Lapas attēli
PDF
ePub

a

or

or more underwriters if the agreement and distributed by a broker or dealer in between the underwriter and issuer is the regular course of his business and merely for a “best efforts" under- containing only quotations of such writing, for the purchase by the under- broker or dealer. writer of all or a portion of the debt ob- (c) The requirements of this paraligations remaining unsold at the expi- graph (c) are that, except as provided ration of a fixed period of time, or for in paragraph (b)(6)(iv)(d) of this secany other arrangement under the tion, the underwriter is under no writterms of which the debt obligations are ten or implied restriction imposed by not purchased by the underwriter with the issuer with respect to whom he a view to distribution through resale. may resell the debt obligation and eiThe fact that an underwriter is related therto the issuer will not prevent the un- (1) Within 30 calendar days after he derwriter from meeting the require- purchased the debt obligation the unments of this paragraph. In deter- derwriter or underwriters either (i) sold mining whether a related underwriter it or (ii) sold at least 95 percent of the meets the requirements of this para- face amount of the issue of which the graph consideration shall be given to debt obligation is a part, or whether the purchase by the under- (2)(i) The debt obligation is evidenced writer of the debt obligation from the by an instrument which, under the issuer for resale was effected by a laws of the jurisdiction in which it is transaction subject to conditions simi- issued, is either negotiable or transferlar to those which would have been im- able by assignment (whether or not it posed between independent persons. is registered for trading), and (ii) it ap

(iv) With a view to distribution through pears from all the relevant facts and resale. (a) An underwriter who pur- circumstances, including any written chased debt obligation shall be statements or assurances made by the deemed to have purchased it with a purchasing underwriter

underview to distribution through resale if writers, that such debt obligation was the requirements of paragraph (b)(6)(iv) purchased with a view to distribution (b) or (c) of this section are met.

through resale. (b) The requirements of this para- (d) The requirements of paragraph graph (6) is that,

(b)(6)(iv)(c) of this paragraph may be (1) The debt obligation is registered, met whether or not the underwriter is approved, or listed for trading on one

restricted from reselling the debt oblior more foreign securities exchanges or gationsforeign established securities markets (1) To a United States person (as dewithin 4 months after the date on fined in section 7701(a)(30)) or which the underwriter purchases the (2) To any particular person or perdebt obligation, or by the date of the

sons pursuant to a restriction imposed first interest payment on the debt obli- by, or required to be met in order to gation, whichever is later, or

comply with, United States or foreign (2) The debt obligation, or any sub- securities or other law. stantial portion of the issue of which

(v) Statement with return. Any taxthe debt obligation is a part, is actu- payer who is required to file a tax really traded on one or more foreign se- turn and who excludes from gross incurities markets on or within 15 cal

come interest of the type specified in endar days after the date on which the

this subparagraph must comply with underwriter purchases the debt obliga- the requirements of paragraph (d) of tion.

this section. For purposes of this paragraph (vi) Effect of termination of IET. If the (b)(6)(iv), a foreign established securi- interest equalization tax expires, the ties market includes any foreign over- provisions of section 861(a)(1)(G) and the-counter market as reflected by the this subparagraph shall apply to interexistence of an inter-dealer quotation est paid on debt obligations only with system for regularly disseminating to respect to which a section 4912(c) elecbrokers and dealers quotations of obli- tion was made. gations by identified brokers or deal- (vii) Definition of term underwriter. ers, other than quotations prepared For purposes of section 861(a)(1)(G) and

this paragraph, the term "underwriter" shall mean any underwriter as defined in section 4919(c)(1).

(c) Special rules—(1) Proration of interest from a foreign corporation deriving major portion of its income from a U.S. business. If, after applying the first sentence of paragraph (b)(3) of this section to interest to which that paragraph applies, it is determined that the interest may not be treated as income from sources without the United States, the amount of the interest from the foreign corporation which at some time during the taxable year is engaged in trade or business in the United States which is to be treated as income from sources within the United States shall be the amount that bears the same ratio to such interest as the gross income of such foreign corporation for the 3-year period ending with the close of its taxable year preceding its taxable year in which such interest is paid or credited (or for such part of such period as the corporation has been in existence) which was effectively connected with the conduct by such corporation of a trade or business in the United States bears to its gross income from all sources for such period.

(2) Payors having no gross income for period preceding taxable year of payment. If the resident alien individual, domestic corporation, or foreign corporation, as the case may be, paying interest has no gross income from any source for the 3-year period (or part thereof) specified in paragraph (b) (2) or (3) of this section, or paragraph (C)(1) of this section, the 20-percent test or the 50-percent test, or the apportionment formula, as the case may be, described in such paragraph shall be applied solely with respect to the taxable year of the payor in which the interest is paid or credited. This paragraph applies whether the lack of gross income for the 3year period (or part thereof) stems from the business inactivity of the payor, from the fact that the payor is a corporation which is newly created or organized, or from any other cause.

