Frequently Asked Questions
Who is eligible for the Same Country Exception?
Multinational groups with tiered structures within a single foreign jurisdiction.
How does the Same Country Exception work?
Excludes dividends, interest, rents, and royalties received from a related person organized in the same foreign country as the CFC, provided the related person uses a substantial part of its assets in a trade or business in that country.
What law authorizes the Same Country Exception?
The Same Country Exception is authorized under IRC §954(c)(3) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §954
Source: Internal Revenue Code, Title 26, United States Code
§ 954. Foreign base company income(a) Foreign base company incomeFor purposes of section 952(a)(2), the term “foreign base company income” means for any taxable year the sum of—(1) the foreign personal holding company income for the taxable year (determined under subsection (c) and reduced as provided in subsection (b)(5)),
(2) the foreign base company sales income for the taxable year (determined under subsection (d) and reduced as provided in subsection (b)(5)), and
(3) the foreign base company services income for the taxable year (determined under subsection (e) and reduced as provided in subsection (b)(5)).
(b) Exclusion and special rules[(1) Repealed. Pub. L. 94–12, title VI, § 602(c)(1), Mar. 29, 1975, 89 Stat. 58]
[(2) Repealed. Pub. L. 99–514, title XII, § 1221(c)(1), Oct. 22, 1986, 100 Stat. 2553]
(3) De minimis, etc., rulesFor purposes of subsection (a) and section 953—(A) De minimis ruleIf the sum of foreign base company income (determined without regard to paragraph (5)) and the gross insurance income for the taxable year is less than the lesser of—(i) 5 percent of gross income, or
(ii) $1,000,000,
no part of the gross income for the taxable year shall be treated as foreign base company income or insurance income.
(B) Foreign base company income and insurance income in excess of 70 percent of gross incomeIf the sum of the foreign base company income (determined without regard to paragraph (5)) and the gross insurance income for the taxable year exceeds 70 percent of gross income, the entire gross income for the taxable year shall, subject to the provisions of paragraphs (4) and (5), be treated as foreign base company income or insurance income (whichever is appropriate).
(C) Gross insurance incomeFor purposes of subparagraphs (A) and (B), the term “gross insurance income” means any item of gross income taken into account in determining insurance income under section 953.
(4) Exception for certain income subject to high foreign taxesFor purposes of subsection (a) and section 953, foreign base company income and insurance income shall not include any item of income received by a controlled foreign corporation if the taxpayer establishes to the satisfaction of the Secretary that such income was subject to an effective rate of income tax imposed by a foreign country greater than 90 percent of the maximum rate of tax specified in section 11.
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