26 U.S.C. § 884 : US Code - Section 884: Branch profits tax

Search 26 U.S.C. § 884 : US Code - Section 884: Branch profits tax

(a) Imposition of tax
In addition to the tax imposed by section 882 for any taxable
year, there is hereby imposed on any foreign corporation a tax
equal to 30 percent of the dividend equivalent amount for the
taxable year.
(b) Dividend equivalent amount
For purposes of subsection (a), the term "dividend equivalent
amount" means the foreign corporation's effectively connected
earnings and profits for the taxable year adjusted as provided in
this subsection:
(1) Reduction for increase in U.S. net equity
If -
(A) the U.S. net equity of the foreign corporation as of the
close of the taxable year, exceeds
(B) the U.S. net equity of the foreign corporation as of the
close of the preceding taxable year,
the effectively connected earnings and profits for the taxable
year shall be reduced (but not below zero) by the amount of such
excess.
(2) Increase for decrease in net equity
(A) In general
If -
(i) the U.S. net equity of the foreign corporation as of
the close of the preceding taxable year, exceeds
(ii) the U.S. net equity of the foreign corporation as of
the close of the taxable year,
the effectively connected earnings and profits for the taxable
year shall be increased by the amount of such excess.
(B) Limitation
(i) In general
The increase under subparagraph (A) for any taxable year
shall not exceed the accumulated effectively connected
earnings and profits as of the close of the preceding taxable
year.
(ii) Accumulated effectively connected earnings and profits
For purposes of clause (i), the term "accumulated
effectively connected earnings and profits" means the excess
of -
(I) the aggregate effectively connected earnings and
profits for preceding taxable years beginning after
December 31, 1986, over
(II) the aggregate dividend equivalent amounts determined
for such preceding taxable years.
(c) U.S. net equity
For purposes of this section -
(1) In general
The term "U.S. net equity" means -
(A) U.S. assets, reduced (including below zero) by
(B) U.S. liabilities.
(2) U.S. assets and U.S. liabilities
For purposes of paragraph (1) -
(A) U.S. assets
The term "U.S. assets" means the money and aggregate adjusted
bases of property of the foreign corporation treated as
connected with the conduct of a trade or business in the United
States under regulations prescribed by the Secretary. For
purposes of the preceding sentence, the adjusted basis of any
property shall be its adjusted basis for purposes of computing
earnings and profits.
(B) U.S. liabilities
The term "U.S. liabilities" means the liabilities of the
foreign corporation treated as connected with the conduct of a
trade or business in the United States under regulations
prescribed by the Secretary.
(C) Regulations to be consistent with allocation of deductions
The regulations prescribed under subparagraphs (A) and (B)
shall be consistent with the allocation of deductions under
section 882(c)(1).
(d) Effectively connected earnings and profits
For purposes of this section -
(1) In general
The term "effectively connected earnings and profits" means
earnings and profits (without diminution by reason of any
distributions made during the taxable year) which are
attributable to income which is effectively connected (or treated
as effectively connected) with the conduct of a trade or business
within the United States.
(2) Exception for certain income
The term "effectively connected earnings and profits" shall not
include any earnings and profits attributable to -
(A) income not includible in gross income under paragraph (1)
or (2) of section 883(a),
(B) income treated as effectively connected with the conduct
of a trade or business within the United States under section
921(d) or 926(b),(!1)
(C) gain on the disposition of a United States real property
interest described in section 897(c)(1)(A)(ii),
(D) income treated as effectively connected with the conduct
of a trade or business within the United States under section
953(c)(3)(C), or
(E) income treated as effectively connected with the conduct
of a trade or business within the United States under section
882(e).
Property and liabilities of the foreign corporation treated as
connected with such income under regulations prescribed by the
Secretary shall not be taken into account in determining the U.S.
assets or U.S. liabilities of the foreign corporation.
(e) Coordination with income tax treaties; etc.
(1) Limitation on treaty exemption
No treaty between the United States and a foreign country shall
exempt any foreign corporation from the tax imposed by subsection
(a) (or reduce the amount thereof) unless -
(A) such treaty is an income tax treaty, and
(B) such foreign corporation is a qualified resident of such
foreign country.
(2) Treaty modifications
If a foreign corporation is a qualified resident of a foreign
country with which the United States has an income tax treaty -
(A) the rate of tax under subsection (a) shall be the rate of
tax specified in such treaty -
(i) on branch profits if so specified, or
(ii) if not so specified, on dividends paid by a domestic
corporation to a corporation resident in such country which
wholly owns such domestic corporation, and
(B) any other limitations under such treaty on the tax
imposed by subsection (a) shall apply.
