§ 901. Taxes of foreign countries and of possessions of United States
(a)
Allowance of credit
If the taxpayer chooses to have the benefits of this subpart, the tax imposed by this chapter shall, subject to the limitation of section
904, be credited with the amounts provided in the applicable paragraph of subsection (b) plus, in the case of a corporation, the taxes deemed to have been paid under sections
902 and
960. Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. The credit shall not be allowed against any tax treated as a tax not imposed by this chapter under section
26
(b).
(b)
Amount allowed
Subject to the limitation of section
904, the following amounts shall be allowed as the credit under subsection (a):
(1)
Citizens and domestic corporations
In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and
(2)
Resident of the United States or Puerto Rico
In the case of a resident of the United States and in the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, the amount of any such taxes paid or accrued during the taxable year to any possession of the United States; and
(3)
Alien resident of the United States or Puerto Rico
In the case of an alien resident of the United States and in the case of an alien individual who is a bona fide resident of Puerto Rico during the entire taxable year, the amount of any such taxes paid or accrued during the taxable year to any foreign country; and
(5)
Partnerships and estates
In the case of any person described in paragraph (1), (2), (3), or (4), who is a member of a partnership or a beneficiary of an estate or trust, the amount of his proportionate share of the taxes (described in such paragraph) of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country or to any possession of the United States, as the case may be. Under rules or regulations prescribed by the Secretary, in the case of any foreign trust of which the settlor or another person would be treated as owner of any portion of the trust under subpart E but for section
672
(f), the allocable amount of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on the settlor or such other person in respect of trust income.
(c)
Similar credit required for certain alien residents
Whenever the President finds that—
(1)
a foreign country, in imposing income, war profits, and excess profits taxes, does not allow to citizens of the United States residing in such foreign country a credit for any such taxes paid or accrued to the United States or any foreign country, as the case may be, similar to the credit allowed under subsection (b)(3),
(2)
such foreign country, when requested by the United States to do so, has not acted to provide such a similar credit to citizens of the United States residing in such foreign country, and
(3)
it is in the public interest to allow the credit under subsection (b)(3) to citizens or subjects of such foreign country only if it allows such a similar credit to citizens of the United States residing in such foreign country,
the President shall proclaim that, for taxable years beginning while the proclamation remains in effect, the credit under subsection (b)(3) shall be allowed to citizens or subjects of such foreign country only if such foreign country, in imposing income, war profits, and excess profits taxes, allows to citizens of the United States residing in such foreign country such a similar credit.
(e)
Foreign taxes on mineral income
(1)
Reduction in amount allowed
Notwithstanding subsection (b), the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or possession of the United States with respect to foreign mineral income from sources within such country or possession which would (but for this paragraph) be allowed under such subsection shall be reduced by the amount (if any) by which—
(A)
the amount of such taxes (or, if smaller, the amount of the tax which would be computed under this chapter with respect to such income determined without the deduction allowed under section
613), exceeds
(2)
Foreign mineral income defined
For purposes of paragraph (1), the term “foreign mineral income” means income derived from the extraction of minerals from mines, wells, or other natural deposits, the processing of such minerals into their primary products, and the transportation, distribution, or sale of such minerals or primary products. Such term includes, but is not limited to—
(A)
dividends received from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section
902, to the extent such dividends are attributable to foreign mineral income, and
(f)
Certain payments for oil or gas not considered as taxes
Notwithstanding subsection (b) and sections
902 and
960, the amount of any income, or profits, and excess profits taxes paid or accrued during the taxable year to any foreign country in connection with the purchase and sale of oil or gas extracted in such country is not to be considered as tax for purposes of section
275
(a) and this section if—
(g)
Certain taxes paid with respect to distributions from possessions corporations
(1)
In general
For purposes of this chapter, any tax of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation—
(A)
to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, and
(B)
shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued.
(2)
Possessions corporation
For purposes of paragraph (1), a corporation shall be treated as a possessions corporation for any period during which an election under section
936 applied to such corporation, during which section
931 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976) applied to such corporation, or during which section
957
(c) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) applied to such corporation.
(i)
Taxes used to provide subsidies
Any income, war profits, or excess profits tax shall not be treated as a tax for purposes of this title to the extent—
(1)
the amount of such tax is used (directly or indirectly) by the country imposing such tax to provide a subsidy by any means to the taxpayer, a related person (within the meaning of section
482), or any party to the transaction or to a related transaction, and
(j)
Denial of foreign tax credit, etc., with respect to certain foreign countries
(1)
In general
Notwithstanding any other provision of this part—
(A)
no credit shall be allowed under subsection (a) for any income, war profits, or excess profits taxes paid or accrued (or deemed paid under section
902 or
960) to any country if such taxes are with respect to income attributable to a period during which this subsection applies to such country, and
(2)
Countries to which subsection applies
(A)
In general
This subsection shall apply to any foreign country—
(i)
the government of which the United States does not recognize, unless such government is otherwise eligible to purchase defense articles or services under the Arms Export Control Act,
(4)
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations which treat income paid through 1 or more entities as derived from a foreign country to which this subsection applies if such income was, without regard to such entities, derived from such country.
