26 U.S.C. § 245: Dividends received from certain foreign corporations

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. 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. the post-1986 undistributed U.S. earnings, bears to the total post-1986 undistributed earnings. as of the close of the taxable year of the foreign corporation in which the dividend is distributed, and without diminution by reason of dividends distributed during such taxable year. income of the qualified 10-percent owned foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or any dividend received (directly or through a wholly owned foreign corporation) from a domestic corporation at least 80 percent of the stock of which (by vote and value) is owned (directly or through such wholly owned foreign corporation) by the qualified 10-percent owned foreign corporation. 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. 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. 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. 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. 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), under a treaty obligation of the United States (applied without regard to this subsection), such portion would be treated as arising from sources outside the United States, and the taxpayer chooses the benefits of this paragraph, For purposes of this subsection, the term “dividend” does not include any amount treated as a dividend under section 1248. Regulated investment companies and real estate investment trusts shall not be treated as domestic corporations for purposes of paragraph (5)(B). 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. all of its outstanding stock is owned (directly or indirectly) by the domestic corporation to which such dividends are paid; and all of its gross income from all sources is effectively connected with the conduct of a trade or business within the United States. the taxable year of the domestic corporation in which such dividends are received, or the taxable year of the foreign corporation out of the earnings and profits of which such dividends are paid. 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 50 percent (65 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. is section 923(a)(2) nonexempt income (within the meaning of section 927(d)(6)), or would not, but for section 923(a)(4), be treated as exempt foreign trade income. 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. The terms “foreign trade income” and “exempt foreign trade income” have the respective meanings given such terms by section 923. 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. The term “FSC” has the meaning given such term by section 922. Any reference in this subsection to section 922, 923, or 927 shall be treated as a reference to such section as in effect before its repeal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000. Except as provided in this subsection, the amendments made by this title [enacting sections 921 to 927 of this title, amending this section and sections 246, 274, 275, 441, 901, 904, 906, 934, 936, 951, 956, 992, 993, 995, 996, 999, 1248, 6011, 6072, 6501, 6686, and 7651 of this title, and enacting provisions set out as notes under sections 921 and 991 of this title] shall apply to transactions after December 31, 1984 , in taxable years ending after such date. any lease of more than 3 years duration which was entered into before January 1, 1985 , any contract with respect to which the taxpayer uses the completed contract method of accounting which was entered into before January 1, 1985 , or in the case of any contract other than a lease or contract described in subparagraph (A) or (B), any contract which was entered into before January 1, 1985 ; except that this subparagraph shall only apply to the first 3 taxable years of the FSC ending after January 1, 1985 , or such later taxable years as the Secretary of the Treasury or his delegate may prescribe. The amendment made by section 801(d)(10) [amending section 996 of this title ] shall apply to distributions on or after June 22, 1984 . The amendments made by section 803 [amending section 441 of this title ] shall apply to taxable years beginning after December 31, 1984 .” subparagraph (B) of section 245(c)(1) of the 1986 Code shall be applied by substituting ‘80 percent’ for the percentage specified therein, and subparagraph (B) of section 861(a)(2) of the 1986 Code shall be applied by substituting ‘ 100 ⁄ 80 ths’ for the fraction specified therein.”