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Internal Revenue Code, § 954. Foreign Base Company Income

I.R.C. § 954(a) Foreign Base Company Income
For purposes of section 952(a)(2), the term “foreign base company income” means for any taxable year the sum of—
I.R.C. § 954(a)(1)
the foreign personal holding company income for the taxable year (determined under subsection (c) and reduced as provided in subsection (b)(5)),
I.R.C. § 954(a)(2)
the foreign base company sales income for the taxable year (determined under subsection (d) and reduced as provided in subsection (b)(5)), and
I.R.C. § 954(a)(3)
the foreign base company services income for the taxable year (determined under subsection (e) and reduced as provided in subsection (b)(5)).
I.R.C. § 954(b) Exclusion And Special Rules
I.R.C. § 954(b)(1)
[Repealed. Pub. L. 94-12, title VI, 602(c)(1), Mar. 29, 1975, 89 Stat. 58.]
I.R.C. § 954(b)(2)
[Repealed. Pub. L. 99-514, title XII, 1221(c)(1), Oct. 22, 1986, 100 Stat. 2553.]
I.R.C. § 954(b)(3) De Minimis, Etc., Rules
For purposes of subsection (a) and section 953
I.R.C. § 954(b)(3)(A) De Minimis Rule
If the sum of foreign base company income (determined without regard to paragraph (5)) and the gross insurance income for the taxable year is less than the lesser of—
I.R.C. § 954(b)(3)(A)(i)
5 percent of gross income, or
I.R.C. § 954(b)(3)(A)(ii)
$1,000,000,
no part of the gross income for the taxable year shall be treated as foreign base company income or insurance income.
I.R.C. § 954(b)(3)(B) Foreign Base Company Income And Insurance Income In Excess Of 70 Percent Of Gross Income
If the sum of the foreign base company income (determined without regard to paragraph (5)) and the gross insurance income for the taxable year exceeds 70 percent of gross income, the entire gross income for the taxable year shall, subject to the provisions of paragraphs (4) and (5), be treated as foreign base company income or insurance income (whichever is appropriate).
I.R.C. § 954(b)(3)(C) Gross Insurance Income
For purposes of subparagraphs (A) and (B), the term “gross insurance income” means any item of gross income taken into account in determining insurance income under section 953.
I.R.C. § 954(b)(4) Exception For Certain Income Subject To High Foreign Taxes
For purposes of subsection (a) and section 953, foreign base company income and insurance income shall not include any item of income received by a controlled foreign corporation if the taxpayer establishes to the satisfaction of the Secretary that such income was subject to an effective rate of income tax imposed by a foreign country greater than 90 percent of the maximum rate of tax specified in section 11.
I.R.C. § 954(b)(5) Deductions To Be Taken Into Account
For purposes of subsection (a), the foreign personal holding company income, the foreign base company sales income, and the foreign base company services income shall be reduced, under regulations prescribed by the Secretary, so as to take into account deductions (including taxes) properly allocable to such income. Except to the extent provided in regulations prescribed by the Secretary, any interest which is paid or accrued by the controlled foreign corporation to any United States shareholder in such corporation (or any controlled foreign corporation related to such a shareholder) shall be allocated first to foreign personal holding company income which is passive income (within the meaning of section 904(d)(2)) of such corporation to the extent thereof. The Secretary may, by regulations, provide that the preceding sentence shall apply also to interest paid or accrued to other persons.
I.R.C. § 954(b)(6) Repealed
[Repealed. Pub. L. 115-97, Sec. 14211(b)(2)(C),, Dec. 22, 2017, 131 Stat. 2054.] Income of a corporation which is foreign base company oil related income shall not be considered foreign base company income of such corporation under paragraph (2), or (3) of subsection (a).
I.R.C. § 954(c) Foreign Personal Holding Company Income
I.R.C. § 954(c)(1) In General
For purposes of subsection (a)(1), the term “foreign personal holding company income” means the portion of the gross income which consists of:
I.R.C. § 954(c)(1)(A) Dividends, Etc.
Dividends, interest, royalties, rents, and annuities.
I.R.C. § 954(c)(1)(B) Certain Property Transactions
The excess of gains over losses from the sale or exchange of property—
I.R.C. § 954(c)(1)(B)(i)
which gives rise to income described in subparagraph (A) (after application of paragraph (2)(A)) other than property which gives rise to income not treated as foreign personal holding company income by reason of subsection (h) or (i) for the taxable year,
I.R.C. § 954(c)(1)(B)(ii)
which is an interest in a trust, partnership, or REMIC, or
I.R.C. § 954(c)(1)(B)(iii)
which does not give rise to any income.
Gains and losses from the sale or exchange of any property which, in the hands of the controlled foreign corporation, is property described in section 1221(a)(1) shall not be taken into account under this subparagraph.
I.R.C. § 954(c)(1)(C) Commodities Transactions
The excess of gains over losses from transactions (including futures, forward, and similar transactions) in any commodities. This subparagraph shall not apply to gains or losses which—
I.R.C. § 954(c)(1)(C)(i)
arise out of commodity hedging transactions (as defined in paragraph (5)(A)),
I.R.C. § 954(c)(1)(C)(ii)
are active business gains or losses from the sale of commodities, but only if substantially all of the controlled foreign corporation's commodities are property described in paragraph (1), (2), or (8) of section 1221(a), or
I.R.C. § 954(c)(1)(C)(iii)
are foreign currency gains or losses (as defined in section 988(b)) attributable to any section 988 transactions.
I.R.C. § 954(c)(1)(D) Foreign Currency Gains
The excess of foreign currency gains over foreign currency losses (as defined in section 988(b)) attributable to any section 988 transactions. This subparagraph shall not apply in the case of any transaction directly related to the business needs of the controlled foreign corporation.
I.R.C. § 954(c)(1)(E) Income Equivalent To Interest
Any income equivalent to interest, including income from commitment fees (or similar amounts) for loans actually made.
I.R.C. § 954(c)(1)(F) Income From Notional Principal Contracts
I.R.C. § 954(c)(1)(F)(i) In General
Net income from notional principal contracts.
I.R.C. § 954(c)(1)(F)(ii) Coordination With Other Categories Of Foreign Personal Holding Company Income
Any item of income, gain, deduction, or loss from a notional principal contract entered into for purposes of hedging any item described in any preceding subparagraph shall not be taken into account for purposes of this subparagraph but shall be taken into account under such other subparagraph.
I.R.C. § 954(c)(1)(G) Payments In Lieu Of Dividends
Payments in lieu of dividends which are made pursuant to an agreement to which section 1058 applies.
I.R.C. § 954(c)(1)(H) Personal Service Contracts
I.R.C. § 954(c)(1)(H)(i)
Amounts received under a contract under which the corporation is to furnish personal services if—
I.R.C. § 954(c)(1)(H)(i)(I)
some person other than the corporation has the right to designate (by name or by description) the individual who is to perform the services, or
I.R.C. § 954(c)(1)(H)(i)(II)
the individual who is to perform the services is designated (by name or by description) in the contract, and
I.R.C. § 954(c)(1)(H)(ii)
amounts received from the sale or other disposition of such a contract.
This subparagraph shall apply with respect to amounts received for services under a particular contract only if at some time during the taxable year 25 percent or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for the individual who has performed, is to perform, or may be designated (by name or by description) as the one to perform, such services.
I.R.C. § 954(c)(2) Exception For Certain Amounts
I.R.C. § 954(c)(2)(A) Rents And Royalties Derived In Active Business
Foreign personal holding company income shall not include rents and royalties which are derived in the active conduct of a trade or business and which are received from a person other than a related person (within the meaning of subsection (d)(3)). For purposes of the preceding sentence, rents derived from leasing an aircraft or vessel in foreign commerce shall not fail to be treated as derived in the active conduct of a trade or business if, as determined under regulations prescribed by the Secretary, the active leasing expenses are not less than 10 percent of the profit on the lease.
I.R.C. § 954(c)(2)(B) Certain Export Financing
Foreign personal holding company income shall not include any interest which is derived in the conduct of a banking business and which is export financing interest (as defined in section 904(d)(2)(G)).
I.R.C. § 954(c)(2)(C) Exception For Dealers
Except as provided by regulations, in the case of a regular dealer in property which is property described in paragraph (1)(B), forward contracts, option contracts, or similar financial instruments (including notional principal contracts and all instruments referenced to commodities), there shall not be taken into account in computing foreign personal holding company income—
I.R.C. § 954(c)(2)(C)(i)
any item of income, gain, deduction, or loss (other than any item described in subparagraph (A), (E), or (G) of paragraph (1)) from any transaction (including hedging transactions and transactions involving physical settlement) entered into in the ordinary course of such dealer's trade or business as such a dealer, and
I.R.C. § 954(c)(2)(C)(ii)
if such dealer is a dealer in securities (within the meaning of section 475), any interest or dividend or equivalent amount described in subparagraph (E) or (G) of paragraph (1) from any transaction (including any hedging transaction or transaction described in section 956(c)(2)(I)) entered into in the ordinary course of such dealer's trade or business as such a dealer in securities, but only if the income from the transaction is attributable to activities of the dealer in the country under the laws of which the dealer is created or organized (or in the case of a qualified business unit described in section 989(a), is attributable to activities of the unit in the country in which the unit both maintains its principal office and conducts substantial business activity).
I.R.C. § 954(c)(3) Certain Income Received From Related Persons
I.R.C. § 954(c)(3)(A) In General
Except as provided in subparagraph (B), the term “foreign personal holding company income” does not include—
I.R.C. § 954(c)(3)(A)(i)
dividends and interest received from a related person which (I) is a corporation created or organized under the laws of the same foreign country under the laws of which the controlled foreign corporation is created or organized, and (II) has a substantial part of its assets used in its trade or business located in such same foreign country, and
I.R.C. § 954(c)(3)(A)(ii)
rents and royalties received from a corporation which is a related person for the use of, or the privilege of using, property within the country under the laws of which the controlled foreign corporation is created or organized.
To the extent provided in regulations, payments made by a partnership with 1 or more corporate partners shall be treated as made by such corporate partners in proportion to their respective interests in the partnership.
I.R.C. § 954(c)(3)(B) Exception Not To Apply To Items Which Reduce Subpart F Income
Subparagraph (A) shall not apply in the case of any interest, rent, or royalty to the extent such interest, rent, or royalty reduces the payor's subpart F income or creates (or increases) a deficit which under section 952(c) may reduce the subpart F income of the payor or another controlled foreign corporation.
