26 U.S.C. § 884: Branch profits 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. the U.S. net equity of the foreign corporation as of the close of the taxable year, exceeds the U.S. net equity of the foreign corporation as of the close of the preceding taxable year, the U.S. net equity of the foreign corporation as of the close of the preceding taxable year, exceeds the U.S. net equity of the foreign corporation as of the close of the taxable year, 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. the aggregate effectively connected earnings and profits for preceding taxable years beginning after December 31, 1986 , over the aggregate dividend equivalent amounts determined for such preceding taxable years. U.S. assets, reduced (including below zero) by U.S. liabilities. 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. The term “U.S. liabilities” means the liabilities 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. The regulations prescribed under subparagraphs (A) and (B) shall be consistent with the allocation of deductions under section 882(c)(1). 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. income not includible in gross income under paragraph (1) or (2) of section 883(a), 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), gain on the disposition of a United States real property interest described in section 897(c)(1)(A)(ii), income treated as effectively connected with the conduct of a trade or business within the United States under section 953(c)(3)(C), or income treated as effectively connected with the conduct of a trade or business within the United States under section 882(e). such treaty is an income tax treaty, and such foreign corporation is a qualified resident of such foreign country. on branch profits if so specified, or if not so specified, on dividends paid by a domestic corporation to a corporation resident in such country which wholly owns such domestic corporation, and any other limitations under such treaty on the tax imposed by subsection (a) shall apply. 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. any dividend described in section 861(a)(2)(B) is received by a foreign corporation, and subparagraph (A) does not apply to such dividend, 50 percent or more (by value) of the stock of such foreign corporation is owned (within the meaning of section 883(c)(4)) by individuals who are not residents of such foreign country and who are not United States citizens or resident aliens, or 50 percent or more of its income is used (directly or indirectly) to meet liabilities to persons who are not residents of such foreign country or citizens or residents of the United States. the stock of such corporation is primarily and regularly traded on an established securities market in such foreign country, or such corporation is wholly owned (either directly or indirectly) by another foreign corporation which is organized in such foreign country and the stock of which is so traded. such corporation is wholly owned (directly or indirectly) by a domestic corporation, and the stock of such domestic corporation is primarily and regularly traded on an established securities market in the United States. 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. This section shall not apply to an international organization (as defined in section 7701(a)(18)). 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 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. 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. such treaty is an income tax treaty, and such foreign corporation is a qualified resident of such foreign country. such treaty is an income tax treaty, and such foreign corporation is a qualified resident of such foreign country. 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.