§ 245. Dividends received from certain foreign corporations
(a)
Dividends from 10-percent owned foreign corporations
(1)
In general
In the case of dividends received by a corporation from a qualified 10-percent owned foreign corporation, there shall be allowed as a deduction an amount equal to the percent (specified in section
243 for the taxable year) of the U.S.-source portion of such dividends.
(2)
Qualified 10-percent owned foreign corporation
For purposes of this subsection, the term “qualified 10-percent owned foreign corporation” means any foreign corporation (other than a passive foreign investment company) if at least 10 percent of the stock of such corporation (by vote and value) is owned by the taxpayer.
(3)
U.S.-source portion
For purposes of this subsection, the U.S.-source portion of any dividend is an amount which bears the same ratio to such dividend as—
(5)
Post-1986 undistributed U.S. earnings
For purposes of this subsection, the term “post-1986 undistributed U.S. earnings” means the portion of the post-1986 undistributed earnings which is attributable to—
(6)
Special rule
If the 1st day on which the requirements of paragraph (2) are met with respect to any foreign corporation is in a taxable year of such corporation beginning after December 31, 1986, the post-1986 undistributed earnings and the post-1986 undistributed U.S. earnings of such corporation shall be determined by only taking into account periods beginning on and after the 1st day of the 1st taxable year in which such requirements are met.
(7)
Coordination with subsection (b)
Earnings and profits of any qualified 10-percent owned foreign corporation for any taxable year shall not be taken into account under this subsection if the deduction provided by subsection (b) would be allowable with respect to dividends paid out of such earnings and profits.
(8)
Disallowance of foreign tax credit
No credit shall be allowed under section
901 for any taxes paid or accrued (or treated as paid or accrued) with respect to the United States-source portion of any dividend received by a corporation from a qualified 10-percent-owned foreign corporation.
(9)
Coordination with section
904
For purposes of section
904, the U.S.-source portion of any dividend received by a corporation from a qualified 10-percent owned foreign corporation shall be treated as from sources in the United States.
(10)
Coordination with treaties
If—
(A)
any portion of a dividend received by a corporation from a qualified 10-percent-owned foreign corporation would be treated as from sources in the United States under paragraph (9),
(11)
Coordination with section
1248
For purposes of this subsection, the term “dividend” does not include any amount treated as a dividend under section
1248.
(b)
Certain dividends received from wholly owned foreign subsidiaries
(1)
In general
In the case of dividends described in paragraph (2) received from a foreign corporation by a domestic corporation which, for its taxable year in which such dividends are received, owns (directly or indirectly) all of the outstanding stock of such foreign corporation, there shall be allowed as a deduction (in lieu of the deduction provided by subsection (a)) an amount equal to 100 percent of such dividends.
(2)
Eligible dividends
Paragraph (1) shall apply only to dividends which are paid out of the earnings and profits of a foreign corporation for a taxable year during which—
(3)
Exception
Paragraph (1) shall not apply to any dividends if an election under section
1562 is effective for either—
(c)
Certain dividends received from FSC
(1)
In general
In the case of a domestic corporation, there shall be allowed as a deduction an amount equal to—
(A)
100 percent of any dividend received from another corporation which is distributed out of earnings and profits attributable to foreign trade income for a period during which such other corporation was a FSC, and
(B)
70 percent (80 percent in the case of dividends from a 20-percent owned corporation as defined in section 243(c)(2)) of any dividend received from another corporation which is distributed out of earnings and profits attributable to effectively connected income received or accrued by such other corporation while such other corporation was a FSC.
(2)
Exception for certain dividends
Paragraph (1) shall not apply to any dividend which is distributed out of earnings and profits attributable to foreign trade income which—
(3)
No deduction under subsection (a) or (b)
No deduction shall be allowable under subsection (a) or (b) with respect to any dividend which is distributed out of earnings and profits of a corporation accumulated while such corporation was a FSC.
(4)
Definitions
For purposes of this subsection—
(A)
Foreign trade income; exempt foreign trade income
The terms “foreign trade income” and “exempt foreign trade income” have the respective meanings given such terms by section
923.
(B)
Effectively connected income
The term “effectively connected income” means any income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States and is subject to tax under this chapter. Such term shall not include any foreign trade income.