26 U.S.C. § 902 : US Code - Section 902: Deemed paid credit where domestic corporation owns 10 percent or more of voting stock of foreign corporation

Search 26 U.S.C. § 902 : US Code - Section 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.