(3) Transitional rule. For purposes of applying paragraph (b)(3) of this section, and paragraph (c)(1) of this section, the gross income of the foreign corporation for any period before the first taxable year beginning after De

cember 31, 1966, which is from sources within the United States (determined as provided by sections 861 through 863, and the regulations thereunder, as in effect immediately before amendment by section 102 of the Foreign Investors Tax Act of 1966 (Pub. L. 89-809, 80 Stat. 1541)) shall be treated as gross income for such period which is effectively connected with the conduct of a trade or business in the United States by such foreign corporation.

(4) Gross income determinations. In making determinations under paragraph (b) (2) or (3) of this section, or paragraph (c) (1) or (3) of this section

(i) The gross income of a domestic corporation or a resident alien individual is to be determined by excluding any items specifically excluded from gross income under chapter 1 of the Code, and

(ii) The gross income of a foreign corporation which is effectively connected with the conduct of a trade or business in the United States is to be determined under section 882(b)(2) and by excluding any items specifically excluded from gross income under chapter 1 of the Code, and

(iii) The gross income from all sources of a foreign corporation is to be determined without regard to section 882(b) and without excluding any items otherwise specifically excluded from gross income under chapter 1 of the Code.

(d) Statement with return. Any taxpayer who is required to file a return and applies any provision of this section to exclude an amount of interest from his gross income must file with his return a statement setting forth the amount so excluded, the date of its receipt, the name and address of the obligor of the interest, and, if known, the location of the records which substantiate the amount of the exclusion. A statement from the obligor setting forth such information and indicating the amount of interest to be treated as income from

without the United States may be used for this purpose. See $$ 1.6012-1(b)(1)(i) and 1.60122(g)(1)(i).

(e) Effective dates. Except as otherwise provided, this section applies with respect to taxable years beginning

sources

after December 31, 1966. For corresponding rules applicable to taxable years beginning before January 1, 1967, (see 26 CFR part 1 revised April 1, 1971). Paragraph (a)(7) of this section is applicable to payments made after November 13, 1997. [T.D. 7378, 40 FR 45429, Oct. 2, 1975; 40 FR 48508, Oct. 16, 1975, as amended by T.D. 8257, 54 FR 31819, Aug. 2, 1989; T.D. 8735, 62 FR 53500, Oct. 14, 1997)

none

$ 1.861-3 Dividends.

(a) General—(1) Dividends included in gross income. Gross income from sources within the United States includes a dividend described in subparagraph (2), (3), (4), or (5) of this paragraph. For purposes of subparagraphs (2), (3), and (4) of this paragraph, the term "dividend" shall have the same meaning as set forth in section 316 and the regulations thereunder. See subparagraph (5) of this paragraph for special rules with respect to certain dividends from a DISC or former DISC. See also paragraph (a)(6) of this section for special rules concerning substitute dividend payments received pursuant to a securities lending transaction.

(2) Dividend from a domestic corporation. A dividend described in this subparagraph is a dividend from a domestic corporation other than a domestic corporation entitled to the benefits of section 931, and other than a domestic corporation less than 20 percent of the gross income of which is shown to the satisfaction of the district director (or, if applicable, the Director of International Operations) to have been derived from sources within the United States, as determined under the provisions of sections 861 to 864, inclusive, and the regulations thereunder, for the 3-year period ending with the close of the taxable year of such corporation preceding the declaration of such dividend, or for such part of such period as the corporation has been in existence. See subparagraph (5) of this paragraph for the treatment of certain dividends from a DISC or former DISC.

(3) Dividend from a foreign corporation–(i) In general. (a) A dividend described in this subparagraph is a dividend from a foreign corporation (other than a dividend to which subparagraph (4) of this paragraph applies) unless

less than 50 percent of the gross income from all sources of such foreign corporation for the 3-year period ending with the close of its taxable year preceding the taxable year in which occurs the declaration of such dividend (or for such part of such period as the corporation has been in existence) was effectively connected with the conduct by such corporation of a trade or business in the United States, as determined under section 864(c) and $1.864–3. Thus, no portion of a dividend from a foreign corporation shall be treated as income from sources within the United States under section 861(a)(2)(B) if less than 50 percent of the gross income of such foreign corporation from all sources for such 3-year period (or part thereof) was effectively connected with the conduct by such corporation of a trade or business in the United States or if such foreign corporation had gross income for such 3-year period (or part thereof) but

was effectively connected with the conduct by such corporation of a trade or business in the United States.