I.R.C. § 954(c)(3)(C) Exception For Certain Dividends
Subparagraph (A)(i) shall not apply to any dividend with respect to any stock which is attributable to earnings and profits of the distributing corporation accumulated during any period during which the person receiving such dividend did not hold such stock either directly, or indirectly through a chain of one or more subsidiaries each of which meets the requirements of subparagraph (A)(i).
I.R.C. § 954(c)(4) Look-Thru Rule For Certain Partnership Sales
I.R.C. § 954(c)(4)(A) In General
In the case of any sale by a controlled foreign corporation of an interest in a partnership with respect to which such corporation is a 25-percent owner, such corporation shall be treated for purposes of this subsection as selling the proportionate share of the assets of the partnership attributable to such interest. The Secretary shall prescribe such regulations as may be appropriate to prevent abuse of the purposes of this paragraph, including regulations providing for coordination of this paragraph with the provisions of subchapter K.
I.R.C. § 954(c)(4)(B) 25-Percent Owner
For purposes of this paragraph, the term “25-percent owner” means a controlled foreign corporation which owns directly 25 percent or more of the capital or profits interest in a partnership. For purposes of the preceding sentence, if a controlled foreign corporation is a shareholder or partner of a corporation or partnership, the controlled foreign corporation shall be treated as owning directly its proportionate share of any such capital or profits interest held directly or indirectly by such corporation or partnership. If a controlled foreign corporation is treated as owning a capital or profits interest in a partnership under constructive ownership rules similar to the rules of section 958(b), the controlled foreign corporation shall be treated as owning such interest directly for purposes of this subparagraph.
I.R.C. § 954(c)(5) Definition And Special Rules Relating To Commodity Transactions
I.R.C. § 954(c)(5)(A) Commodity Hedging Transactions
For purposes of paragraph (1)(C)(i), the term “commodity hedging transaction” means any transaction with respect to a commodity if such transaction—
I.R.C. § 954(c)(5)(A)(i)
is a hedging transaction as defined in section 1221(b)(2), determined—
I.R.C. § 954(c)(5)(A)(i)(I)
without regard to subparagraph (A)(ii) thereof,
I.R.C. § 954(c)(5)(A)(i)(II)
by applying subparagraph (A)(i) thereof by substituting “ordinary property or property described in section 1231(b)“ for “ordinary property”, and
I.R.C. § 954(c)(5)(A)(i)(III)
by substituting “controlled foreign corporation” for “taxpayer” each place it appears, and
I.R.C. § 954(c)(5)(A)(ii)
is clearly identified as such in accordance with section 1221(a)(7).
I.R.C. § 954(c)(5)(B) Treatment Of Dealer Activities Under Paragraph (1)(C)
Commodities with respect to which gains and losses are not taken into account under paragraph (2)(C) in computing a controlled foreign corporation's foreign personal holding company income shall not be taken into account in applying the substantially all test under paragraph (1)(C)(ii) to such corporation.
I.R.C. § 954(c)(5)(C) Regulations
The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of paragraph (1)(C) in the case of transactions involving related parties.
I.R.C. § 954(c)(6) Look-Thru Rule For Related Controlled Foreign Corporations
I.R.C. § 954(c)(6)(A) In General
For purposes of this subsection, dividends, interest, rents, and royalties received or accrued from a controlled foreign corporation which is a related person shall not be treated as foreign personal holding company income to the extent attributable or properly allocable (determined under rules similar to the rules of subparagraphs (C) and (D) of section 904(d)(3)) to income of the related person which is neither subpart F income nor income treated as effectively connected with the conduct of a trade or business in the United States. For purposes of this subparagraph, interest shall include factoring income which is treated as income equivalent to interest for purposes of paragraph (1)(E). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph, including such regulations as may be necessary or appropriate to prevent the abuse of the purposes of this paragraph.
I.R.C. § 954(c)(6)(B) Exception
Subparagraph (A) shall not apply in the case of any interest, rent, or royalty to the extent such interest, rent, or royalty creates (or increases) a deficit which under section 952(c) may reduce the subpart F income of the payor or another controlled foreign corporation.
I.R.C. § 954(c)(6)(C) Application
Subparagraph (A) shall apply to taxable years of foreign corporations beginning after December 31, 2005, and before January 1, 2020, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
I.R.C. § 954(d) Foreign Base Company Sales Income
I.R.C. § 954(d)(1) In General
For purposes of subsection (a)(2), the term “foreign base company sales income” means income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with the purchase of personal property from a related person and its sale to any person, the sale of personal property to any person on behalf of a related person, the purchase of personal property from any person and its sale to a related person, or the purchase of personal property from any person on behalf of a related person where—
I.R.C. § 954(d)(1)(A)
the property which is purchased (or in the case of property sold on behalf of a related person, the property which is sold) is manufactured, produced, grown, or extracted outside the country under the laws of which the controlled foreign corporation is created or organized, and
I.R.C. § 954(d)(1)(B)
the property is sold for use, consumption, or disposition outside such foreign country, or, in the case of property purchased on behalf of a related person, is purchased for use, consumption, or disposition outside such foreign country.
For purposes of this subsection, personal property does not include agricultural commodities which are not grown in the United States in commercially marketable quantities.
I.R.C. § 954(d)(2) Certain Branch Income
For purposes of determining foreign base company sales income in situations in which the carrying on of activities by a controlled foreign corporation through a branch or similar establishment outside the country of incorporation of the controlled foreign corporation has substantially the same effect as if such branch or similar establishment were a wholly owned subsidiary corporation deriving such income, under regulations prescribed by the Secretary the income attributable to the carrying on of such activities of such branch or similar establishment shall be treated as income derived by a wholly owned subsidiary of the controlled foreign corporation and shall constitute foreign base company sales income of the controlled foreign corporation.
I.R.C. § 954(d)(3) Related Person Defined
For purposes of this section, a person is a related person with respect to a controlled foreign corporation, if—
I.R.C. § 954(d)(3)(A)
such person is an individual, corporation, partnership, trust, or estate which controls, or is controlled by, the controlled foreign corporation, or
I.R.C. § 954(d)(3)(B)
such person is a corporation, partnership, trust, or estate which is controlled by the same person or persons which control the controlled foreign corporation.
For purposes of the preceding sentence, control means, with respect to a corporation, the ownership, directly or indirectly, of stock possessing more than 50 percent of the total voting power of all classes of stock entitled to vote or of the total value of stock of such corporation. In the case of a partnership, trust, or estate, control means the ownership, directly or indirectly, of more than 50 percent (by value) of the beneficial interests in such partnership, trust, or estate. For purposes of this paragraph, rules similar to the rules of section 958 shall apply.
I.R.C. § 954(d)(4) Special Rule For Certain Timber Products
For purposes of subsection (a)(2), the term “foreign base company sales income” includes any income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with—
I.R.C. § 954(d)(4)(A)
the sale of any unprocessed timber referred to in section 865(b), or
I.R.C. § 954(d)(4)(B)
the milling of any such timber outside the United States. Subpart G shall not apply to any amount treated as subpart F income by reason of this paragraph.
I.R.C. § 954(e) Foreign Base Company Services Income
I.R.C. § 954(e)(1) In General
For purposes of subsection (a)(3), the term “foreign base company services income” means income (whether in the form of compensation, commissions, fees, or otherwise) derived in connection with the performance of technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial, or like services which—
I.R.C. § 954(e)(1)(A)
are performed for or on behalf of any related person (within the meaning of subsection (d)(3)), and
I.R.C. § 954(e)(1)(B)
are performed outside the country under the laws of which the controlled foreign corporation is created or organized.
I.R.C. § 954(e)(2) Exception
Paragraph (1) shall not apply to income derived in connection with the performance of services which are directly related to--
I.R.C. § 954(e)(2)(A)
the sale or exchange by the controlled foreign corporation of property manufactured, produced, grown, or extracted by it and which are performed before the time of the sale or exchange, or
I.R.C. § 954(e)(2)(B)
an offer or effort to sell or exchange such property.
Paragraph (1) shall also not apply to income which is exempt insurance income (as defined in section 953(e)) or which is not treated as foreign personal holding income by reason of subsection (c)(2)(C)(ii), (h), or (i).
I.R.C. § 954(f) Repealed
[Repealed. Pub. L. 108-357, title IV, Sec. 415(a)(2), Oct. 22, 2004, 118 Stat. 1418.]
I.R.C. § 954(g) Repealed
[Repealed. Pub. L. 115-97, Sec. 14211(b)(3),, Dec. 22, 2017, 131 Stat. 2054.]
I.R.C. § 954(h) Special Rule For Income Derived In The Active Conduct Of Banking, Financing, Or Similar Businesses
I.R.C. § 954(h)(1) In General
For purposes of subsection (c)(1), foreign personal holding company income shall not include qualified banking or financing income of an eligible controlled foreign corporation.
I.R.C. § 954(h)(2) Eligible Controlled Foreign Corporation
For purposes of this subsection—
I.R.C. § 954(h)(2)(A) In General
The term “eligible controlled foreign corporation” means a controlled foreign corporation which--
I.R.C. § 954(h)(2)(A)(i)
is predominantly engaged in the active conduct of a banking, financing, or similar business, and
I.R.C. § 954(h)(2)(A)(ii)
conducts substantial activity with respect to such business.
I.R.C. § 954(h)(2)(B) Predominantly Engaged
A controlled foreign corporation shall be treated as predominantly engaged in the active conduct of a banking, financing, or similar business if—
I.R.C. § 954(h)(2)(B)(i)
more than 70 percent of the gross income of the controlled foreign corporation is derived directly from the active and regular conduct of a lending or finance business from transactions with customers which are not related persons,
I.R.C. § 954(h)(2)(B)(ii)
it is engaged in the active conduct of a banking business and is an institution licensed to do business as a bank in the United States (or is any other corporation not so licensed which is specified by the Secretary in regulations), or
I.R.C. § 954(h)(2)(B)(iii)
it is engaged in the active conduct of a securities business and is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934 or is registered as a Government securities broker or dealer under section 15C(a) of such Act (or is any other corporation not so registered which is specified by the Secretary in regulations).
I.R.C. § 954(h)(3) Qualified Banking Or Financing Income
For purposes of this subsection—
I.R.C. § 954(h)(3)(A) In General
The term “qualified banking or financing income” means income of an eligible controlled foreign corporation which—
I.R.C. § 954(h)(3)(A)(i)
is derived in the active conduct of a banking, financing, or similar business by—
I.R.C. § 954(h)(3)(A)(i)(I)
such eligible controlled foreign corporation, or
I.R.C. § 954(h)(3)(A)(i)(II)
a qualified business unit of such eligible controlled foreign corporation,
I.R.C. § 954(h)(3)(A)(ii)
is derived from one or more transactions—
I.R.C. § 954(h)(3)(A)(ii)(I)
with customers located in a country other than the United States, and
I.R.C. § 954(h)(3)(A)(ii)(II)
substantially all of the activities in connection with which are conducted directly by the corporation or unit in its home country, and
I.R.C. § 954(h)(3)(A)(iii)
is treated as earned by such corporation or unit in its home country for purposes of such country's tax laws.
