§ 884. Branch profits tax
(a)
Imposition of tax
In addition to the tax imposed by section
882 for any taxable year, there is hereby imposed on any foreign corporation a tax equal to 30 percent of the dividend equivalent amount for the taxable year.
(b)
Dividend equivalent amount
For purposes of subsection (a), the term “dividend equivalent amount” means the foreign corporation’s effectively connected earnings and profits for the taxable year adjusted as provided in this subsection:
(1)
Reduction for increase in U.S. net equity
If—
the effectively connected earnings and profits for the taxable year shall be reduced (but not below zero) by the amount of such excess.
(2)
Increase for decrease in net equity
(A)
In general
If—
(i)
the U.S. net equity of the foreign corporation as of the close of the preceding taxable year, exceeds
the effectively connected earnings and profits for the taxable year shall be increased by the amount of such excess.
(B)
Limitation
(i)
In general
The increase under subparagraph (A) for any taxable year shall not exceed the accumulated effectively connected earnings and profits as of the close of the preceding taxable year.
(ii)
Accumulated effectively connected earnings and profits
For purposes of clause (i), the term “accumulated effectively connected earnings and profits” means the excess of—
(c)
U.S. net equity
For purposes of this section—
(2)
U.S. assets and U.S. liabilities
For purposes of paragraph (1)—
(A)
U.S. assets
The term “U.S. assets” means the money and aggregate adjusted bases of property of the foreign corporation treated as connected with the conduct of a trade or business in the United States under regulations prescribed by the Secretary. For purposes of the preceding sentence, the adjusted basis of any property shall be its adjusted basis for purposes of computing earnings and profits.
(d)
Effectively connected earnings and profits
For purposes of this section—
(1)
In general
The term “effectively connected earnings and profits” means earnings and profits (without diminution by reason of any distributions made during the taxable year) which are attributable to income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business within the United States.
(2)
Exception for certain income
The term “effectively connected earnings and profits” shall not include any earnings and profits attributable to—
(B)
income treated as effectively connected with the conduct of a trade or business within the United States under section
921
(d) or
926
(b) (as in effect before their repeal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000),
(C)
gain on the disposition of a United States real property interest described in section
897
(c)(1)(A)(ii),
(D)
income treated as effectively connected with the conduct of a trade or business within the United States under section
953
(c)(3)(C), or
(E)
income treated as effectively connected with the conduct of a trade or business within the United States under section
882
(e).
Property and liabilities of the foreign corporation treated as connected with such income under regulations prescribed by the Secretary shall not be taken into account in determining the U.S. assets or U.S. liabilities of the foreign corporation.
(e)
Coordination with income tax treaties; etc.
(1)
Limitation on treaty exemption
No treaty between the United States and a foreign country shall exempt any foreign corporation from the tax imposed by subsection (a) (or reduce the amount thereof) unless—
(2)
Treaty modifications
If a foreign corporation is a qualified resident of a foreign country with which the United States has an income tax treaty—
(3)
Coordination with withholding tax
(A)
In general
If a foreign corporation is subject to the tax imposed by subsection (a) for any taxable year (determined after the application of any treaty), no tax shall be imposed by section
871
(a),
881
(a),
1441, or
1442 on any dividends paid by such corporation out of its earnings and profits for such taxable year.
(4)
Qualified resident
For purposes of this subsection—
(A)
In general
Except as otherwise provided in this paragraph, the term “qualified resident” means, with respect to any foreign country, any foreign corporation which is a resident of such foreign country unless—
(B)
Special rule for publicly traded corporations
A foreign corporation which is a resident of a foreign country shall be treated as a qualified resident of such foreign country if—
(C)
Corporations owned by publicly traded domestic corporations
A foreign corporation which is a resident of a foreign country shall be treated as a qualified resident of such foreign country if—
(D)
Secretarial authority
The Secretary may, in his sole discretion, treat a foreign corporation as being a qualified resident of a foreign country if such corporation establishes to the satisfaction of the Secretary that such corporation meets such requirements as the Secretary may establish to ensure that individuals who are not residents of such foreign country do not use the treaty between such foreign country and the United States in a manner inconsistent with the purposes of this subsection.
(f)
Treatment of interest allocable to effectively connected income
(1)
In general
In the case of a foreign corporation engaged in a trade or business in the United States (or having gross income treated as effectively connected with the conduct of a trade or business in the United States), for purposes of this subtitle—
(A)
any interest paid by such trade or business in the United States shall be treated as if it were paid by a domestic corporation, and
(B)
to the extent that the allocable interest exceeds the interest described in subparagraph (A), such foreign corporation shall be liable for tax under section
881
(a) in the same manner as if such excess were interest paid to such foreign corporation by a wholly owned domestic corporation on the last day of such foreign corporation’s taxable year.
To the extent provided in regulations, subparagraph (A) shall not apply to interest in excess of the amounts reasonably expected to be allocable interest.
(2)
Allocable interest
For purposes of this subsection, the term “allocable interest” means any interest which is allocable to income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.
(3)
Coordination with treaties
(A)
Payor must be qualified resident
In the case of any interest described in paragraph (1) which is paid or accrued by a foreign corporation, no benefit under any treaty between the United States and the foreign country of which such corporation is a resident shall apply unless—
(g)
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations providing for appropriate adjustments in the determination of the dividend equivalent amount in connection with the distribution to shareholders or transfer to a controlled corporation of the taxpayer’s U.S. assets and other adjustments in such determination as are necessary or appropriate to carry out the purposes of this section.