(b) If 50 percent or more of the gross income from all sources of such foreign corporation for such 3-year period (or part thereof) was effectively connected with the conduct by such corporation of a trade or business in the United States, the amount of the dividend which is to be treated as income from sources within the United States under section 861(a)(2)(B) shall be the amount that bears the same ratio to such dividend as the gross income of such foreign corporation for such 3-year period (or part thereof) which was effectively connected with the conduct by such corporation of a trade or business in the United States bears to its gross income from all sources for such period.

(c) For purposes of this subdivision (i), the gross income which is effectively connected with the conduct of a trade or business in the United States includes the gross income which, pursuant to section 882 (d) or (e), is treated as income which is effectively connected with the conduct of a trade or business in the United States.

(ii) Rule applicable in applying limitation on amount of foreign tax credit. For purposes of determining under section 904 the limitation upon the amount of the foreign tax credit,

(a) So much of a dividend from a foreign corporation as exceeds (and only to the extent it so exceeds) the amount which is 100/85ths of the amount of the deduction allowable under section 245(a) in respect of such dividend, plus

(b) An amount which bears the same proportion to any section 78 dividend to which the dividend from the foreign corporation gives rise as the amount of the excess determined under (a) of this subdivision bears to the total amount of the dividend from the foreign corporation, shall, notwithstanding subdivision (i) of this subparagraph, be treated as income from sources without the United States. This subdivision applies to a dividend for which no dividends-received deduction is allowed under section 245 or for which the 85 percent dividends-received deduction is allowed under section 245(a) but does not apply to a dividend for which a deduction is allowable under section 245(b). All of a dividend for which the 100 percent dividends-received deduction is allowed under section 245(b) shall be treated as income from sources within the United States for purposes of determining under section 904 the limitation upon the amount of the foreign tax credit. If the amount of a distribution of property other than money (constituting a dividend under section 316) is determined by applying section 301(b)(1)(C), such amount must be used as the dividend for purposes of applying (a) of this subdivision even though the amount used for purposes of section 245(a) is determined by applying section 301(b)(1)(D). In making determinations under this subdivision, a dividend (other than a section 78 dividend referred to in (b) of this subdivision) shall be determined without regard to section 78.

(iii) Ilustrations. The application of this subparagraph may be illustrated by the following examples:

Erample 1. D, a domestic corporation, owns 80 percent of the outstanding stock of M, a foreign manufacturing corporation. M, which makes its returns on the basis of the calendar year, has earnings and profits of $200,000 for 1971 and 60 percent of its gross income for that year is effectively connected for 1971 with the conduct of a trade or business in the United States. For an uninterrupted period of 36 months ending on December 31, 1970, M has been engaged in trade or

business in the United States and has received gross income effectively connected with the conduct of a trade or business in the United States amounting to 60 percent of its gross income from all sources for such period. The only distribution by M to D for 1971 is a cash dividend of $100,000; of this amount, $60,000 ($100,000x60%) is treated under subdivision (i) of this subparagraph as income from sources within the United States, and $40,000 ($100.000 - $60,000) is treated under $1.862-1(a)(2) as income from sources without the United States. Accordingly, under section 245(a), D is entitled to a dividends-received deduction of $51,000 ($60,000x85%), and under subdivision (ii) of this subparagraph $40,000 ($100,000 - ($51,000x100/85]) is treated as income from sources without the United States for purposes of determining under section 904(a) (1) or (2) the limitation upon the amount of the foreign tax credit.

Erample 2. (a) The facts are the same as in example (1) except that the distribution for 1971 consists of property which has a fair market value of $100.000 and an adjusted basis of $30,000 in M's hands immediately before the distribution. The amount of the dividend under section 316 is $58,000, determined by applying secton 301(b)(1)(C) as follows: Portion of adjusted basis of property attributable to gross income of M effectively connected for 1971 with conduct of trade or business in United States ($30,000x60%)

$18,000 Portion of fair market value of property attributable

to gross income of M not effectively connected for 1971 with conduct of trade or business in United States ($100,000x40%)

40,000

[blocks in formation]

(b) Of the total dividend, $34,800 ($58,000x60% (percentage applicable to 3-year period)) is treated under subdivision (i) of this subparagraph as income from sources within the United States, and $23,200 ($58,000x40%) is treated under $1.862–1(a)(2) as income from sources without the United States. However, by reason of section 245(c) the adjusted basis of the property ($30,000) is used under section 245(a) in determining the dividends-received deduction. Thus, under section 245(a), D is entitled to a dividends-received deduction of $15,300 ($30,000x60%-85%).