I.R.C. § 954(h)(3)(B) Limitation On Nonbanking And Nonsecurities Businesses
No income of an eligible controlled foreign corporation not described in clause (ii) or (iii) of paragraph (2)(B) (or of a qualified business unit of such corporation) shall be treated as qualified banking or financing income unless more than 30 percent of such corporation's or unit's gross income is derived directly from the active and regular conduct of a lending or finance business from transactions with customers which are not related persons and which are located within such corporation's or unit's home country.
I.R.C. § 954(h)(3)(C) Substantial Activity Requirement For Cross Border Income
The term “qualified banking or financing income” shall not include income derived from 1 or more transactions with customers located in a country other than the home country of the eligible controlled foreign corporation or a qualified business unit of such corporation unless such corporation or unit conducts substantial activity with respect to a banking, financing, or similar business in its home country.
I.R.C. § 954(h)(3)(D) Determinations Made Separately
For purposes of this paragraph, the qualified banking or financing income of an eligible controlled foreign corporation and each qualified business unit of such corporation shall be determined separately for such corporation and each such unit by taking into account--
I.R.C. § 954(h)(3)(D)(i)
in the case of the eligible controlled foreign corporation, only items of income, deduction, gain, or loss and activities of such corporation not properly allocable or attributable to any qualified business unit of such corporation, and
I.R.C. § 954(h)(3)(D)(ii)
in the case of a qualified business unit, only items of income, deduction, gain, or loss and activities properly allocable or attributable to such unit.
I.R.C. § 954(h)(3)(E) Direct Conduct Of Activities
For purposes of subparagraph (A)(ii)(II), an activity shall be treated as conducted directly by an eligible controlled foreign corporation or qualified business unit in its home country if the activity is performed by employees of a related person and—
I.R.C. § 954(h)(3)(E)(i)
the related person is an eligible controlled foreign corporation the home country of which is the same as the home country of the corporation or unit to which subparagraph (A)(ii)(II) is being applied,
I.R.C. § 954(h)(3)(E)(ii)
the activity is performed in the home country of the related person, and
I.R.C. § 954(h)(3)(E)(iii)
the related person is compensated on an arm's-length basisfor the performance of the activity by its employees and such compensation is treated as earned by such person in its home country for purposes of the home country's tax laws.
I.R.C. § 954(h)(4) Lending Or Finance Business
For purposes of this subsection, the term “lending or finance business” means the business of—
I.R.C. § 954(h)(4)(A)
making loans,
I.R.C. § 954(h)(4)(B)
purchasing or discounting accounts receivable, notes, or installment obligations,
I.R.C. § 954(h)(4)(C)
engaging in leasing (including entering into leases and purchasing, servicing, and disposing of leases and leased assets),
I.R.C. § 954(h)(4)(D)
issuing letters of credit or providing guarantees,
I.R.C. § 954(h)(4)(E)
providing charge and credit card services, or
I.R.C. § 954(h)(4)(F)
rendering services or making facilities available in connection with activities described in subparagraphs (A) through (E) carried on by--
I.R.C. § 954(h)(4)(F)(i)
the corporation (or qualified business unit) rendering services or making facilities available, or
I.R.C. § 954(h)(4)(F)(ii)
another corporation (or qualified business unit of a corporation) which is a member of the same affiliated group (as defined in section 1504, but determined without regard to section 1504(b)(3)).
I.R.C. § 954(h)(5) Other Definitions
For purposes of this subsection—
I.R.C. § 954(h)(5)(A) Customer
The term “customer” means, with respect to any controlled foreign corporation or qualified business unit, any person which has a customer relationship with such corporation or unit and which is acting in its capacity as such.
I.R.C. § 954(h)(5)(B) Home Country
Except as provided in regulations—
I.R.C. § 954(h)(5)(B)(i) Controlled Foreign Corporation
The term “home country” means, with respect to any controlled foreign corporation, the country under the laws of which the corporation was created or organized.
I.R.C. § 954(h)(5)(B)(ii) Qualified Business Unit
The term “home country” means, with respect to any qualified business unit, the country in which such unit maintains its principal office.
I.R.C. § 954(h)(5)(C) Located
The determination of where a customer is located shall be made under rules prescribed by the Secretary.
I.R.C. § 954(h)(5)(D) Qualified Business Unit
The term “qualified business unit” has the meaning given such term by section 989(a).
I.R.C. § 954(h)(5)(E) Related Person
The term “related person” has the meaning given such term by subsection (d)(3).
I.R.C. § 954(h)(6) Coordination With Exception For Dealers
Paragraph (1) shall not apply to income described in subsection (c)(2)(C)(ii) of a dealer in securities (within the meaning of section 475) which is an eligible controlled foreign corporation described in paragraph (2)(B)(iii).
I.R.C. § 954(h)(7) Anti-Abuse Rules
For purposes of applying this subsection and subsection (c)(2)(C)(ii)—
I.R.C. § 954(h)(7)(A)
there shall be disregarded any item of income, gain, loss, or deduction with respect to any transaction or series of transactions one of the principal purposes of which is qualifying income or gain for the exclusion under this section, including any transaction or series of transactions a principal purpose of which is the acceleration or deferral of any item in order to claim the benefits of such exclusion through the application of this subsection,
I.R.C. § 954(h)(7)(B)
there shall be disregarded any item of income, gain, loss, or deduction of an entity which is not engaged in regular and continuous transactions with customers which are not related persons,
I.R.C. § 954(h)(7)(C)
there shall be disregarded any item of income, gain, loss, or deduction with respect to any transaction or series of transactions utilizing, or doing business with—
I.R.C. § 954(h)(7)(C)(i)
one or more entities in order to satisfy any home country requirement under this subsection, or
I.R.C. § 954(h)(7)(C)(ii)
a special purpose entity or arrangement, including a securitization, financing, or similar entity or arrangement,
if one of the principal purposes of such transaction or series of transactions is qualifying income or gain for the exclusion under this subsection, and
I.R.C. § 954(h)(7)(D)
a related person, an officer, a director, or an employee with respect to any controlled foreign corporation (or qualified business unit) which would otherwise be treated as a customer of such corporation or unit with respect to any transaction shall not be so treated if a principal purpose of such transaction is to satisfy any requirement of this subsection.
I.R.C. § 954(h)(8) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, subsection (c)(1)(B)(i), subsection (c)(2)(C)(ii), and the last sentence of subsection (e)(2).
I.R.C. § 954(i) Special Rule For Income Derived In The Active Conduct Of Insurance Business
I.R.C. § 954(i)(1) In General
For purposes of subsection (c)(1), foreign personal holding company income shall not include qualified insurance income of a qualifying insurance company.
I.R.C. § 954(i)(2) Qualified Insurance Income
The term “qualified insurance income” means income of a qualifying insurance company which is—
I.R.C. § 954(i)(2)(A)
received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from the investments made by a qualifying insurance company or a qualifying insurance company branch of its reserves allocable to exempt contracts or of 80 percent of its unearned premiums from exempt contracts (as both are determined in the manner prescribed under paragraph (4)), or
I.R.C. § 954(i)(2)(B)
received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from investments made by a qualifying insurance company or a qualifying insurance company branch of an amount of its assets allocable to exempt contracts equal to—
I.R.C. § 954(i)(2)(B)(i)
in the case of property, casualty, or health insurance contracts, one-third of its premiums earned on such insurance contracts during the taxable year (as defined in section 832(b)(4)), and
I.R.C. § 954(i)(2)(B)(ii)
in the case of life insurance or annuity contracts, 10 percent of the reserves described in subparagraph (A) for such contracts.
I.R.C. § 954(i)(3) Principles For Determining Insurance Income
Except as provided by the Secretary, for purposes of subparagraphs (A) and (B) of paragraph (2)—
I.R.C. § 954(i)(3)(A)
in the case of any contract which is a separate account-type contract (including any variable contract not meeting the requirements of section 817), income credited under such contract shall be allocable only to such contract, and
I.R.C. § 954(i)(3)(B)
income not allocable under subparagraph (A) shall be allocated ratably among contracts not described in subparagraph (A).
I.R.C. § 954(i)(4) Methods For Determining Unearned Premiums And Reserves
For purposes of paragraph (2)(A)—
I.R.C. § 954(i)(4)(A) Property And Casualty Contracts
The unearned premiums and reserves of a qualifying insurance company or a qualifying insurance company branch with respect to property, casualty, or health insurance contracts shall be determined using the same methods and interest rates which would be used if such company or branch were subject to tax under subchapter L, except that—
I.R.C. § 954(i)(4)(A)(i)
the interest rate determined for the functional currency of the company or branch, and which, except as provided by the Secretary, is calculated in the same manner as the Federal mid-term rate under section 1274(d), shall be substituted for the applicable Federal interest rate, and
I.R.C. § 954(i)(4)(A)(ii)
such company or branch shall use the appropriate foreign loss payment pattern.
I.R.C. § 954(i)(4)(B) Life Insurance And Annuity Contracts
I.R.C. § 954(i)(4)(B)(i) In General
Except as provided in clause (ii), the amount of the reserve of a qualifying insurance company or qualifying insurance company branch for any life insurance or annuity contract shall be equal to the greater of—
I.R.C. § 954(i)(4)(B)(i)(I)
the net surrender value of such contract (as defined in section 807(e)(1)(A)), or
I.R.C. § 954(i)(4)(B)(i)(II)
the reserve determined under paragraph (5).
I.R.C. § 954(i)(4)(B)(ii) Ruling Request, Etc.
The amount of the reserve under clause (i) shall be the foreign statement reserve for the contract (less any catastrophe, deficiency, equalization, or similar reserves), if, pursuant to a ruling request submitted by the taxpayer or as provided in published guidance, the Secretary determines that the factors taken into account in determining the foreign statement reserve provide an appropriate means of measuring income.
I.R.C. § 954(i)(4)(C) Limitation On Reserves
In no event shall the reserve determined under this paragraph for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining foreign statement reserves (less any catastrophe, deficiency, equalization, or similar reserves).
