26 U.S.C. § 883 — Exclusions from gross income

Page 2086 TITLE 26—INTERNAL REVENUE CODE § 883 Pub. L. 95–600, set out as a note under section 11 of this title. EFFECTIVE DATE OF 1966 AMENDMENT Amendment by Pub. L. 89–809 applicable with respect to taxable years beginning after Dec. 31, 1966, see sec- tion 104(n) of Pub. L. 89–809, set out as a note under sec- tion 11 of this title. APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99–514 IN RELATION TO TREATY OBLIGATIONS OF UNITED STATES For applicability of amendment by section 701(e)(4)(F) of Pub. L. 99–514 notwithstanding any trea- ty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amend- ment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100–647, set out as a note under section 861 of this title. § 883. Exclusions from gross income (a) Income of foreign corporations from ships and aircraft The following items shall not be included in gross income of a foreign corporation, and shall be exempt from taxation under this subtitle: (1) Ships operated by certain foreign corpora- tions Gross income derived by a corporation orga- nized in a foreign country from the inter- national operation of a ship or ships if such foreign country grants an equivalent exemp- tion to corporations organized in the United States. (2) Aircraft operated by certain foreign cor- porations Gross income derived by a corporation orga- nized in a foreign country from the inter- national operation of aircraft if such foreign country grants an equivalent exemption to corporations organized in the United States. (3) Railroad rolling stock of foreign corpora- tions Earnings derived from payments by a com- mon carrier for the use on a temporary basis (not expected to exceed a total of 90 days in any taxable year) of railroad rolling stock owned by a corporation of a foreign country which grants an equivalent exemption to cor- porations organized in the United States. (4) Special rules The rules of paragraphs (6), (7), and (8) of section 872(b) shall apply for purposes of this subsection. (5) Special rule for countries which tax on resi- dence basis For purposes of this subsection, there shall not be taken into account any failure of a for- eign country to grant an exemption to a cor- poration organized in the United States if such corporation is subject to tax by such foreign country on a residence basis pursuant to pro- visions of foreign law which meets such stand- ards (if any) as the Secretary may prescribe. (b) Earnings derived from communications sat- ellite system The earnings derived from the ownership or operation of a communications satellite system by a foreign entity designated by a foreign gov- ernment to participate in such ownership or op- eration shall be exempt from taxation under this subtitle, if the United States, through its designated entity, participates in such system pursuant to the Communications Satellite Act of 1962 (47 U.S.C. 701 and following). (c) Treatment of certain foreign corporations (1) In general Paragraph (1) or (2) of subsection (a) (as the case may be) shall not apply to any foreign corporation if 50 percent or more of the value of the stock of such corporation is owned by individuals who are not residents of such for- eign country or another foreign country meet- ing the requirements of such paragraph. (2) Treatment of controlled foreign corpora- tions Paragraph (1) shall not apply to any foreign corporation which is a controlled foreign cor- poration (as defined in section 957(a)). (3) Special rules for publicly traded corpora- tions (A) Exception Paragraph (1) shall not apply to any cor- poration which is organized in a foreign country meeting the requirements of para- graph (1) or (2) of subsection (a) (as the case may be) and the stock of which is primarily and regularly traded on an established secu- rities market in such foreign country, an- other foreign country meeting the require- ments of such paragraph, or the United States. (B) Treatment of stock owned by publicly traded corporation Any stock in another corporation which is owned (directly or indirectly) by a corpora- tion meeting the requirements of subpara- graph (A) shall be treated as owned by indi- viduals who are residents of the foreign country in which the corporation meeting the requirements of subparagraph (A) is or- ganized. (4) Stock ownership through entities For purposes of paragraph (1), stock owned (directly or indirectly) by or for a corporation, partnership, trust, or estate shall be treated as being owned proportionately by its share- holders, partners, or beneficiaries. Stock con- sidered to be owned by a person by reason of the application of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person. (Aug. 16, 1954, ch. 736, 68A Stat. 283; Pub. L. 90–622, § 1(a), Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94–164, § 6(a), Dec. 23, 1975, 89 Stat. 975; Pub. L. 99–514, title XII, § 