§245A Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations

Summary

Allows a U.S. corporation that owns at least 10% of a foreign company to deduct the part of a dividend that comes from the foreign company’s foreign-source earnings. The deductible amount is the dividend multiplied by the share of the foreign company’s undistributed earnings that are foreign-source (undistributed foreign earnings divided by total undistributed earnings). A company’s undistributed earnings means its earnings and profits calculated under sections 964(a) and 986 as of the end of its tax year, without cutting that amount for dividends paid during that year. A "specified 10‑percent owned foreign corporation" is a foreign company where a domestic corporation is a U.S. shareholder; it does not include a passive foreign investment company that is not a controlled foreign corporation. "Undistributed foreign earnings" is the part of undistributed earnings that is not the kinds of income or dividends listed in section 245(a)(5). No foreign tax credit is allowed for taxes related to any dividend that gets this deduction, and no deduction is allowed for taxes that can’t be credited for that reason. Dividends that are "hybrid dividends" (dividends that would be deductible but where the paying foreign company got a tax benefit for foreign taxes) are not deductible; if one controlled foreign company gets a hybrid dividend from another it must treat that amount as currently taxable income and the U.S. shareholder must include its share as income. The Treasury must issue rules, including rules for ownership through partnerships.