(c) Under subdivision (ii) of this subparagraph, the amount of the dividend for purposes of applying (a) of that subdivision is the amount ($58,000) determined by applying section 301(b)(1)(C) rather than the amount ($30,000) determined by applying section 301(b)(1)(B). Accordingly, under subdivision (ii) of this subparagraph $40,000 ($58,000 -- ($15,300x100/85]) is treated as income from sources without the United States for purposes of determining under section 904(a) (1) or (2) the limitation upon the amount of the foreign tax credit.

Example 3. (a) D, a domestic corporation which makes its returns on the basis of the calendar year, owns 100 percent of the outstanding stock of N, a foreign corporation which is not a less developed country corporation under section 902(d). N, which makes its returns on the basis of the calendar year, has total gross income for 1971 of $100,000, of which $80,000 (including $60,000 from sources within foreign country X) is effectively connected for that year with the conduct of a trade or business in the United States. For 1971 N is assumed to have paid $27,000 of income taxes to country X and to have accumulated profits of $81,000 for purposes of section 902(c)(1)(A). N's accumulated profits in excess of foreign income taxes amount to $54,000. For 1971 D receives a cash dividend of $42,000 from N, which is D's only income for that year.

(b) For 1971 D chooses the benefits of the foreign tax credit under section 901, and as a result is required under section 78 to include in gross income an amount equal to the foreign income taxes of $21,000 ($27,000x$42,000/ $54,000) it is deemed to have paid under section 902(a)(1). Thus, assuming no other deductions for the taxable year, D has gross income of $63,000 ($42,000+$21,000) for 1971 less a dividends-received deduction under section 245(a) of $28,560 ([$42,000x$80,000/ $100,000]*85%), or taxable income for 1971 of $34,440.

(c) Under subdivision (ii) of this subparagraph, for purposes of determining under section 904(a) (1) or (2) the limitation upon the amount of the foreign tax credit, $12,600 is treated as income from sources without the United States, determined as follows: Excess of dividend from N over amount which is

100/85ths of amount of sec. 245(a) deduction ($42,000 - ($28,560x 100/85))

$8,400 Proportionate part of

78 dividend ($21,000 $8,400/$42,000)

dend of $10,000 ($10,000 - [$0x100/85]) as income from sources without the United States for purposes of determining under section 904(a) (1) or (2) the limitation upon the amount of the foreign tax credit.

(4) Dividend from a foreign corporation succeeding to earnings of a domestic corporation. A dividend described in this subparagraph is a dividend from a foreign corporation, if such dividend is received by a corporation after December 31, 1959, but only to the extent that such dividend is treated by such recipient corporation under the provisions of $1.243-3 as a dividend from a domestic corporation subject to taxation under chapter 1 of the Code. To the extent that this subparagraph applies to a dividend received from a foreign corporation, subparagraph (3) of this paragraph shall not apply to such dividend.

(5) Certain dividends from a DISC or former DISC—(i) General rule. A dividend described in this subparagraph is a dividend from a corporation that is a DISC or former DISC (as defined in section 992(a)) other than a dividend that

(a) Is deemed paid by a DISC, for taxable years beginning before January 1, 1976, under section 995(b)(1)(D) as in effect for taxable years beginning before January 1, 1976, and for taxable years beginning after December 31, 1975, under section 995(b)(1) (D), (E), and (F) to the extent provided in subdivision (iii) of this subparagraph or

(6) Reduces under $1.996–3(b)(3) accumulated DISC income (as defined in subdivision (ii)(b) of this subparagraph) to the extend provided in subdivision (iv) of this subparagraph. Thus, a dividend deemed paid under section 995(b)(1) (A), (B), or (C) (relating to certain deemed distributions in qualified years) will be treated in full as gross income from sources within the United States. To the extent that a dividend from a DISC or former DISC is paid out of other earnings and profits (as defined in $1.996–3(d)), subparagraph (2) of this paragraph shall apply. To the extent that a dividend from a DISC or former DISC is paid out of previously taxed income (as defined in $1.996-3(c)), see section 996(a)(3) (relating to the exclusion from gross income of amounts

sec

4,200

Taxable income from sources without
the United States

12,600 Erample 4. A, an individual citizen of the United States who makes his return on the basis of the calendar year, receives in 1971 a cash dividend of $10,000 from M, a foreign corporation, which makes its return on the basis of the calendar year. For the 3-year period ending with 1970 M has been engaged in trade or business in the United States and has received gross income effectively connected with the conduct of a trade or business in the United States amounting to 80 percent of its gross income from all sources for such period. Of the total dividend, $8,000 ($10,000x80%) is treated under subdivision (i) of this subparagraph as income from sources within the United States and $2,000 ($10,000 - $8,000) is treated under $1.862-1(a)(2) as income from sources without the United States. Since under section 245 no dividends received-deduction is allowable to an individual, A is entitled under subdivision (ii) of this subparagraph to treat the entire divi

« iepriekšējāTurpināt »