I.R.C. § 954(i)(5) Amount Of Reserve
The amount of the reserve determined under this paragraph with respect to any contract shall be determined in the same manner as it would be determined if the qualifying insurance company or qualifying insurance company branch were subject to tax under subchapter L, except that in applying such subchapter–-
I.R.C. § 954(i)(5)(A)
the interest rate determined for the functional currency of the company or branch, and which, except as provided by the Secretary, is calculated in the same manner as the Federal mid-term rate under section 1274(d), shall be substituted for the applicable Federal interest rate,
I.R.C. § 954(i)(5)(B)
the highest assumed interest rate permitted to be used in determining foreign statement reserves shall apply, and
I.R.C. § 954(i)(5)(C)
tables for mortality and morbidity which reasonably reflect the current mortality and morbidity risks in the company's or branch's home country shall be substituted for the mortality and morbidity tables otherwise used for such subchapter.
The Secretary may provide that the interest rate and mortality and morbidity tables of a qualifying insurance company may be used for 1 or more of its qualifying insurance company branches when appropriate.
I.R.C. § 954(i)(6) Definitions
For purposes of this subsection, any term used in this subsection which is also used in section 953(e) shall have the meaning given such term by section 953.
(Added by Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1009, and amended by Pub. L. 91-172, title IX, Sec. 909(a), Dec. 30, 1969, 83 Stat. 718; Pub. L. 94-12, title VI, Sec. 602(b), (c)(1), (2), (d)(1), (e), Mar. 29, 1975, 89 Stat. 58, 60, 64; Pub. L. 94-455, title X, Sec. 1023(a), 1024(a), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1620, 1834; Pub. L. 97-248, title II, Sec. 212(a)-(e), Sept. 3, 1982, 96 Stat. 451, 452; Pub. L. 98-369, div. A, title I, Sec. 137(a), title VII, Sec. 712(f), July 18, 1984, 98 Stat. 672, 947; Pub. L. 99-514, title XII, Sec. 1201(c), 1221(a)(1), (b)(3)(B), (c)(1)-(3)(A), (d), (e), 1223(a), title XVIII, Sec. 1810(k), Oct. 22, 1986, 100 Stat. 2525, 2549, 2553, 2557, 2830; Pub. L. 100-647, title I, Sec. 1012(i)(12), (14)(A), (18), (20), (25)(B), 1018(u)(38), Nov. 10, 1988, 102 Stat. 3509-3512, 3592; Pub. L. 101-239, title VII, Sec. 7811(i)(3), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 103-66, title XIII, Sec. 13233(a)(1), 13235(a)(3), (b), 13239(d), Aug. 10, 1993, 107 Stat. 312; Pub. L. 105-34, title X, XI, Sec. 1051, 1175, Aug. 5, 1997, 111 Stat 788; Pub. L. 105-277, title I and IV, Sec. 1005(a), 1005(c), 1005(d), 1005(e), 4003(j), Oct. 21, 1998, 112 Stat 2681; Pub. L. 106-170, title V, Sec. 503, 532(c), Dec. 17, 1999, 113 Stat 1860; Pub. L. 107-147, title VI, Sec. 614, Mar. 9, 2002, 116 Stat. 21; Pub. L. 108-357, title IV, Sec. 412, 413, 414, 415, 416, Oct. 22, 2004, 118 Stat. 1418; Pub. L. 109-135, title IV, Sec. 403(m), Sec. 412, Dec. 21, 2005, 119 Stat. 2577: Pub. L. 109-222, title I, Sec. 103, May 17, 2006, 120 Stat. 345; Pub. L. 109-432, div. A, title IV, Sec. 426(a), Dec. 20, 2006, 120 Stat. 2922; Pub. L. 110-172, Sec. 4(a), 11(a)(19), 11(a)(20), 11(g)(15), Dec. 29, 2007, 121 Stat. 2473; Pub. L. 110-343, div. C, title III, Sec. 303(b), 304(a), Oct. 3, 2008, 122 Stat. 3765; Pub. L. 111-312, title VII, Sec. 750(a), 751, Dec. 17, 2010, 124 Stat. 3296; Pub. L. 112-240, title III, Sec. 322, 323, Jan. 2, 2013, 126 Stat. 2313; Pub. L. 113-295, Div. A, title I, Sec. 135(a), 134(b), Dec. 19, 2014, 128 Stat. 4010; Pub. L. 114-113, Div. Q, title I, Sec. 128(b), 144(a), Dec. 18, 2015; Pub. L. 115-97, title I, Secs. 13517(b)(5), 14211(a)(1)–(3), (b)(2), (b)(3), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017 - Subsec. (a)(2)–(5). Pub. L. 115-97, Sec. 14211(a)(1)–(3), amended subsec. (a) by inserting “and” at the end of par. (2), by substituting a period for the comma at the end of par. (3), and by striking par. (5). Before being struck, par. (5) read as follows:
“(5) the foreign base company oil related income for the taxable year (determined under subsection (g) and reduced as provided in subsection (b)(5)).”
Subsec. (b)(4). Pub. L. 115-97, Sec. 14211(b)(2)(A), amended subsec. (b) by striking the second sentence of par. (4). Before being struck, it read as follows: “The preceding sentence shall not apply to foreign base company oil-related income described in subsection (a)(5).”
Subsec. (b)(5). Pub. L. 115-97, Sec. 14211(b)(2)(B), amended subsec. (b) by substituting “and the foreign base company services income” for “the foreign base company services income, and the foreign base company oil related income’’.
Subsec. (b)(6). Pub. L. 115-97, Sec. 14211(b)(2)(C), amended subsec. (b) by striking par. (6). Before being struck, it read as follows:
“(6) Foreign Base Company Oil Related Income Not Treated As Another Kind Of Base Company Income.—Income of a corporation which is foreign base company oil related income shall not be considered foreign base company income of such corporation under paragraph 2 (2), or (3) of subsection (a).”
Subsec. (g). Pub. L. 115-97, Sec. 14211(b)(3), struck subsec. (g). Before being struck, it read as follows:
“(g) Foreign Base Company Oil Related Income.—For purposes of this section—
“(1) In General.—Except as otherwise provided in this subsection, the term “foreign base company oil related income” means foreign oil related income (within the meaning of paragraphs (2) and (3) of section 907(c)) other than income derived from a source within a foreign country in connection with—
“(A) oil or gas which was extracted from an oil or gas well located in such foreign country, or
“(B) oil, gas, or a primary product of oil or gas which is sold by the foreign corporation or a related person for use or consumption within such country or is loaded in such country on a vessel or aircraft as fuel for such vessel or aircraft.
“Such term shall not include any foreign personal holding company income (as defined in subsection (c)).
“(2) Paragraph (1) Applies Only Where Corporation Has Produced 1,000 Barrels Per Day Or More
“(A) In General.—The term “foreign base company oil related income” shall not include any income of a foreign corporation if such corporation is not a large oil producer for the taxable year.
“(B) Large Oil Producer.—For purposes of subparagraph (A), the term “large oil producer” means any corporation if, for the taxable year or for the preceding taxable year, the average daily production of foreign crude oil and natural gas of the related group which includes such corporation equaled or exceeded 1,000 barrels.
“(C) Related Group.—The term “related group” means a group consisting of the foreign corporation and any other person who is a related person with respect to such corporation.
“(D) Average Daily Production Of Foreign Crude Oil And Natural Gas.—For purposes of this paragraph, the average daily production of foreign crude oil or natural gas of any related group for any taxable year (and the conversion of cubic feet of natural gas into barrels) shall be determined under rules similar to the rules of section 613A except that only crude oil or natural gas from a well located outside the United States shall be taken into account.”
Subsec. (i)(5)(B). Pub. L. 115-97, Sec. 13517(b)(5), amended subpar. (B) by substituting “shall apply,” for ‘‘shall be substituted for the prevailing State assumed interest rate,’’.
2015 - Subsec. (c)(6)(C). Pub. L. 114-113, Div. Q, Sec. 144(a), amended subpar. (C) by substituting “January 1, 2020” for “January 1, 2015”.
Subsec. (h)(9). Pub. L. 114-113, Div. Q, Sec. 128(b), struck par. (9). Before being struck, it read as follows:
“(9) Application.— This subsection, subsection (c)(2)(C)(ii), and the last sentence of subsection (e)(2) shall apply only to taxable years of a foreign corporation beginning after December 31, 1998, and before January 1, 2015, and to taxable years of United States shareholders with or within which any such taxable year of such foreign corporation ends.”
2014 - Subsec. (c)(6)(C). Pub. L. 113-295, Div. A, Sec. 135(a), amended subpar. (C) by substituting “January 1, 2015” for “January 1, 2014”.
Subsec. (h)(9). Pub. L. 113-295, Div. A, Sec. 134(b), amended par. (9) by substituting “January 1, 2015” for “January 1, 2014”.
2013 - Subsec. (c)(6)(C). Pub. L. 112-240, Sec. 323(a), amended subpar. (C) by substituting “January 1, 2014” for “January 1, 2012”.
Subsec. (h)(9). Pub. L. 112-240, Sec. 322(b), amended par. (9) by substituting “January 1, 2014” for “January 1, 2012”.
2010 - Subsec. (c)(6)(C). Pub. L. 111-312, Sec. 751(a), amended subpar. (C) by substituting “January 1, 2012” for “January 1, 2010”.
Subsec. (h)(9). Pub. L. 111-312, Sec. 750(a), amended par. (9) by substituting “January 1, 2012” for “January 1, 2010”.
2008 - Subsec. (c)(6)(C). Pub. L. 110-343, Div. C, Sec. 304(a), amended subpar. (C) by substituting “January 1, 2010” for “January 1, 2009”.
Subsec. (h)(9). Pub. L. 110-343, Div. C, Sec. 303(b), amended par. (9) by substituting “January 1, 2010” for “January 1, 2009”.
2007 — Subsec. (c)(1)(F). Pub. L. 110-172, Sec. 11(a)(19), amended subpar. (F). Before amendment, it read as follows:
“(F) Income From Notional Principal Contracts-Any item of income, gain, deduction, or loss from a notional principal contract entered into for purposes of hedging any item described in any preceding subparagraph shall not be taken into account for purposes of this subparagraph but shall be taken into account under such other subparagraph.”
Subsec. (c)(1)(I). Pub. L. 110-172, Sec. 11(a)(20), redesignated subpar. (I) as subpar. (H).
Subsec. (c)(2)(C)(ii). Pub. L. 110-172, Sec. 11(g)(15)(B), amended clause (ii) by substituting “section 956(c)(2)(I)” for “section 956(c)(2)(J)”.
Subsec. (c)(6)(B)-(C). Pub. L. 110-172, Sec. 4(a), amended par. (6) by redesignating subpar. (B) as subpar. (C) and by adding a new subpar. (B).
