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§ 881. Tax on income of foreign corporations not connected with United States business
(a)
Imposition of tax
Except as provided in subsection (c), there is hereby imposed for each taxable year a tax of 30 percent of the amount received from sources within the United States by a foreign corporation as—
(1)
interest (other than original issue discount as defined in section
1273), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income,
(3)
in the case of—
(A)
a sale or exchange of an original issue discount obligation, the amount of the original issue discount accruing while such obligation was held by the foreign corporation (to the extent such discount was not theretofore taken into account under subparagraph (B)), and
(B)
a payment on an original issue discount obligation, an amount equal to the original issue discount accruing while such obligation was held by the foreign corporation (except that such original issue discount shall be taken into account under this subparagraph only to the extent such discount was not theretofore taken into account under this subparagraph and only to the extent that the tax thereon does not exceed the payment less the tax imposed by paragraph (1) thereon), and
(4)
gains from the sale or exchange after October 4, 1966, of patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like property, or of any interest in any such property, to the extent such gains are from payments which are contingent on the productivity, use, or disposition of the property or interest sold or exchanged,
but only to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States.
(b)
Exception for certain possessions
(1)
Guam, American Samoa, the Northern Mariana Islands, and the Virgin Islands
For purposes of this section and section
884, a corporation created or organized in Guam, American Samoa, the Northern Mariana Islands, or the Virgin Islands or under the law of any such possession shall not be treated as a foreign corporation for any taxable year if—
(A)
at all times during such taxable year less than 25 percent in value of the stock of such corporation is beneficially owned (directly or indirectly) by foreign persons,
(B)
at least 65 percent of the gross income of such corporation is shown to the satisfaction of the Secretary to be effectively connected with the conduct of a trade or business in such a possession or the United States for the 3-year period ending with the close of the taxable year of such corporation (or for such part of such period as the corporation or any predecessor has been in existence), and
(2)
Commonwealth of Puerto Rico
(A)
In general
If dividends are received during a taxable year by a corporation—
(ii)
with respect to which the requirements of subparagraphs (A), (B), and (C) of paragraph (1) are met for the taxable year,
subsection (a) shall be applied for such taxable year by substituting “10 percent” for “30 percent”.
(B)
Applicability
If, on or after the date of the enactment of this paragraph, an increase in the rate of the Commonwealth of Puerto Rico’s withholding tax which is generally applicable to dividends paid to United States corporations not engaged in a trade or business in the Commonwealth to a rate greater than 10 percent takes effect, this paragraph shall not apply to dividends received on or after the effective date of the increase.
(3)
Definitions
(A)
Foreign person
For purposes of paragraph (1), the term “foreign person” means any person other than—
(ii)
a person who would be a United States person if references to the United States in section
7701 included references to a possession of the United States.
(c)
Repeal of tax on interest of foreign corporations received from certain portfolio debt investments
(1)
In general
In the case of any portfolio interest received by a foreign corporation from sources within the United States, no tax shall be imposed under paragraph (1) or (3) of subsection (a).
(2)
Portfolio interest
For purposes of this subsection, the term “portfolio interest” means any interest (including original issue discount) which would be subject to tax under subsection (a) but for this subsection and which is described in any of the following subparagraphs:
(3)
Portfolio interest shall not include interest received by certain persons
For purposes of this subsection, the term “portfolio interest” shall not include any portfolio interest which—
(5)
Special rules for controlled foreign corporations
(A)
In general
In the case of any portfolio interest received by a controlled foreign corporation, the following provisions shall not apply:
(i)
Subparagraph (A) of section
954
(b)(3) (relating to exception where foreign base company income is less than 5 percent or $1,000,000).
(e)
Tax not to apply to certain dividends of regulated investment companies
(1)
Interest-related dividends
(B)
Exception
Subparagraph (A) shall not apply—
(ii)
to any interest-related dividend received by a controlled foreign corporation (within the meaning of section
957
(a)) to the extent such dividend is attributable to interest received by the regulated investment company from a person who is a related person (within the meaning of section
864
(d)(4)) with respect to such controlled foreign corporation.
(C)
Treatment of dividends received by controlled foreign corporations
The rules of subsection (c)(5)(A) shall apply to any interest-related dividend received by a controlled foreign corporation (within the meaning of section
957
(a)) to the extent such dividend is attributable to interest received by the regulated investment company which is described in clause (ii) of section
871
(k)(1)(E) (and not described in clause (i) or (iii) of such section).
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