in the gross income of a domestic
corporation in taxable years beginning after December 31, 1976.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 78, 245, 535, 545, 865,
901, 902, 904, 905, 907, 908, 958, 959, 962, 1293, 6038 of this
title.
