26 U.S.C. § 367: Foreign corporations

If, in connection with any exchange described in section 332, 351, 354, 356, or 361, a United States person transfers property to a foreign corporation, such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation. Except to the extent provided in regulations, paragraph (1) shall not apply to the transfer of stock or securities of a foreign corporation which is a party to the exchange or a party to the reorganization. Except as provided in regulations prescribed by the Secretary, a transfer by a United States person of an interest in a partnership to a foreign corporation in an exchange described in paragraph (1) shall, for purposes of this subsection, be treated as a transfer to such corporation of such person’s pro rata share of the assets of the partnership. Paragraph (2) shall not apply in the case of an exchange described in subsection (a) or (b) of section 361. Subject to such basis adjustments and such other conditions as shall be provided in regulations, the preceding sentence shall not apply if the transferor corporation is controlled (within the meaning of section 368(c)) by 5 or fewer domestic corporations. For purposes of the preceding sentence, all members of the same affiliated group (within the meaning of section 1504) shall be treated as 1 corporation. Paragraph (1) shall not apply to the transfer of any property which the Secretary, in order to carry out the purposes of this subsection, designates by regulation. In the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets. For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange. For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred. subsection (a) shall not apply to the transfer of such property, and the provisions of this subsection shall apply to such transfer. having sold such property in exchange for payments which are contingent upon the productivity, use, or disposition of such property, and annually in the form of such payments over the useful life of such property, or in the case of a disposition following such transfer (whether direct or indirect), at the time of the disposition. For purposes of this chapter, the earnings and profits of a foreign corporation to which the intangible property was transferred shall be reduced by the amount required to be included in the income of the transferor of the intangible property under subparagraph (A)(ii). For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income. For purposes of applying section 904(d), any such amount shall be treated in the same manner as if such amount were a royalty. the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, The Secretary may provide by regulations that the rules of paragraph (2) also apply to the transfer of intangible property by a United States person to a partnership in circumstances consistent with the purposes of this subsection. patent, invention, formula, process, design, pattern, or know-how, copyright, literary, musical, or artistic composition, trademark, trade name, or brand name, franchise, license, or contract, method, program, system, procedure, campaign, survey, study, forecast, estimate, customer list, or technical data, goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment), or other item the value or potential value of which is not attributable to tangible property or the services of any individual. In the case of any distribution described in section 355 (or so much of section 356 as relates to section 355) by a domestic corporation to a person who is not a United States person, to the extent provided in regulations, gain shall be recognized under principles similar to the principles of this section. In the case of any liquidation to which section 332 applies, except as provided in regulations, subsections (a) and (b)(1) of section 337 shall not apply where the 80-percent distributee (as defined in section 337(c)) is a foreign corporation. the fair market value of the property so transferred, over the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor. Except as provided in paragraphs (2) and (3), the amendments made by this section [amending this section and sections 482 and 936 of this title] shall apply to taxable years beginning after December 31, 1986 . The amendments made by subsection (e) [amending this section and section 482 of this title ] shall apply to taxable years beginning after December 31, 1986 , but only with respect to transfers after November 16, 1985 , or licenses granted after such date (or before such date with respect to property not in existence or owned by the taxpayer on such date). In the case of any transfer (or license) which is not to a foreign person, the preceding sentence shall be applied by substituting ‘ August 16, 1986 ’ for ‘ November 16, 1985 ’. For purposes of [former] section 936(h)(5)(C) of the Internal Revenue Code of 1986 the amendments made by subsection (e) shall apply to taxable years beginning after December 31, 1986 , without regard to when the transfer (or license), if any, was made. The amendment made by subsection (f) [amending section 936 of this title ] shall apply to taxable years beginning after December 31, 1982 . with respect to which an election under [former] section 936 of the Internal Revenue Code of 1986 (relating to possessions tax credit) is in effect, which produced an end-product form in Puerto Rico on or before September 3, 1982 , which began manufacturing a component of such product in Puerto Rico in its taxable year beginning in 1983, and with respect to which a Puerto Rican tax exemption was granted on June 27, 1983 , a corporation fails to meet the requirements of subparagraph (B) of [former] section 936(a)(2) of the Internal Revenue Code of 1986 (as amended by subsection (d)(1)) for any taxable year beginning in 1987 or 1988, such corporation would have met the requirements of such subparagraph (B) if such subparagraph had been applied without regard to the amendment made by subsection (d)(1), and 75 percent or more of the gross income of such corporation for such taxable year (or, in the case of a taxable year beginning in 1988, for the period consisting of such taxable year and the preceding taxable year) was derived from the active conduct of a trade or business within a possession of the United States, such corporation shall nevertheless be treated as meeting the requirements of such subparagraph (B) for such taxable year if it elects to reduce the amount of the qualified possession source investment income for the taxable year by the amount of the shortfall determined under subparagraph (B) of this paragraph. 75 percent of the gross income of the corporation for the 3-year period (or part thereof) referred to in [former] section 936(a)(2)(A) of such Code, over the amount of the gross income of such corporation for such period (or part thereof) which was derived from the active conduct of a trade or business within a possession of the United States. Any income attributable to the investment of the amount not treated as qualified possession source investment income under subparagraph (A) shall not be treated as qualified possession source investment income for any taxable year.” The amendments made by this section [enacting section 6038B of this title , amending this section and sections 1492, 1494, 6501, and 7482 of this title, and repealing section 7477 of this title ] shall apply to transfers or exchanges after December 31, 1984 , in taxable years ending after such date. If, after June 6, 1984 , and before January 1, 1985 , a United States person transfers any intangible property (within the meaning of [former] section 936(h)(3)(B) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) to a foreign corporation or in a transfer described in section 1491, such transfer shall be treated for purposes of sections 367(a), 1492(2), and 1494(b) of such Code as pursuant to a plan having as 1 of its principal purposes the avoidance of Federal income tax. Subject to such terms and conditions as the Secretary of the Treasury or his delegate may prescribe, the Secretary may waive the application of subparagraph (A) with respect to any transfer. The amendments made by this section (and the provisions of paragraph (2) of this subsection) shall not apply to any transfer or exchange of property described in a request filed before March 1, 1984 , under section 367(a), 1492(2), or 1494(b) of the Internal Revenue Code of 1986 (as in effect before such amendments).” The amendments made by this section (other than by subsection (d)) [amending this section and sections 751 and 1248 of this title] shall apply to transfers beginning after October 9, 1975 , and to sales, exchanges, and distributions taking place after such date. The amendments made by subsection (d) [enacting section 7477 of this title and amending sections 7476 and 7482 of this title] shall apply with respect to pleadings filed with the Tax Court after the date of the enactment of this Act [ Oct. 4, 1976 ] but only with respect to transfers beginning after October 9, 1975 . In the case of any exchange described in section 367 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect on December 31, 1974 ) in any taxable year beginning after December 31, 1962 , and before the date of the enactment of this Act [ Oct. 4, 1976 ], which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act [ Oct. 4, 1976 ] to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation.”