2006 - Subsec. (c)(6)(A). Pub. L. 109-432, Sec. 426(a), amended subpar. (A) by substituting “which is neither subpart F income nor income treated as effectively connected with the conduct of a trade or business in the United States” for “which is not subpart F income” and by substituting the last sentence for “The Secretary shall prescribe such regulations as may be appropriate to prevent the abuse of the purposes of this paragraph.”.
Subsec. (c)(6). Pub. L. 109-222, Sec. 103(b)(1), added par. (6).
Subsec. (h)(9). Pub. L. 109-222, Sec. 103(a)(2), amended par. (9) by substituting “January 1, 2009” for “January 1, 2007”.
2005 - Subsec. (c)(1)(C)(i). Pub. L. 109-135, Sec. 4123(ll), amended clause (i) by substituting “paragraph (5)(A)” for “paragraph (4)(A)”.
Subsec. (c)(1)(F). Pub. L. 109-135, Sec. 412(mm), amended subpar. (F) by striking “Net income from notional principal contracts.” after “Income from notional principal contracts- “.
Subsec. (c)(4)(B). Pub. L. 109-135, Sec. 403(m), amended subpar. (B) by adding the sentence at the end.
2004 - Subsec. (a)(4). Pub. L. 108-357, Sec. 415(a)(1), struck par. (4). Before being struck, it read as follows:
“(4) the foreign base company shipping income for the taxable year (determined under subsection (f) and reduced as provided in subsection (b)(5)), and”.
Subsec. (b)(5). Pub. L. 108-357, Sec. 415(c)(2)(A), amended par. (5) by striking “the foreign base company shipping income,”.
Subsec. (b)(6)-(8). Pub. L. 108-357, Sec. 415(c)(2)(B), struck par. (6) and (7) and redesignated par. (8) as par. (6). Before being struck, par. (6) and (7) read as follows:
“(6) Special rules for foreign base company shipping income
“Income of a corporation which is a foreign base company shipping income under paragraph (4) of subsection (a)--
“(A) shall not be considered foreign base company income of such corporation under any other paragraph of subsection (a) and
“(B) if distributed through a chain of ownership described under section 958(a), shall not be included in foreign base company income of another controlled foreign corporation in such chain.
“(7) Special exclusion for foreign base company shipping income
“Income of a corporation which is foreign base company shipping income under paragraph (4) of subsection (a) shall be excluded from foreign base company income if derived by a controlled foreign corporation from, or in connection with, the use (or hiring or leasing for use) of an aircraft or vessel in foreign commerce between two points within the foreign country in which such corporation is created or organized and such aircraft or vessel is registered.”
Subsec. (c)(1)(C). Pub. L. 108-357, Sec. 414(a), amended clause (i) and (ii). Before being amended, clause (i) and (ii) read as follows:
“(i) arise out of bona fide hedging transactions reasonably necessary to the conduct of any business by a producer, processor, merchant, or handler of a commodity in the manner in which such business is customarily and usually conducted by others,
“(ii) are active business gains or losses from the sale of commodities, but only if substantially all of the controlled foreign corporation's business is as an active producer, processor, merchant, or handler of commodities, or”.
Subsec. (c)(1)(I). Pub. L. 108-357, Sec. 413(b)(2), amended par. (1) by adding subpar. (I).
Subsec. (c)(2)(A). Pub. L. 108-357, Sec. 415(b), amended subpar. (A) by adding a sentence at the end.
Subsec. (c)(2)(C)(i). Pub. L. 108-357, Sec. 414(c), amended clause (i) by inserting “and transactions involving physical settlement” after “(including hedging transactions)”.
Subsec. (c)(4). Pub. L. 108-357, Sec. 412(a), added par. (4).
Subsec. (c)(5). Pub. L. 108-357, Sec. 414(b), added par. (5).
Subsec. (f). Pub. L. 108-357, Sec. 415(a)(2), struck subsec. (f). Before being struck, it read as follows:
“(f) Foreign base company shipping income
“For purposes of subsection (a)(4), the term “foreign base company shipping income” means income derived from, or in connection with, the use (or hiring or leasing for use) of any aircraft or vessel in foreign commerce, or from, or in connection with the performance of services directly related to the use of any such aircraft, or vessel, or from the sale, exchange, or other disposition of any such aircraft or vessel. Such term includes, but is not limited to--
“(1) dividends and interest received from a foreign corporation in respect of which taxes are deemed paid under section 902, and gain from the sale, exchange, or other disposition of stock or obligations of such a foreign corporation to the extent that such dividends, interest, and gains are attributable to foreign base company shipping income, and
“(2) that portion of the distributive share of the income of a partnership attributable to foreign base company shipping income.
Such term includes any income derived from a space or ocean activity (as defined in section 863(d)(2)). Except as provided in paragraph (1), such term shall not include any dividend or interest income which is foreign personal holding company income (as defined in subsection (c)).”
Subsec. (h)(3)(E). Pub. L. 108-357, Sec. 416(a), amended par. (3) by adding subpar. (E).
2002 - Subsec. (h)(9). Pub. L. 107-147, Sec. 614(a)(2), amended par. (9) by substituting “January 1, 2007” for “January 1, 2002”.
Subsec. (i)(4)(B). Pub. L. 107-147, Sec. 614(b)(1), amended subpar. (B). Before amendment it read as follows:
“(B) Life INSURANCE AND ANNUITY CONTRACTS.--
“The amount of the reserve of a qualifying insurance company or qualifying insurance company branch for any life insurance or annuity contract shall be equal to the greater of--
“(i) the net surrender value of such contract (as defined in section 807(e)(1)(A)), or
“(ii) the reserve determined under paragraph (5).”
1999 -Subsec. (c)(1)(B). Pub. L. 106-170, Sec. 532(c)(2)(Q) amended subpar. (B) by substituing “section 1221(a)(1)” for section 1221(1).
Subsec. (h)(9). Pub. L. 106-170, Sec. 503(a), amended paragraph (9) by substituting “taxable years” for “the first taxable year”, “January 1, 2002” for “January 1, 2000”, and “within which any such” for “within which such”.
1998 - Subsec. (c)(1)(B)(i). Pub. L. 105-277, Sec. 1005(e), amended clause (i) by inserting the material after “ and before the comma at the end.
Subsec. (c)(2)(C). Pub. L. 105-277, Sec. 1005(c), amended subpar. (C). Prior to amendment it read as follows:
“(C) Exception for dealers.--
Except as provided in subparagraph (A), (E), or (G) of paragraph (1) or by regulations, in the case of a regular dealer in property (within the meaning of paragraph (1)(B)), forward contracts, option contracts, or similar financial instruments (including notional principal contracts and all instruments referenced to commodities), there shall not be taken into account in computing foreign personal holding income any item of income, gain, deduction, or loss from any transaction (including hedging transactions) entered into in the ordinary course of such dealer's trade or business as such a dealer.”
Subsec. (e)(2)(C). Pub. L. 105-277, Sec. 4003(j), amended subpar. (C) by substituting “subsection (h)(9)” for “subsection (h)(8)”.
Subsec. (e)(2). Pub. L. 105-277, Sec. 1005(d), amended subpar. (A) by inserting “or” at the end; amended subpar. (B) by striking “or” at the end; added the flush sentence at the end; and struck subpar. (C). Prior to be striken, it read as follows:
“(C) in the case of taxable years described in subsection (h)(9), the active conduct by a controlled foreign corporation of a banking, financing, insurance, or similar business, but only if the corporation is predominantly engaged in the active conduct of such business (within the meaning of subsection (h)(3)) or is a qualifying insurance company.”
Subsec. (h). Pub. L. 105-277, Sec. 1005(a), amended subsec. (h). Prior to amendment it read as follows:
“(h) Special Rule for Income Derived in the Active Conduct of Banking, Financing, or Similar Businesses.--
“(1) In general.--
For purposes of subsection (c)(1), foreign personal holding company income shall not include income which is--
“(A) derived in the active conduct by a controlled foreign corporation of a banking, financing, or similar business, but only if the corporation is predominantly engaged in the active conduct of such business,
“(B) received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from the investments made by a qualifying insurance company of its reserves or of 80 percent of its unearned premiums (as both are determined in the manner prescribed under paragraph (4)), or
“(C) received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from investments made by a qualifying insurance company of an amount of its assets equal to--
“(i) in the case of contracts regulated in the country in which sold as property, casualty, or health insurance contracts, one-third of its premiums earned on such insurance contracts during the taxable year (as defined in section 832(b)(4)), and
“(ii) in the case of contracts regulated in the country in which sold as life insurance or annuity contracts, the greater of--
“(I) 10 percent of the reserves described in subparagraph (B) for such contracts, or
“(II) in the case of a qualifying insurance company which is a start-up company, $10,000,000.
“(2) Principles for determining applicable income.--
“(A) Banking and financing income.--
The determination as to whether income is described in paragraph (1)(A) shall be made--
“(i) except as provided in clause (ii), in accordance with the applicable principles of section 904(d)(2)(C)(ii), except that such income shall include income from all leases entered into in the ordinary course of the active conduct of a banking, financing, or similar business, and
“(ii) in the case of a corporation described in paragraph (3)(B), in accordance with the applicable principles of section 1296(b) (as in effect on the day before the enactment of the Taxpayer Relief Act of 1997) for determining what is not passive income.
“(B) Insurance income.--
Under rules prescribed by the Secretary, for purposes of paragraphs (1) (B) and (C)--
“(i) in the case of contracts which are separate account-type contracts (including variable contracts not meeting the requirements of section 817), only income specifically allocable to such contracts shall be taken into account, and
“(ii) in the case of other contracts, income not allocable under clause (i) shall be allocated ratably among such contracts.
“(C) Look-thru rules.--
The Secretary shall prescribe regulations consistent with the principles of section 904(d)(3) which provide that dividends, interest, income equivalent to interest, rents, or royalties received or accrued from a related person (within the meaning of subsection (d)(3)) shall be subject to look-thru treatment for purposes of this subsection.
“(3) Predominantly engaged.--
For purposes of paragraph (1)(A), a corporation shall be deemed predominantly engaged in the active conduct of a banking, financing, or similar business only if--
“(A) more than 70 percent of its gross income is derived from such business from transactions with persons which are not related persons (as defined in subsection (d)(3)) and which are located within the country under the laws of which the controlled foreign corporation is created or organized, or
“(B) the corporation is--
“(i) engaged in the active conduct of a banking or securities business (within the meaning of section 1296(b), as in effect before the enactment of the Taxpayer Relief Act of 1997), or
“(ii) a qualified bank affiliate or a qualified securities affiliate (within the meaning of the proposed regulations under such section 1296(b)).
