§ 406. Employees of foreign affiliates covered by section 3121(l) agreements
(a)
Treatment as employees of American employer
For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section
401
(a) or an annuity plan described in section 403(a), of an American employer (as defined in section
3121
(h)), an individual who is a citizen or resident of the United States and who is an employee of a foreign affiliate (as defined in section 3121(l)(6)) of such American employer shall be treated as an employee of such American employer, if—
(1)
such American employer has entered into an agreement under section
3121
(l) which applies to the foreign affiliate of which such individual is an employee;
(b)
Special rules for application of section
401
(a)
(1)
Nondiscrimination requirements
For purposes of applying section
401
(a)(4) and section
410
(b) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
(A)
if such individual is a highly compensated employee (within the meaning of section
414
(q)), he shall be treated as having such capacity with respect to such American employer; and
(B)
the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such American employer and by determining such individual’s status with regard to such American employer.
(2)
Determination of compensation
For purposes of applying paragraph (5) of section
401
(a) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
(A)
the total compensation of such individual shall be the remuneration paid to such individual by the foreign affiliate which would constitute his total compensation if his services had been performed for such American employer, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary; and
(B)
such individual shall be treated as having paid the amount paid by such American employer which is equivalent to the tax imposed by section
3101.
(d)
Deductibility of contributions
For purposes of applying section
404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by an American employer, or by another taxpayer which is entitled to deduct its contributions under section
404
(a)(3)(B), on behalf of an individual who is treated as an employee of such American employer under subsection (a)—
(1)
except as provided in paragraph (2), no deduction shall be allowed to such American employer or to any other taxpayer which is entitled to deduct its contributions under such sections,
(2)
there shall be allowed as a deduction to the foreign affiliate of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section
404 by the American employer if he were an employee of the American employer, and
(3)
any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).
Any amount deductible by a foreign affiliate under this subsection shall be deductible for its taxable year with or within which the taxable year of such American employer ends.
(e)
Treatment as employee under related provisions
An individual who is treated as an employee of an American employer under subsection (a) shall also be treated as an employee of such American employer, with respect to the plan described in subsection (a)(2), for purposes of applying the following provisions of this title: