26 U.S.C. § 884 — Branch profits tax

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- Page 2088 TITLE 26—INTERNAL REVENUE CODE § 884 cumulated effectively connected earnings and profits as of the close of the preceding taxable year. (ii) Accumulated effectively connected earnings and profits For purposes of clause (i), the term ‘‘ac- cumulated effectively connected earnings and profits’’ means the excess of— (I) the aggregate effectively connected earnings and profits for preceding tax- able years beginning after December 31, 1986, over (II) the aggregate dividend equivalent amounts determined for such preceding taxable years. (c) U.S. net equity For purposes of this section— (1) In general The term ‘‘U.S. net equity’’ means— (A) U.S. assets, reduced (including below zero) by (B) U.S. liabilities. (2) U.S. assets and U.S. liabilities For purposes of paragraph (1)— (A) U.S. assets 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 pre- scribed by the Secretary. For purposes of the preceding sentence, the adjusted basis of any property shall be its adjusted basis for pur- poses of computing earnings and profits. (B) U.S. liabilities The term ‘‘U.S. liabilities’’ means the li- abilities of the foreign corporation treated as connected with the conduct of a trade or business in the United States under regula- tions prescribed by the Secretary. (C) Regulations to be consistent with alloca- tion of deductions The regulations prescribed under subpara- graphs (A) and (B) shall be consistent with the allocation of deductions under section 882(c)(1). (d) Effectively connected earnings and profits For purposes of this section— (1) In general The term ‘‘effectively connected earnings and profits’’ means earnings and profits (with- out diminution by reason of any distributions made during the taxable year) which are at- tributable to income which is effectively con- nected (or treated as effectively connected) with the conduct of a trade or business within the United States. (2) Exception for certain income The term ‘‘effectively connected earnings and profits’’ shall not include any earnings and profits attributable to— (A) income not includible in gross income under paragraph (1) or (2) of section 883(a), (B) income treated as effectively con- nected with the conduct of a trade or busi- ness within the United States under section 921(d) or 926(b) (as in effect before their re- peal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000), (C) gain on the disposition of a United States real property interest described in section 897(c)(1)(A)(ii), (D) income treated as effectively con- nected with the conduct of a trade or busi- ness within the United States under section 953(c)(3)(C), or (E) income treated as effectively con- nected with the conduct of a trade or busi- ness within the United States under section 882(e). Property and liabilities of the foreign corpora- tion treated as connected with such income under regulations prescribed by the Secretary shall not be taken into account in determining the U.S. assets or U.S. liabilities of the foreign corporation. (e) Coordination with income tax treaties; etc. (1) Limitation on treaty exemption No treaty between the United States and a foreign country shall exempt any foreign cor- poration from the tax imposed by subsection (a) (or reduce the amount thereof) unless— (A) such treaty is an income tax treaty, and (B) such foreign corporation is a qualified resident of such foreign country. (2) Treaty modifications If a foreign corporation is a qualified resi- dent of a foreign country with which the United States has an income tax treaty— (A) the rate of tax under subsection (a) shall be the rate of tax specified in such treaty— (i) on branch profits if so specified, or (ii) 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 (B) any other limitations under such trea- ty on the tax imposed by subsection (a) shall apply. (3) Coordination with withholding tax (A) In general If a foreign corporation is subject to the tax imposed by subsection (a) for any tax- able 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. (B) Limitation on certain treaty benefits If— (i) any dividend described in section 861(a)(2)(B) is received by a foreign cor- poration, and (ii) subparagraph (A) does not apply to such dividend, rules similar to the rules of subparagraphs (A) and (B) of subsection (f)(3) shall apply to such dividend. (4) Qualified resident For purposes of this subsection— Page 2089 TITLE 26—INTERNAL REVENUE CODE § 884 (A) In general Except as otherwise provided in this para- graph, the term ‘‘qualified resident’’ means, with respect to any foreign country, any for- eign corporation which is a resident of such foreign country unless— (i) 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 (ii) 50 percent or more of its income is used (directly or indirectly) to meet liabil- ities to persons who are not residents of such foreign country or citizens or resi- dents of the United States. (B) Special rule for publicly traded corpora- tions A foreign corporation which is a resident of a foreign country shall be treated as a qualified resident of such foreign country if— (i) the stock of such corporation is pri- marily and regularly traded on an estab- lished securities market in such foreign country, or (ii) such corporation is wholly owned (ei- ther directly or indirectly) by another for- eign corporation which is organized in such foreign country and the stock of which is so traded. (C) Corporations owned by publicly traded domestic corporations A foreign corporation which is a resident of a foreign country shall be treated as a qualified resident of such foreign country if— (i) such corporation is wholly owned (di- rectly or indirectly) by a domestic cor- poration, and (ii) the stock of such domestic corpora- tion is primarily and regularly traded on an established securities market in the United States. (D) Secretarial authority The Secretary may, in his sole discretion, treat a foreign corporation as being a quali- fied resident of a foreign country if such cor- poration establishes to the satisfaction of the Secretary that such corporation meets such requirements as the Secretary may es- tablish 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 incon- sistent with the purposes of this subsection. (5) Exception for international organizations This section shall not apply to an inter- national organization (as defined in section 7701(a)(18)). (f) Treatment of interest allocable to effectively connected income (1) In general In the case of a foreign corporation engaged in a trade or business in the United States (or having gross income treated as effectively connected with the conduct of a trade or busi- ness in the United States), for purposes of this subtitle— (A) any interest paid by such trade or busi- ness in the United States shall be treated as if it were paid by a domestic corporation, and (B) to the extent that the allocable inter- est exceeds the interest described in sub- paragraph (A), such foreign corporation shall be liable for tax under section 881(a) in the same manner as if such excess were in- terest paid to such foreign corporation by a wholly owned domestic corporation on the last day of such foreign corporation’s tax- able year. To the extent provided in regulations, sub- paragraph (A) shall not apply to interest in ex- cess of the amounts reasonably expected to be allocable interest. (2) Allocable interest For purposes of this subsection, the term ‘‘allocable interest’’ means any interest which is allocable to income which is effectively con- nected (or treated as effectively connected) with the conduct of a trade or business in the United States. (3) Coordination with treaties (A) Payor must be qualified resident In the case of any interest described in paragraph (1) which is paid or accrued by a foreign corporation, no benefit under any treaty between the United States and the foreign country of which such corporation is a resident shall apply unless— (i) such treaty is an income tax treaty, and (ii) such foreign corporation is a quali- fied resident of such foreign country. (B) Recipient must be qualified resident In the case of any interest described in paragraph (1) which is received or accrued by any corporation, no benefit under any treaty between the United States and the foreign country of which such corporation is a resi- dent shall apply unless— (i) such treaty is an income tax treaty, and (ii) such foreign corporation is a quali- fied resident of such foreign country. (g) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regula- tions providing for appropriate adjustments in the determination of the dividend equivalent amount in connection with the distribution to shareholders or transfer to a controlled corpora- tion of the taxpayer’s U.S. assets and other ad- justments in such determination as are nec- essary or appropriate to carry out the purposes of this section. (Added Pub. L. 99–514, title XII, § 1241(a), Oct. 22, 1986, 100 Stat. 2576; amended Pub. L. 100–647, title I, § 1012(q)(1)(A), (2)–(6), (14), title VI, § 6133(b), Nov. 10, 1988, 102 Stat. 3522–3525, 3721; Pub. L. 104–188, title I, § 1704(f)(3)(A), Aug. 20, 1996, 110 Page 2090 TITLE 26—INTERNAL REVENUE CODE § 884 Stat. 1879; Pub. L. 110–172, § 11(g)(8), Dec. 29, 2007, 121 Stat. 2490.) Editorial Notes REFERENCES IN TEXT The FSC Repeal and Extraterritorial Income Exclu- sion Act of 2000, referred to in subsec. (d)(2)(B), is Pub. L. 106–519, Nov. 15, 2000, 114 Stat. 2423. For complete classification of this Act to the Code, see Short Title of 2000 Amendments note set out under section 1 of this title and Tables. PRIOR PROVISIONS A prior section 884 was renumbered section 885 of this title. AMENDMENTS 2007—Subsec. (d)(2)(B). Pub. L. 110–172 inserted ‘‘(as in effect before their repeal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000)’’ before comma at end. 1996—Subsec. (f)(1). Pub. L. 104–188, § 1704(f)(3)(A)(ii), substituted ‘‘reasonably expected to be allocable inter- est’’ for ‘‘reasonably expected to be deductible under section 882 in computing the effectively connected tax- able income of such foreign corporation’’ in closing provisions. Subsec. (f)(1)(B). Pub. L. 104–188, § 1704(f)(3)(A)(i), sub- stituted ‘‘to the extent that the allocable interest ex- ceeds the interest described in subparagraph (A)’’ for ‘‘to the extent the amount of interest allowable as a de- duction under section 882 in computing the effectively connected taxable income of such foreign corporation exceeds the interest described in subparagraph (A)’’. Subsec. (f)(2). Pub. L. 104–188, § 1704(f)(3)(A)(iii), amended par. (2) generally. Prior to amendment, par. (2) read as follows: ‘‘EFFECTIVELY CONNECTED TAXABLE INCOME.—For purposes of this subsection, the term ‘ef- fectively connected taxable income’ means taxable in- come which is effectively connected (or treated as ef- fectively connected) with the conduct of a trade or business within the United States.’’ 1988—Subsec. (b)(2)(B). Pub. L. 100–647, § 1012(q)(1)(A), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: ‘‘The increase under sub- paragraph (A) for any taxable year shall not exceed the aggregate reductions under paragraph (1) for prior tax- able years to the extent not previously taken into ac- count under subparagraph (A).’’ Subsec. (d)(2)(E). Pub. L. 100–647, § 6133(b), added sub- par. (E). Subsec. (e)(1). Pub. L. 100–647, § 1012(q)(2)(A), amended par. (1) generally. Prior to amendment, par. (1) read as follows: ‘‘No income tax treaty between the United States and a foreign country shall exempt any foreign corporation from the tax imposed by subsection (a) (or reduce the amount thereof) unless— ‘‘(A) such foreign corporation is a qualified resident of such foreign country, or ‘‘(B) such foreign corporation is not a qualified resi- dent of such foreign country but such income tax treaty permits a withholding tax on dividends de- scribed in section 861(a)(2)(B) which are paid by such foreign corporation.’’ Subsec. (e)(3). Pub. L. 100–647, § 1012(q)(2)(B), sub- stituted ‘‘withholding tax’’ for ‘‘2nd tier withholding tax’’ in heading and amended text generally. Prior to amendment, text read as follows: ‘‘(A) IN GENERAL.—If a foreign corporation is not ex- empt for any taxable year from the tax imposed by sub- section (a) by reason of a treaty, no tax shall be im- posed by section 871(a), 881(a), 1441, or 1442 on any divi- dends paid by such corporation during the taxable year. ‘‘(B) LIMITATION ON CERTAIN TREATY BENEFITS.—No foreign corporation which is not a qualified resident of a foreign country shall be entitled to claim benefits under any income tax treaty between the United States and such foreign country with respect to dividends— ‘‘(i) which are paid by such foreign corporation and with respect to which such foreign corporation is oth- erwise required to deduct and withhold tax under sec- tion 1441 or 1442, or ‘‘(ii) which are received by such foreign corporation and are described in section 861(a)(2)(B).’’ Subsec. (e)(4)(A)(i), (ii). Pub. L. 100–647, § 1012(q)(5), substituted ‘‘50 percent or more’’ for ‘‘more than 50 per- cent’’ in cl. (i) and ‘‘citizens or residents of the United States’’ for ‘‘the United States’’ in cl. (ii). Subsec. (e)(4)(C), (D). Pub. L. 100–647, § 1012(q)(4), added subpar. (C) and redesignated former subpar. (C) as (D). Subsec. (e)(5). Pub. L. 100–647, § 1012(q)(6), added par. (5). Subsec. (f)(1). Pub. L. 100–647, § 1012(f)(3)(A), (14), sub- stituted ‘‘this subtitle’’ for ‘‘sections 871, 881, 1441, and 1442’’ and inserted ‘‘(or having gross income treated as effectively connected with the conduct of a trade or business in the United States)’’ after ‘‘United States’’. Pub. L. 100–647, § 1012(q)(2)(C)(i), (3)(B), inserted sen- tence at end and struck out former last sentence which read as follows: ‘‘Rules similar to the rules of sub- section (e)(3)(B) shall apply to interest described in the preceding sentence.’’ Subsec. (f)(3). Pub. L. 100–647, § 1012(q)(2)(C)(ii), added par. (3). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1996 AMENDMENT Section 1704(f)(3)(B) of Pub. L. 104–188 provided that: ‘‘The amendments made by subparagraph (A) [amend- ing this section] shall take effect as if included in the amendments made by section 1241(a) of the Tax Reform Act of 1986 [Pub. L. 99–514].’’ EFFECTIVE DATE OF 1988 AMENDMENT Amendment by section 1012(q)(1)(A), (2)–(6), (14) of 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 re- lates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. Amendment by section 6133(b) of Pub. L. 100–647 ap- plicable to taxable years beginning after Dec. 31, 1988, see section 6133(c) of Pub. L. 100–647, set out as a note under section 882 of this title. EFFECTIVE DATE Section 1241(e) of Pub. L. 99–514 provided that: ‘‘The amendments made by this section [enacting section 884 of this title, renumbering former section 884 as section 885 of this title, and amending sections 861 and 906 of this title] shall apply to taxable years beginning after December 31, 1986.’’ DETERMINATION OF EARNINGS AND PROFITS OF FOREIGN CORPORATIONS Section 1012(q)(1)(B) of Pub. L. 100–647, as amended by Pub. L. 101–239, title VII, § 7811(i)(5), Dec. 19, 1989, 103 Stat. 2410, provided that: ‘‘For purposes of applying sec- tion 884 of the 1986 Code, the earnings and profits of any corporation shall be determined without regard to any increase in earnings and profits under sections 1023(e)(3)(C) [section 1023(e)(3)(C) of Pub. L. 99–514, set out as an Effective Date note under section 846 of this title] and 1021(c)(2)(C) of the Reform Act [Pub. L. 99–514, set out as an Effective Date of 1986 Amendment note under section 832 of this title] or arising from section 832(b)(4)(C) of the 1986 Code.’’ APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99–514 IN RELATION TO TREATY OBLIGATIONS OF UNITED STATES For nonapplication of amendment by section 1241(a) of Pub. L. 99–514 (enacting this section) to the extent application of such amendment would be contrary to Page 2091 TITLE 26—INTERNAL REVENUE CODE § 887 any treaty obligation 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. § 885. Cross references (1) For special provisions relating to foreign cor- porations carrying on an insurance business within the United States, see section 842. (2) For rules applicable in determining whether any foreign corporation is engaged in trade or busi- ness within the United States, see section 864(b). (3) For adjustment of tax in case of corporations of certain foreign countries, see section 896. (4) For allowance of credit against the tax in case of a foreign corporation having income effectively connected with the conduct of a trade or business within the United States, see section 906. (5) For withholding at source of tax on income of foreign corporations, see section 1442. (Aug. 16, 1954, ch. 736, 68A Stat. 283, § 884; Pub. L. 89–809, title I, § 104(m)(1), Nov. 13, 1966, 80 Stat. 1563; Pub. L. 91–172, title I, § 101(j)(21), Dec. 30, 1969, 83 Stat. 528; renumbered § 885, Pub. L. 99–514, title XII, § 1241(a), Oct. 22, 1986, 100 Stat. 2576.) Editorial Notes AMENDMENTS 1986—Pub. L. 99–514 renumbered section 884 of this title as this section. 