“(4) Methods for determining unearned premiums and reserves.--
For purposes of paragraph (1)(B)--
“(A) Property and casualty contracts.--
The unearned premiums and reserves of a qualifying insurance company with respect to property, casualty, or health insurance contracts shall be determined using the same methods and interest rates which would be used if such company were subject to tax under subchapter L.
“(B) Life insurance and annuity contracts.--
The reserves of a qualifying insurance company with respect to life insurance or annuity contracts shall be determined under the method described in paragraph (5) which such company elects to apply for purposes of this paragraph. Such election shall be made at such time and in such manner as the Secretary may prescribe and, once made, shall be irrevocable without the consent of the Secretary.
“(C) Limitation on reserves.--
In no event shall the reserve determined under this paragraph for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining foreign annual statement reserves (less any catastrophe or deficiency reserves).
“(5) Methods.--
The methods described in this paragraph are as follows:
“(A) U.S. method.--
The method which would apply if the qualifying insurance company were subject to tax under subchapter L, except that the interest rate used shall be an interest rate determined for the foreign country in which such company is created or organized and which is calculated in the same manner as the Federal mid-term rate under section 1274(d).
“(B) Foreign method.--
A preliminary term method, except that the interest rate used shall be the interest rate determined for the foreign country in which such company is created or organized and which is calculated in the same manner as the Federal mid-term rate under section 1274(d). If a qualifying insurance company uses such a preliminary term method with respect to contracts insuring risks located in such foreign country, such method shall apply if such company elects the method under this clause.
“(C) Cash surrender value.--
A method under which reserves are equal to the net surrender value (as defined in section 807(e)(1)(A)) of the contract.
“(6) Definitions.--
For purposes of this subsection--
“(A) Terms relating to insurance companies.--
“(i) Qualifying insurance company.--
The term ‘qualifying insurance company’ means any entity which--
“(I) is subject to regulation as an insurance company under the laws of its country of incorporation,
“(II) realizes at least 50 percent of its net written premiums from the insurance or reinsurance of risks located within the country in which such entity is created or organized, and
“(III) is engaged in the active conduct of an insurance business and would be subject to tax under subchapter L if it were a domestic corporation.
“(ii) Start-up company.--
A qualifying insurance company shall be treated as a start-up company if such company (and any predecessor) has not been engaged in the active conduct of an insurance business for more than 5 years as of the beginning of the taxable year of such company.
“(B) Located.--
For purposes of paragraph (3)(A)--
“(i) In general.--
A person shall be treated as located--
“(I) except as provided in subclause (II), within the country in which it maintains an office or other fixed place of business through which it engages in a trade or business and by which the transaction is effected, or
“(II) in the case of a natural person, within the country in which such person is physically located when such person enters into a transaction.
“(ii) Special rule for qualified business units.--
Gross income derived by a corporation's qualified business unit (within the meaning of section 989(a)) from transactions with persons which are not related persons (as defined in subsection (d)(3)) and which are located in the country in which the qualified business unit both maintains its principal office and conducts substantial business activity shall be treated as derived from transactions with persons which are not related persons (as defined in subsection (d)(3)) and which are located within the country under the laws of which the controlled foreign corporation is created or organized.
“(7) Anti-abuse rules.--
For purposes of applying this subsection, there shall be disregarded any item of income, gain, loss, or deduction with respect to any transaction or series of transactions one of the principal purposes of which is qualifying income or gain for the exclusion under this section, including any change in the method of computing reserves or any other transaction or series of transactions a principal purpose of which is the acceleration or deferral of any item in order to claim the benefits of such exclusion through the application of this subsection.
“(8) Coordination with section 953.--
This subsection shall not apply to investment income allocable to contracts that insure related party risks or risks located in a foreign country other than the country in which the qualifying insurance comapny is created or organized.
“(9) Application.--
This subsection shall apply to the first full taxable year of a foreign corporation beginning after December 31, 1997, and before January 1, 1999, and to taxable years of United States shareholders with or within which such taxable year of such foreign corporation ends.”
Subsec. (i). Pub. L. 105-277, Sec. 1005(b)(2), added subsec. (i).
1997 - Subsec. (c)(1)(B). Pub. L. 105-34, Sec. 1051(a)(2), struck the second sentence and struck “also” after “1221(1)” in the last sentence of subparagraph (B). Before being struck, the second sentence read as follows:
“In the case of any regular dealer in property, gains and losses from the sale or exchange of any such property or arising out of bona fide hedging transactions reasonably necessary to the conduct of the business of being a dealer in such property shall not be taken into account under this subparagraph.”
Subsecs. (c)(1)(F), (G). Pub. L. 105-34, Sec. 1051(a)(1), added new subparagraphs (F) and (G) at the end of paragraph (1).
Subsec. (c)(2)(C). Pub. L. 105-34, Sec. 1051(b), added a new subparagraph (C) at the end of paragraph (2).
Subsec. (e)(2)(C). Pub. L. 105-34, Sec. 1175, added a new subparagraph (C) at the end of paragraph (2). Pursuant to his authority under Pub. L. 104-130, Line Item Veto Act, President Clinton vetoed Sec. 1175 of Pub. L. 105-34. The Supreme Court ruled that the 1996 Line Item Veto Act, Pub. L. 104-130, was unconstitutional (Clinton v. City of New York, No. 97-1374, S. Ct., 6/25/98).
Subsec. (h). Pub. L. 105-34, Sec. 1175, added a new subsec. (h). Pursuant to his authority under Pub. L. 104-130, Line Item Veto Act, President Clinton vetoed Sec. 1175 of Pub. L. 105-34. The Supreme Court ruled that the 1996 Line Item Veto Act, Pub. L. 104-130, was unconstitutional (Clinton v. City of New York, No. 97-1374, S. Ct., 6/25/98).
1996 - Subsec. (c)(3)(A)(i). Pub. L. 104-188, Sec. 1704(t)(25), amended Sec. 7811(i)(3)(A) of Pub. L. 101-239, by inserting “the first place it appears" before “in clause (i)”.
1993—Subsec. (b)(8). Pub. L. 103-66, Sec. 13235(a)(3)(B), amended par. (8) by striking “(1),” after “paragraph”.
Subsec. (c)(3)(C). Pub. L. 103-66, Sec. 13233(a)(1), amended par. (3) by adding subpar. (C).
Subsec. (d)(4). Pub. L. 103-66, Sec. 13239(d), amended subsec. (d) by adding par. (4).
Subsec. (f). Pub. L. 103-66, Sec. 13235(b), amended subsec. (f) by adding the sentence at the end.
Subsec. (g)(1). Pub. L. 103-66, Sec. 13235(a)(3)(A), amended par. (1) by adding the flush sentence at the end.
1989 - Subsec. (c)(3)(A). Pub. L. 101-239, Sec. 7811(i)(3)(C), inserted at end ‘To the extent provided in regulations, payments made by a partnership with 1 or more corporate partners shall be treated as made by such corporate partners in proportion to their respective interests in the partnership.’
Subsec. (c)(3)(A)(i). Pub. L. 101-239, Sec. 7811(i)(3)(A), as amended by Pub. L. 104-188, Sec. 1704(t)(25), substituted ‘is a corporation created’ for ‘is created’ the first time it appears.
Subsec. (c)(3)(A)(ii). Pub. L. 101-239, Sec. 7811(i)(3)(B), substituted ‘from a corporation which is a related person’ for ‘from a related person’.
1988 - Subsec. (b)(6), (7). Pub. L. 100-647, Sec. 1012(i)(12), struck out ‘(determined without regard to the exclusion under paragraph (2) of this subsection)’ after ‘paragraph (4) of subsection (a)’.
Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1012(i)(18), (20), added cl. (ii), redesignated former cl. (ii) as (iii), added closing provisions, and struck out former closing provisions which read as follows: ‘This subparagraph shall not apply to gain from the sale or exchange of any property which, in the hands of the taxpayer, is property described in section 1221(1) or to gain from the sale or exchange of any property by a regular dealer in such property.’
Subsec. (c)(3)(B). Pub. L. 100-647, Sec. 1012(i)(25)(B), inserted before period at end ‘or creates (or increases) a deficit which under section 952(c) may reduce the subpart F income of the payor or another controlled foreign corporation’.
Subsec. (d)(3). Pub. L. 100-647, Sec. 1012(i)(14)(A), substituted ‘more than 50 percent’ for ‘50 percent or more’ in last two sentences.
Subsec. (e)(3). Pub. L. 100-647, Sec. 1018(u)(38), related to execution of amendment by Pub. L. 99-514, Sec. 1221(b)(3)(B), see 1986 Amendment note below.
1986 - Subsec. (a)(5). Pub. L. 99-514, Sec. 1221(c)(3)(A)(ii), substituted ‘determined under subsection (g)’ for ‘determined under subsection (h)’.
Subsec. (b)(2). Pub. L. 99-514, Sec. 1221(c)(1), struck out par. (2), exclusion for reinvested shipping income, which read as follows: ‘For purposes of subsection (a), foreign base company income does not include foreign base company shipping income to the extent that the amount of such income does not exceed the increase for the taxable year in qualified investments in foreign base company shipping operations of the controlled foreign corporation (as determined under subsection (g)).’
Subsec. (b)(3). Pub. L. 99-514, Sec. 1223(a), amended par. (3) generally. Prior to amendment, par. (3), special rule where foreign base company income is less than 10 percent or more than 70 percent of gross income, read as follows: ‘For purposes of subsection (a) -
‘(A) If the foreign base company income (determined without regard to paragraphs (2) and (5)) is less than 10 percent of gross income, no part of the gross income of the taxable year shall be treated as foreign base company income.
‘(B) If the foreign base company income (determined without regard to paragraphs (2) and (5)) exceeds 70 percent of gross income, the entire gross income of the taxable year shall, subject to the provisions of paragraphs (2), (4), and (5), be treated as foreign base company income.’
Subsec. (b)(4). Pub. L. 99-514, Sec. 1221(d), amended par. (4) generally. Prior to amendment, par. (4), exception for foreign corporations not availed of to reduce taxes, read as follows: ‘For purposes of subsection (a), foreign base company income does not include any item of income received by a controlled foreign corporation if it is established to the satisfaction of the Secretary that neither -
‘(A) the creation or organization of such controlled foreign corporation under the laws of the foreign country in which it is incorporated (or, in the case of a controlled foreign corporation which is an acquired corporation, the acquisition of such corporation created or organized under the laws of the foreign country in which it is incorporated), nor
‘(B) the effecting of the transaction giving rise to such income through the controlled foreign corporation, has as one of its significant purposes a substantial reduction of income, war profits, or excess profits or similar taxes. The preceding sentence shall not apply to foreign base company oil related income described in subsection (a)(5).’