(5)
Waiver of denial
(A)
In general
Paragraph (1) shall not apply with respect to taxes paid or accrued to a country if the President—
(k)
Minimum holding period for certain taxes on dividends
(1)
Withholding taxes
(A)
In general
In no event shall a credit be allowed under subsection (a) for any withholding tax on a dividend with respect to stock in a corporation if—
(2)
Deemed paid taxes
In the case of income, war profits, or excess profits taxes deemed paid under section
853,
902, or
960 through a chain of ownership of stock in 1 or more corporations, no credit shall be allowed under subsection (a) for such taxes if—
(3)
45-day rule in the case of certain preference dividends
In the case of stock having preference in dividends and dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days, paragraph (1)(A)(i) shall be applied—
(4)
Exception for certain taxes paid by securities dealers
(A)
In general
Paragraphs (1) and (2) shall not apply to any qualified tax with respect to any security held in the active conduct in a foreign country of a business as a securities dealer of any person—
(i)
who is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934,
(B)
Qualified tax
For purposes of subparagraph (A), the term “qualified tax” means a tax paid to a foreign country (other than the foreign country referred to in subparagraph (A)) if—
(6)
Treatment of bona fide sales
If a person’s holding period is reduced by reason of the application of the rules of section
246
(c)(4) to any contract for the bona fide sale of stock, the determination of whether such person’s holding period meets the requirements of paragraph (2) with respect to taxes deemed paid under section
902 or
960 shall be made as of the date such contract is entered into.
(l)
Minimum holding period for withholding taxes on gain and income other than dividends etc.
(1)
In general
In no event shall a credit be allowed under subsection (a) for any withholding tax (as defined in subsection (k)) on any item of income or gain with respect to any property if—
(A)
such property is held by the recipient of the item for 15 days or less during the 31-day period beginning on the date which is 15 days before the date on which the right to receive payment of such item arises, or
(B)
to the extent that the recipient of the item is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.
This paragraph shall not apply to any dividend to which subsection (k) applies.
(2)
Exception for taxes paid by dealers
(A)
In general
Paragraph (1) shall not apply to any qualified tax with respect to any property held in the active conduct in a foreign country of a business as a dealer in such property.
(B)
Qualified tax
For purposes of subparagraph (A), the term “qualified tax” means a tax paid to a foreign country (other than the foreign country referred to in subparagraph (A)) if—
(3)
Exceptions
The Secretary may by regulation provide that paragraph (1) shall not apply to property where the Secretary determines that the application of paragraph (1) to such property is not necessary to carry out the purposes of this subsection.
(4)
Certain rules to apply
Rules similar to the rules of paragraphs (5), (6), and (7) of subsection (k) shall apply for purposes of this subsection.
(5)
Determination of holding period
Holding periods shall be determined for purposes of this subsection without regard to section
1235 or any similar rule.
(m)
Denial of foreign tax credit with respect to foreign income not subject to United States taxation by reason of covered asset acquisitions
(1)
In general
In the case of a covered asset acquisition, the disqualified portion of any foreign income tax determined with respect to the income or gain attributable to the relevant foreign assets—
(2)
Covered asset acquisition
For purposes of this section, the term “covered asset acquisition” means—
(C)
any acquisition of an interest in a partnership which has an election in effect under section
754, and
(3)
Disqualified portion
For purposes of this section—
(A)
In general
The term “disqualified portion” means, with respect to any covered asset acquisition, for any taxable year, the ratio (expressed as a percentage) of—
(i)
the aggregate basis differences (but not below zero) allocable to such taxable year under subparagraph (B) with respect to all relevant foreign assets, divided by
(ii)
the income on which the foreign income tax referred to in paragraph (1) is determined (or, if the taxpayer fails to substantiate such income to the satisfaction of the Secretary, such income shall be determined by dividing the amount of such foreign income tax by the highest marginal tax rate applicable to such income in the relevant jurisdiction).
(B)
Allocation of basis difference
For purposes of subparagraph (A)(i)—
(i)
In general
The basis difference with respect to any relevant foreign asset shall be allocated to taxable years using the applicable cost recovery method under this chapter.
(ii)
Special rule for disposition of assets
Except as otherwise provided by the Secretary, in the case of the disposition of any relevant foreign asset—
(I)
the basis difference allocated to the taxable year which includes the date of such disposition shall be the excess of the basis difference with respect to such asset over the aggregate basis difference with respect to such asset which has been allocated under clause (i) to all prior taxable years, and
(C)
Basis difference
(i)
In general
The term “basis difference” means, with respect to any relevant foreign asset, the excess of—
(4)
Relevant foreign assets
For purposes of this section, the term “relevant foreign asset” means, with respect to any covered asset acquisition, any asset (including any goodwill, going concern value, or other intangible) with respect to such acquisition if income, deduction, gain, or loss attributable to such asset is taken into account in determining the foreign income tax referred to in paragraph (1).
(5)
Foreign income tax
For purposes of this section, the term “foreign income tax” means any income, war profits, or excess profits tax paid or accrued to any foreign country or to any possession of the United States.
(7)
Regulations
The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this subsection, including to exempt from the application of this subsection certain covered asset acquisitions, and relevant foreign assets with respect to which the basis difference is de minimis.
(n)
Cross reference
(1)
For deductions of income, war profits, and excess profits taxes paid to a foreign country or a possession of the United States, see sections
164 and
275.
(3)
For right of estate or trust to the credit for taxes imposed by foreign countries and possessions of the United States under this section, see section
642
(a).
(4)
For reduction of credit for failure of a United States person to furnish certain information with respect to a foreign corporation or partnership controlled by him, see section
6038.