Treaty-Based Branch Profits Tax Reduction

§ 884. Branch profits tax(a) Imposition of taxIn 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 taxable year. (b) Dividend equivalent amountFor purposes of subsection (a), the term “dividend equivalent amount” means the foreign corporation’s effectively connected earnings and profits for the taxable year adjusted as provided in this subsection:(1) Reduction for increase in U.S. net equityIf—(A) the U.S. net equity of the foreign corporation as of the close of the taxable year, exceeds (B) the U.S. net equity of the foreign corporation as of the close of the preceding taxable 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 generalIf—(i) the U.S. net equity of the foreign corporation 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 profits for the taxable year shall be increased by the amount of such excess. (B) Limitation(i) In generalThe increase under subparagraph (A) for any taxable year shall not exceed the accumulated effectively connected earnings and profits as of the close of the preceding taxable year. (ii) Accumulated effectively connected earnings and profitsFor purposes of clause (i), the term “accumulated effectively connected earnings and profits” means the excess of—(I) the aggregate effectively connected earnings and profits for preceding taxable years beginning after December 31, 1986, over (II) the aggregate dividend equivalent amounts determined for such preceding taxable years. (c) U.S. net equityFor purposes of this section—(1) In generalThe 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. liabilitiesFor purposes of paragraph (1)—(A) U.S. assetsThe 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 prescribed by the Secretary. For purposes of the preceding sentence, the adjusted basis of any property shall be its adjusted basis for purposes of computing earnings and profits. (B) U.S. liabilitiesThe term “U.S. liabilities” means the liabilities of the foreign corporation treated as connected with the conduct of a trade or business in the United States under regulations prescribed by the Secretary. (C) Regulations to be consistent with allocation of deductionsThe regulations prescribed under subparagraphs (A) and (B) shall be consistent with the allocation of deductions under section 882(c)(1).