Subsec. (b)(5). Pub. L. 99-514, Sec. 1201(c), inserted at end ‘Except to the extent provided in regulations prescribed by the Secretary, any interest which is paid or accrued by the controlled foreign corporation to any United States shareholder in such corporation (or any controlled foreign corporation related to such a shareholder) shall be allocated first to foreign personal holding company income which is passive income (within the meaning of section 904(d)(2)) of such corporation to the extent thereof. The Secretary may, by regulations, provide that the preceding sentence shall apply also to interest paid or accrued to other persons.’
Subsec. (c). Pub. L. 99-514, Sec. 1221(a)(1), amended subsec. (c) generally, substituting pars. (1) to (3) for former provisions which had provided: in par. (1), a reference to definition of ‘foreign personal holding company income’ contained in section 553; in par. (2), that all rents would be included in ‘foreign personal holding company income’ without regard to whether or not such rents constituted 50 percent or more of gross income; in par. (3), for exclusion of certain income derived in active conduct of a trade or business; and in par. (4), exclusion of certain income received from related persons from being included in ‘foreign personal holding company income’. See subsec. (c)(3).
Subsec. (d)(3). Pub. L. 99-514, Sec. 1221(e), added subpars. (A) and (B) and concluding provisions and struck out former subpars. (A) to (C) and concluding provisions which read as follows:
‘(A) such person is an individual, partnership, trust, or estate which controls the controlled foreign corporation;
‘(B) such person is a corporation which controls, or is controlled by, the controlled foreign corporation; or
‘(C) such person is a corporation which is controlled by the same person or persons which control the controlled foreign corporation.
For purposes of the preceding sentence, control means the ownership, directly or indirectly, of stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote. For purposes of this paragraph, the rules for determining ownership of stock prescribed by section 958 shall apply.'
Subsec. (e). Pub. L. 99-514, Sec. 1810(k), in amending subsec. (e) generally, designated existing provisions as par. (1), added par. heading, and substituted subpar. (A) and (B) designations for prior par. (1) and (2) designations, struck out provisions relating to nonapplicability of preceding sentence to services performed in connection with manufactured or grown or extracted property, and provisions determining the place of performance of services for purposes of paragraph (2) with respect to any policy of insurance and reinsurance, and added pars. (2) and (3).
Subsec. (e)(3). Pub. L. 99-514, Sec. 1221(b)(3)(B), and Pub. L. 100-647, Sec. 1018(u)(38), struck out par. (3) as enacted by section 1810(k) of Pub. L. 99-514, which read as follows: ‘For purposes of paragraph (1), in the case of any services performed with respect to any policy of insurance or reinsurance with respect to which the primary insured is a related person (within the meaning of section 864(d)(4)) -
‘(A) such primary insured shall be treated as a related person for purposes of paragraph (1)(A) (whether or not the requirements of subsection (d)(3) are met),
‘(B) such services shall be treated as performed in the country within which the insured hazards, risks, losses, or liabilities occur, and
‘(C) except as otherwise provided in regulations by the Secretary, rules similar to the rules of section 953(b) shall be applied in determining the income from such services.’
Subsec. (f). Pub. L. 99-514, Sec. 1221(c)(2), inserted last sentence.
Subsecs. (g), (h). Pub. L. 99-514, Sec. 1221(c)(3)(A)(i), redesignated subsec. (h) as (g) and struck out former subsec. (g), increase in qualified investments in foreign base company shipping operations, which read as follows: ‘For purposes of subsection (b)(2), the increase for any taxable year in qualified investments in foreign base company shipping operations of any controlled foreign corporation is the amount by which -
‘(1) the qualified investments in foreign base company shipping operations (as defined in section 955(b)) of the controlled foreign corporation at the close of the taxable year, exceed
‘(2) the qualified investments in foreign base company shipping operations (as so defined) of the controlled foreign corporation at the close of the preceding taxable year.’
1984 - Subsec. (e). Pub. L. 98-369, Sec. 137(a), inserted provision that for purposes of par. (2) services performed with respect to any insurance or reinsurance policy be treated as performed in the country of risk.
Subsec. (h)(1). Pub. L. 98-369, Sec. 712(f), substituted ‘paragraphs (2) and (3) of section 907(c)’ for ‘section 907(c)(2)’.
1982 - Subsec. (a)(5). Pub. L. 97-248, Sec. 212(a), (e), added par. (5).
Subsec. (b)(4). Pub. L. 97-248, Sec. 212(d), inserted at end ‘The preceding sentence shall not apply to foreign base company oil related income described in subsection (a)(5).’
Subsec. (b)(5). Pub. L. 97-248, Sec. 212(b)(1), substituted ‘, the foreign base company shipping income, and the foreign base company oil related income’ for ‘and the foreign base company shipping income’.
Subsec. (b)(8). Pub. L. 97-248, Sec. 212(b)(2), added par. (8).
Subsec. (h). Pub. L. 97-248, Sec. 212(c), added subsec. (h).
1976 - Subsecs. (b)(4), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ‘or his delegate’ after ‘Secretary’.
Subsec. (b)(7). Pub. L. 94-455, Sec. 1024(a), added par. (7).
Subsec. (c)(3)(C). Pub. L. 94-455, Sec. 1023(a), added subpar. (C).
1975 - Subsec. (a)(4). Pub. L. 94-12, Sec. 602(d)(1)(A), added par. (4).
Subsec. (b)(1). Pub. L. 94-12, Sec. 602(c)(1), struck out subsec. (b)(1) which related to the exclusion of certain dividends, interest, and gains from qualified investments in less developed countries.
Subsec. (b)(2). Pub. L. 94-12, Sec. 602(d)(1)(B), substituted ‘foreign base company shipping income to the extent that the amount of such income does not exceed the increase for the taxable year in qualified investments in foreign base company shipping operations of the controlled foreign corporation (as determined under subsection (g))’ for ‘income derived from, or in connection with, the use (or hiring or leasing for use) of any aircraft or vessel in foreign commerce, or the performance of services directly related to the use of any such aircraft or vessel’ in text and ‘Exclusion for reinvested shipping income’ for ‘Exclusion of certain shipping income’ in heading.
Subsec. (b)(3). Pub. L. 94-12, Sec. 602(d)(1)(C), (D), (e), substituted ‘10 percent’ for ‘30 percent’ in heading, substituted ‘paragraphs (2) and (5)’ for ‘paragraphs (1) and (5)’ and ‘10 percent’ for ‘30 percent’ in subpar. (A), and substituted ‘paragraphs (2) and (5)’ for ‘paragraphs (1) and (5)’ and ‘paragraphs (2), (4), and (5)’ for ‘paragraphs (1), (2), (4), and (5)’ in subpar. (B).
Subsec. (b)(5). Pub. L. 94-12, Sec. 602(d)(1)(E), substituted ‘the foreign base company services income, and the foreign base company shipping income’ for ‘and the foreign base company services income’.
Subsec. (b)(6). Pub. L. 94-12, Sec. 602(d)(1)(F), added par. (6).
Subsec. (d)(1). Pub. L. 94-12, Sec. 602(b), provided that for purposes of subsec. (d) personal property does not include agricultural commodities which are not grown in the United States in commercially marketable quantities.
Subsecs. (f), (g). Pub. L. 94-12, Sec. 602(c)(2), (d)(1)(G), added subsecs. (f) and (g).
1969 - Subsec. (b)(4). Pub. L. 91-172 inserted reference to a foreign corporation which is an acquired corporation, and made the effecting of a transaction giving rise to foreign base income through the controlled foreign corporation subject to the Secretary's power to disallow inclusion of any item of such income where such inclusion will have one of the effects prescribed by this section.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendments by Pub. L. 115-97, Secs. 14211(a)(1)–(3), (b)(2)(A)–(C), (b)(3), effective for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
Amendment by Pub. L. 115-97, Sec. 13517(b)(5), effective for taxable years beginning after December 31, 2017.
TRANSITION RULE AND TRANSITION RELIEF
Section 13517(c)(2)-(3) provided the following:
“(2) Transition Rule.—For the first taxable year beginning after December 31, 2017, the reserve with respect to any con- tract (as determined under section 807(d) of the Internal Revenue Code of 1986) at the end of the preceding taxable year shall be determined as if the amendments made by this section had applied to such reserve in such preceding taxable year.
“(3) TRANSITION RELIEF.—
“(A) IN GENERAL.—If—
“(i) the reserve determined under section 807(d) of the Internal Revenue Code of 1986 (determined after application of paragraph (2)) with respect to any contract as of the close of the year preceding the first taxable year beginning after December 31, 2017, differs from
“(ii) the reserve which would have been determined with respect to such contract as of the close of such taxable year under such section determined without regard to paragraph (2), then the difference between the amount of the reserve described in clause (i) and the amount of the reserve described in clause (ii) shall be taken into account under the method provided in subparagraph (B).
“(B) METHOD.—The method provided in this subparagraph is as follows:
“(i) If the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), 1/8 of such excess shall be taken into account, for each of the 8 succeeding taxable years, as a deduction under section 805(a)(2) or 832(c)(4) of such Code, as applicable.
“(ii) If the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), 1/8 of such excess shall be included in gross income, for each of the 8 succeeding taxable years, under section 803(a)(2) or 832(b)(1)(C) of such Code, as applicable.”
EFFECTIVE DATE OF 2015 AMENDMENTS
Amendment by Pub. L. 114-113, Div. Q, Sec. 128(b), effective for taxable years of foreign corporations beginning after December 31, 2014, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations ends.
Amendment by Pub. L. 114-113, Div. Q, Sec. 144(a), effective for taxable years of foreign corporations beginning after December 31, 2014, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations ends.
EFFECTIVE DATE OF 2014 AMENDMENT
Amendment by Div. A, Sec. 135(a) and 134(b) of Pub. L. 113-295 effective for taxable years of foreign corporations beginning after December 31, 2013, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations ends.
EFFECTIVE DATE OF 2013 AMENDMENTS
Amendments by Sec. 322 and 323 of Pub. L. 112-240 effective for taxable years of foreign corporations beginning after December 31, 2011, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
EFFECTIVE DATE OF 2010 AMENDMENTS
Amendments by Sec. 750 and 751 of Pub. L. 111-312 effective for taxable years of foreign corporations beginning after December 31, 2009, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
EFFECTIVE DATE OF 2008 AMENDMENTS
Amendment by Div. C, Sec. 303(b) of Pub. L. 110-343 effective on the date of the enactment of this Act [Enacted: Oct. 3, 2008].
