Amended 1968
- 1968 Pub. L. 90-622 Pub. L. 90–622 designated existing provisions as subsec. (a), added subsec. (a) heading, and added subsec. (b).
Cases: Good Fortune Shipping SA v. Commissioner, 897 F.3d 256 (D.C. Cir. 2018); Tate & Lyle, Inc. v. Commissioner, 103 T.C. 656 (1994)
Forms: Form 1120-F
Final rules 4
(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:
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(1) Ships operated by certain foreign corporations Gross income derived by a corporation organized in a foreign country from the international operation of a ship or ships if such foreign country grants an equivalent exemption to corporations organized in the United States.
Amended 1986, 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(e)(2)(A), (5), struck out “to citizens of the United States and” after “exemption” and substituted “international operation” for “operation”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1212(c)(3), added par. (1) and struck out former par. (1), ships under foreign 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 equivalent exemption to citizens of the United States and to corporations organized in the United States.”
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(2) Aircraft operated by certain foreign corporations Gross income derived by a corporation organized in a foreign country from the international operation of aircraft if such foreign country grants an equivalent exemption to corporations organized in the United States.
Amended 1986, 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(e)(2)(A), (5), struck out “to citizens of the United States and” after “exemption” and substituted “international operation” for “operation”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1212(c)(3), added par. (2) and struck out former par. (2), aircraft of foreign registry, 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 organized in the United States.”
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(3) Railroad rolling stock of foreign corporations Earnings derived from payments by a common 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 corporations organized in the United States.
Amended 1975
- 1975 Pub. L. 94-164 Pub. L. 94–164 added par. (3).
(4) Special rules The rules of paragraphs (6), (7), and (8) of section 872(b) shall apply for purposes of this subsection.
Amended 1986, 1989, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 substituted “(6), (7), and (8)” for “(5), (6), and (7)”.
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7811(i)(8)(D), substituted “(5), (6), and (7)” for “(5) and (6)”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1212(c)(4), added par. (4).
(5) Special rule for countries which tax on residence basis For purposes of this subsection, there shall not be taken into account any failure of a foreign country to grant an exemption to a corporation organized in the United States if such corporation is subject to tax by such foreign country on a residence basis pursuant to provisions of foreign law which meets such standards (if any) as the Secretary may prescribe.
Amended 1989
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7811(i)(10), added par. (5).
(b) Earnings derived from communications satellite system The earnings derived from the ownership or operation of a communications satellite system by a foreign entity designated by a foreign government to participate in such ownership or operation 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).
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(c) Treatment of certain foreign corporations
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1212(c)(5), added subsec. (c).
(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 foreign country or another foreign country meeting the requirements of such paragraph.
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(e)(1)(B), substituted “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)”.
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(2) Treatment of controlled foreign corporations Paragraph (1) shall not apply to any foreign corporation which is a controlled foreign corporation (as defined in section 957(a)).
(3) Special rules for publicly traded corporations
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(e)(1)(A), substituted “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 foreign country in which such corporation is organized, or
“(B) which is wholly owned (either directly or indirectly) by another corporation meeting the requirements of subparagraph (A) and is organized in the same foreign country as such other corporation.”
(A) Exception Paragraph (1) shall not apply to any corporation which is organized in a foreign country meeting the requirements of paragraph (1) or (2) of subsection (a) (as the case may be) and the stock of which is primarily and regularly traded on an established securities market in such foreign country, another foreign country meeting the requirements of such paragraph, or the United States.
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(B) Treatment of stock owned by publicly traded corporation Any stock in another corporation which is owned (directly or indirectly) by a corporation meeting the requirements of subparagraph (A) shall be treated as owned by individuals who are residents of the foreign country in which the corporation meeting the requirements of subparagraph (A) is organized.
(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 shareholders, partners, or beneficiaries. Stock considered 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.