(3) Coordination with withholding tax
(A) In general
If a foreign corporation is subject to the tax imposed by
subsection (a) for any taxable year (determined after the
application of any treaty), no tax shall be imposed by section
871(a), 881(a), 1441, or 1442 on any dividends paid by such
corporation out of its earnings and profits for such taxable
year.
(B) Limitation on certain treaty benefits
If -
(i) any dividend described in section 861(a)(2)(B) is
received by a foreign corporation, and
(ii) subparagraph (A) does not apply to such dividend,
rules similar to the rules of subparagraphs (A) and (B) of
subsection (f)(3) shall apply to such dividend.
(4) Qualified resident
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"qualified resident" means, with respect to any foreign
country, any foreign corporation which is a resident of such
foreign country unless -
(i) 50 percent or more (by value) of the stock of such
foreign corporation is owned (within the meaning of section
883(c)(4)) by individuals who are not residents of such
foreign country and who are not United States citizens or
resident aliens, or
(ii) 50 percent or more of its income is used (directly or
indirectly) to meet liabilities to persons who are not
residents of such foreign country or citizens or residents of
the United States.
(B) Special rule for publicly traded corporations
A foreign corporation which is a resident of a foreign
country shall be treated as a qualified resident of such
foreign country if -
(i) the stock of such corporation is primarily and
regularly traded on an established securities market in such
foreign country, or
(ii) such corporation is wholly owned (either directly or
indirectly) by another foreign corporation which is organized
in such foreign country and the stock of which is so traded.
(C) Corporations owned by publicly traded domestic corporations
A foreign corporation which is a resident of a foreign
country shall be treated as a qualified resident of such
foreign country if -
(i) such corporation is wholly owned (directly or
indirectly) by a domestic corporation, and
(ii) the stock of such domestic corporation is primarily
and regularly traded on an established securities market in
the United States.
(D) Secretarial authority
The Secretary may, in his sole discretion, treat a foreign
corporation as being a qualified resident of a foreign country
if such corporation establishes to the satisfaction of the
Secretary that such corporation meets such requirements as the
Secretary may establish to ensure that individuals who are not
residents of such foreign country do not use the treaty between
such foreign country and the United States in a manner
inconsistent with the purposes of this subsection.
(5) Exception for international organizations
This section shall not apply to an international organization
(as defined in section 7701(a)(18)).
(f) Treatment of interest allocable to effectively connected income
(1) In general
In the case of a foreign corporation engaged in a trade or
business in the United States (or having gross income treated as
effectively connected with the conduct of a trade or business in
the United States), for purposes of this subtitle -
(A) any interest paid by such trade or business in the United
States shall be treated as if it were paid by a domestic
corporation, and
(B) to the extent that the allocable interest exceeds the
interest described in subparagraph (A), such foreign
corporation shall be liable for tax under section 881(a) in the
same manner as if such excess were interest paid to such
foreign corporation by a wholly owned domestic corporation on
the last day of such foreign corporation's taxable year.
To the extent provided in regulations, subparagraph (A) shall not
apply to interest in excess of the amounts reasonably expected to
be allocable interest.
(2) Allocable interest
For purposes of this subsection, the term "allocable interest"
means any interest which is allocable to income which is
effectively connected (or treated as effectively connected) with
the conduct of a trade or business in the United States.
(3) Coordination with treaties
(A) Payor must be qualified resident
In the case of any interest described in paragraph (1) which
is paid or accrued by a foreign corporation, no benefit under
any treaty between the United States and the foreign country of
which such corporation is a resident shall apply unless -
(i) such treaty is an income tax treaty, and
(ii) such foreign corporation is a qualified resident of
such foreign country.
(B) Recipient must be qualified resident
In the case of any interest described in paragraph (1) which
is received or accrued by any corporation, no benefit under any
treaty between the United States and the foreign country of
which such corporation is a resident shall apply unless -
(i) such treaty is an income tax treaty, and
(ii) such foreign corporation is a qualified resident of
such foreign country.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations providing for appropriate adjustments in the
determination of the dividend equivalent amount in connection with
the distribution to shareholders or transfer to a controlled
corporation of the taxpayer's U.S. assets and other adjustments in
such determination as are necessary or appropriate to carry out the
purposes of this section.