Amendment by Div. C, Sec. 304(a) of Pub. L. 110-343 effective for taxable years of foreign corporations beginning after December 31, 2007, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
EFFECTIVE DATE OF 2007 AMENDMENTS
Amendments by Sec. 4(a) of Pub. L. 110-172 effective as if included in the provisions of the Tax Increase Prevention and Reconciliation Act of 2005 [Pub. L. 109-222, Sec. 103] to which they relate.
Amendments by Sec. 11 of Pub. L. 110-172 effective on the date of the enactment of this Act [Enacted: Dec. 29, 2007].
EFFECTIVE DATE OF 2006 AMENDMENTS
Amendments by Sec. 426(a) of Pub. L. 109-432 effective as if included in section 103(b) of the Tax Increase Prevention and Reconciliation Act of 2005 [Pub. L. 109-222].
Amendment by Sec. 103(a)(2) of Pub. L. 109-222 effective on the date of the enactment of this Act [Enacted: May 17, 2006].
Amendment by Sec. 103(b)(1) of Pub. L. 109-222 effective for taxable years of foreign corporations beginning after December 31, 2005, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by Sec. 403 of Pub. L. 109-135 effective as if included in section 412 of the American Jobs Creation Act of 2004 [Pub. L. 108-357].
Amendments by Sec. 412 of Pub. L. 109-135 effective on the date of the enactment of this Act [Enacted: December 21, 2005].
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendments by Sec. 412 of Pub. L. 108-357 effective for taxable years of foreign corporations beginning after December 31, 2004, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
Amendments by Sec. 413 of Pub. L. 108-357 effective for taxable years of foreign corporations beginning after December 31, 2004, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
Amendments by Sec. 414 of Pub. L. 108-357 effective for transactions entered into after December 31, 2004.
Amendments by Sec. 415 of Pub. L. 108-357 effective for taxable years of foreign corporations beginning after December 31, 2004, and for taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
EFFECTIVE DATE OF 2002 AMENDMENTS
Amendments by Sec. 614 of Pub. L. 107-147 shall apply to taxable years beginning after December 31, 2001.
EFFECTIVE DATE OF 1999 AMENDMENTS
Amendments by Sec. 503(a) of Pub. L. 106-170 shall apply to taxable years beginning after December 31, 1999.
Amendment by Sec. 532(c)(2)(Q) of Pub. L. 106-170 shall apply to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after enactment date of this Act [Enacted: Dec. 17, 1999].
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendments by Sec. 1005 of Pub. L. 105-277 effective on the date of the enactment of this Act [Enacted: Oct. 21, 1998].
Amendment by Sec. 4003(j) of Pub. L. 105-277 applicable as if included in the provisions of the Taxpayer Relief Act of 1997 to which it relates.
EFFECTIVE DATE OF 1997 AMENDMENTS
Section 1051(c) of Pub. L. 105-34 provided that:
“The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act [Enacted: Aug. 5, 1997]”.
Amendments by Section 1175(c) of Pub. L. 105-34 applicable to the first full taxable year of a foreign corporation beginning after December 31, 1997, and before January 1, 1999, and to taxable years of United States shareholders with or within which such taxable year of such foreign corporation ends.
EFFECTIVE DATE OF 1997 AMENDMENTS
Section 1051(c) of Pub. L. 105-34 provided that:
“The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act [Enacted: Aug. 5, 1997]”.
Amendments by Section 1175(c) of Pub. L. 105-34 applicable to the first full taxable year of a foreign corporation beginning after December 31, 1997, and before January 1, 1999, and to taxable years of United States shareholders with or within which such taxable year of such foreign corporation ends.
EFFECTIVE DATE OF 1993 AMENDMENTS
Amendment by Pub. L. 103-66, Sec. 13233(a)(1), effective for taxable years of controlled foreign corporations beginning after September 30, 1993, and to taxable years of United States shareholders in which or with which such taxable years of controlled foreign corporation end.
Amendments by Pub. L. 103-66, Sec. 13235(a)(3), effective for taxable years beginning after December 31, 1992.
Amendment by Pub. L. 103-66, Sec. 13239(d), effective for sales, exchanges, or other dispositions after the date of the enactment of this Act [Enacted: Aug. 10, 1993].
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
Amendment by section 1201(c) of Pub. L. 99-514 applicable to taxable years beginning after Dec. 31, 1986, except as otherwise provided, see section 1201(e) of Pub. L. 99-514, set out as a note under section 904 of this title.
Section 1221(g) of Pub. L. 99-514, as amended by Pub. L. 100-647, title I, Sec. 1012(i)(13), Nov. 10, 1988, 102 Stat. 3509, provided that:
‘(1) In general. - Except as otherwise provided in this subsection, the amendments made by this section (amending this section and sections 864, 952, 953, 955, and 957 of this title) shall apply to taxable years of foreign corporations beginning after December 31, 1986.
‘(2) Special rule for repeal of exclusion for reinvestment shipping income. -
‘(A) In general. - In the case of any qualified controlled foreign corporation -
‘(i) the amendments made by subsection (c) (amending this section and section 955 of this title) shall apply to taxable years ending on or after January 1, 1992, and
‘(ii) sections 955(a)(1)(A) and 955(a)(2)(A) of the Internal Revenue Code of 1986 (as amended by subsection (c)(3)) shall be applied by substituting ‘ending before 1992’ for ‘beginning before 1987’.
‘(B) Qualified controlled foreign corporation. - For purposes of subparagraph (A), the term ‘qualified controlled foreign corporation’ means any controlled foreign corporation (as defined in section 957 of such Code) -
‘(i) if the United States agent of such corporation is a domestic corporation incorporated on March 13, 1951, and
‘(ii) if -
‘(I) the certificate of incorporation of such corporation is dated November 23, 1963, and
‘(II) such corporation has a wholly owned subsidiary and its certificate of incorporation is dated November 2, 1965.
‘(3) Exception for certain reinsurance contracts. -
‘(A) In general. - In the case of the 1st 3 taxable years of a qualified controlled foreign insurer beginning after December 31, 1986, the amendments made by this section shall not apply to the phase-in percentage of any qualified reinsurance income.
‘(B) Phase-in percentage. - For purposes of subparagraph (A):
 

--------------------------------------------------------------------- 
---------------------------------------------------------------------
‘In the case of taxable           The phase-in
years beginning in:              percentage is:
               1987                          75 
               1988                          50 
               1989                          25. 
               -------------------------------
‘(C) Qualified controlled foreign insurer. - For purposes of this paragraph, the term ‘qualified controlled foreign insurer’ means -
‘(i) any controlled foreign corporation which on August 16, 1986, was a member of an affiliated group (as defined in section 1504(a) of the Internal Revenue Code of 1986 without regard to subsection (b)(3) thereof) which had as its common parent a corporation incorporated in Delaware on June 9, 1967, with executive offices in New York, New York, or
‘(ii) any controlled foreign corporation which on August 16, 1986, was a member of an affiliated group (as so defined) which had as its common parent a corporation incorporated in Delaware on November 3, 1981, with executive offices in Philadelphia, Pennsylvania.
‘(D) Qualified reinsurance income. - For purposes of this paragraph, the term ‘qualified reinsurance income’ means any insurance income attributable to risks (other than risks described in section 953(a) or 954(e) of such Code as in effect on the day before the date of the enactment of this Act (Oct. 22, 1986)) assumed under a reinsurance contract. For purposes of this subparagraph, insurance income shall mean the underwriting income (as defined in section 832(b)(3) of such Code) and investment income derived from an amount of assets (to be segregated and separately identified) equivalent to the ordinary and necessary insurance reserves and necessary surplus equal to 1/3 of earned premium attributable to such contracts. For purposes of this paragraph, the amount of qualified reinsurance income shall not exceed the amount of insurance income from reinsurance contracts for calendar year 1985. In the case of controlled foreign corporations described in subparagraph (C)(ii), the preceding sentence shall not apply and the qualified reinsurance income of any such corporation shall not exceed such corporation's proportionate share of $27,000,000 (determined on the basis of respective amounts of qualified reinsurance income determined without regard to this subparagraph).'
Amendment by section 1223(a) of Pub. L. 99-514 applicable to taxable years beginning after Dec. 31, 1986, see section 1223(c) of Pub. L. 99-514, set out as a note under section 864 of this title.
Amendment by section 1810(k) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 137(b) of Pub. L. 98-369 provided that: ‘The amendments made by subsection (a) (amending this section) shall apply to taxable years of controlled foreign corporations beginning after the date of the enactment of this Act (July 18, 1984).’
Amendment by section 712(f) of Pub. L. 98-369 effective as if included in the provision of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, to which such amendment relates, see section 715 of Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 212(f) of Pub. L. 97-248 provided that: ‘The amendments made by this section (amending this section) shall apply to taxable years of foreign corporations beginning after December 31, 1982, and to taxable years of United States shareholders in which, or with which, such taxable years of foreign corporations end.’
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1023(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 to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954)) within which or with which such taxable years of such foreign corporations end.'
Section 1024(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 to taxable years of foreign corporations beginning after December 31, 1975, and to taxable years of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954)) within which or with which such taxable years of such foreign corporations end.'
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 1969 AMENDMENT
Section 909(b) of Pub. L. 91-172 provided that: ‘The amendment made by subsection (a) (amending this section) shall apply to taxable years ending after October 9, 1969.’
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 1201(c) of Pub. L. 99-514 notwithstanding any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100-647 be treated as if it had been included in the provision of Pub. L. 99-514 to which such amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647, set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99-514, as amended, set out as a note under section 401 of this title.
SPECIAL RULE FOR APPLICATION OF SECTION 954 TO CERTAIN DIVIDENDS
Section 1227 of Pub. L. 99-514 provided that:
‘(a) In General. - For purposes of section 954(c)(3)(A) of the Internal Revenue Code of 1986, any dividends received by a qualified controlled foreign corporation (within the meaning of section 951 of such Code) during any of its 1st 5 taxable years beginning after December 31, 1986, with respect to its 32.7 percent interest in a Brazilian corporation shall be treated as if such Brazilian corporation were a related person to the qualified controlled foreign corporation to the extent the Brazilian corporation's income is attributable to its interest in the trade or business of mining in Brazil.
‘(b) Qualified Controlled Foreign Corporation. - For purposes of this section, a qualified controlled foreign corporation is a corporation the greater than 99 percent shareholder of which is a company originally incorporated in Montana on July 9, 1951 (the name of which was changed on August 10, 1966).
‘(c) Effective Date. - The amendment made by this section shall apply to dividends received after December 31, 1986.’