1212(c)(3)–(5), Oct. 22, 1986, 100 Stat. 2538; Pub. L. 100–647, title I, § 1012(e)(1), (2)(A), (5), Nov. 10, 1988, 102 Stat. 3499, 3500; Pub. L. 101–239, title VII, § 7811(i)(8)(D), (10), Dec. 19, 1989, 103 Stat. 2411; Pub. L. 108–357, title IV, § 419(b), Oct. 22, 2004, 118 Stat. 1513.) Editorial Notes REFERENCES IN TEXT The Communications Satellite Act of 1962, referred to in subsec. (b), is Pub. L. 87–624, Aug. 31, 1962, 76 Stat. Page 2087 TITLE 26—INTERNAL REVENUE CODE § 884 419, which is classified generally to chapter 6 (§ 701 et seq.) of Title 47, Telecommunications. For complete classification of this Act to the Code, see Short Title note set out under section 701 of Title 47 and Tables. AMENDMENTS 2004—Subsec. (a)(4). Pub. L. 108–357 substituted ‘‘(6), (7), and (8)’’ for ‘‘(5), (6), and (7)’’. 1989—Subsec. (a)(4). Pub. L. 101–239, § 7811(i)(8)(D), sub- stituted ‘‘(5), (6), and (7)’’ for ‘‘(5) and (6)’’. Subsec. (a)(5). Pub. L. 101–239, § 7811(i)(10), added par. (5). 1988—Subsec. (a)(1), (2). Pub. L. 100–647, § 1012(e)(2)(A), (5), struck out ‘‘to citizens of the United States and’’ after ‘‘exemption’’ and substituted ‘‘international oper- ation’’ for ‘‘operation’’. Subsec. (c)(1). Pub. L. 100–647, § 1012(e)(1)(B), sub- stituted ‘‘Paragraph (1) or (2) of subsection (a) (as the case may be)’’ for ‘‘Paragraphs (1) and (2) of subsection (a)’’ and ‘‘such paragraph’’ for ‘‘such paragraphs (1) and (2)’’. Subsec. (c)(3). Pub. L. 100–647, § 1012(e)(1)(A), sub- stituted ‘‘Special rules’’ for ‘‘Exception’’ in heading and amended text generally. Prior to amendment, text read as follows: ‘‘Paragraph (1) shall not apply to any foreign corporation— ‘‘(A) the stock of which is primarily and regularly traded on an established securities market in the for- eign country in which such corporation is organized, or ‘‘(B) which is wholly owned (either directly or indi- rectly) by another corporation meeting the require- ments of subparagraph (A) and is organized in the same foreign country as such other corporation.’’ 1986—Subsec. (a)(1). Pub. L. 99–514, § 1212(c)(3), added par. (1) and struck out former par. (1), ships under for- eign flag, which read as follows: ‘‘Earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equiva- lent exemption to citizens of the United States and to corporations organized in the United States.’’ Subsec. (a)(2). Pub. L. 99–514, § 1212(c)(3), added par. (2) and struck out former par. (2), aircraft of foreign reg- istry, which read as follows: ‘‘Earnings derived from the operation of aircraft registered under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations or- ganized in the United States.’’ Subsec. (a)(4). Pub. L. 99–514, § 1212(c)(4), added par. (4). Subsec. (c). Pub. L. 99–514, § 1212(c)(5), added subsec. (c). 1975—Subsec. (a)(3). Pub. L. 94–164 added par. (3). 1968—Pub. L. 90–622 designated existing provisions as subsec. (a), added subsec. (a) heading, and added subsec. (b). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to wagers made after Oct. 22, 2004, see section 419(c) of Pub. L. 108–357, set out as a note under section 872 of this title. EFFECTIVE DATE OF 1989 AMENDMENT Amendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 1212(f) of Pub. L. 99–514, set out as a note under section 863 of this title. EFFECTIVE DATE OF 1975 AMENDMENT Pub. L. 94–164, § 6(b), Dec. 23, 1975, 89 Stat. 976, pro- vided that: ‘‘The amendment made by this section [amending this section] shall apply to payments made after November 18, 1974.’’ EFFECTIVE DATE OF 1968 AMENDMENT Pub. L. 90–622, § 1(b), Oct. 22, 1968, 82 Stat. 1311, pro- vided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply with respect to tax- able years beginning after December 31, 1966.’’ APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99–514 IN RELATION TO TREATY OBLIGATIONS OF UNITED STATES For nonapplication of amendment by section 1212(c)(3)–(5) of Pub. L. 99–514 to the extent application of such amendment would be contrary to any treaty ob- ligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(3), (4) of Pub. L. 100–647, set out as a note under section 861 of this title. § 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 tax- able year. (b) Dividend equivalent amount For purposes of subsection (a), the term ‘‘divi- dend equivalent amount’’ means the foreign cor- poration’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— (A) the U.S. net equity of the foreign cor- poration as of the close of the taxable year, exceeds (B) the U.S. net equity of the foreign cor- poration as of the close of the preceding tax- able year, 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 cor- poration as of the close of the preceding taxable year, exceeds (ii) the U.S. net equity of the foreign corporation as of the close of the taxable year, the effectively connected earnings and prof- its 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 ac-