1969—Pub. L. 91–172 redesignated pars. (2) to (6) as (1) to (5), respectively. Former par. (1), referring to section 512(a), was struck out. 1966—Par. (1). Pub. L. 89–809 redesignated par. (4) as (1). Former par. (1) redesignated (6). Par. (2). Pub. L. 89–809 redesignated par. (3) as (2) and substituted ‘‘foreign corporations carrying on an insur- ance business within the United States, see section 842’’ for ‘‘foreign insurance companies, see subchapter L (sec. 801 and following)’’. Former par. (2) redesignated (3). Par. (3). Pub. L. 89–809 redesignated former par. (2) as (3) and, in par. (3) as so redesignated, substituted ‘‘sec- tion 864(b)’’ for ‘‘section 871(c)’’. Former par. (3) redes- ignated (2). Pars. (4), (5). Pub. L. 89–809 added pars. (4) and (5). Former par. (4) redesignated (1). Par. (6). Pub. L. 89–809 redesignated former par. (1) as (6). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1969 AMENDMENT Amendment by Pub. L. 91–172 applicable to taxable years beginning after Dec. 31, 1969, see section 101(k)(2)(B) of Pub. L. 91–172, set out as an Effective Date note under section 4940 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. SUBPART C—TAX ON GROSS TRANSPORTATION INCOME Sec. 887. Imposition of tax on gross transportation in- come of nonresident aliens and foreign cor- porations. § 887. Imposition of tax on gross transportation income of nonresident aliens and foreign cor- porations (a) Imposition of tax In the case of any nonresident alien individual or foreign corporation, there is hereby imposed for each taxable year a tax equal to 4 percent of such individual’s or corporation’s United States source gross transportation income for such tax- able year. (b) United States source gross transportation in- come (1) In general Except as provided in paragraphs (2) and (3), the term ‘‘United States source gross trans- portation income’’ means any gross income which is transportation income (as defined in section 863(c)(3)) to the extent such income is treated as from sources in the United States under section 863(c)(2). To the extent provided in regulations, such term does not include any income of a kind to which an exemption under paragraph (1) or (2) of section 883(a) would not apply. (2) Exception for certain income effectively connected with business in the United States The term ‘‘United States source gross trans- portation income’’ shall not include any in- come taxable under section 871(b) or 882. (3) Exception for certain income taxable in possessions The term ‘‘United States source gross trans- portation income’’ does not include any in- come taxable in a possession of the United States under the provisions of this title as made applicable in such possession. (4) Determination of effectively connected in- come For purposes of this chapter, United States source gross transportation income of any tax- payer shall not be treated as effectively con- nected with the conduct of a trade or business in the United States unless— (A) the taxpayer has a fixed place of busi- ness in the United States involved in the earning of United States source gross trans- portation income, and (B) substantially all of the United States source gross transportation income (deter- mined without regard to paragraph (2)) of the taxpayer is attributable to regularly scheduled transportation (or, in the case of income from the leasing of a vessel or air- craft, is attributable to a fixed place of busi- ness in the United States). (c) Coordination with other provisions Any income taxable under this section shall not be taxable under section 871, 881, or 882. (Added Pub. L. 99–514, title XII, § 1212(b)(1), Oct. 22, 1986, 100 Stat. 2537; amended Pub. L. 100–647, title I, § 1012(e)(6), Nov. 10, 1988, 102 Stat. 3500; Pub. L. 101–239, title VII, § 7811(i)(8)(A), (B), (9), Dec. 19, 1989, 103 Stat. 2410, 2411.)