§245A Deduction for Foreign Source-portion of Dividends Received by Domestic Corporations From Specified 10-percent Owned Foreign Corporations

Summary

Lets a U.S. corporation subtract the foreign part of a dividend it gets from a foreign company when the U.S. corporation is a United States shareholder that owns at least 10 percent of that foreign company. The foreign part is figured by taking the dividend and multiplying it by the share of the foreign company’s undistributed foreign earnings in its total undistributed earnings. "Undistributed earnings" means the earnings and profits for the foreign company (computed under sections 964(a) and 986) at the end of the foreign company’s tax year, without cutting that number for dividends paid during that year. "Undistributed foreign earnings" means the part of those earnings that is not from certain types of income or dividends listed in section 245(a)(5). No foreign tax credit is allowed under section 901 for taxes on any dividend that gets this deduction, and you also cannot deduct taxes that are disallowed for credit for that reason. The deduction does not apply to "hybrid dividends" from controlled foreign corporations; if one controlled foreign corporation gets a hybrid dividend from another, that amount is treated as subpart F income of the receiver and the U.S. shareholder must include its pro rata share in income. The same no-credit rules apply to hybrid dividends. Amounts treated as dividends under section 1291(d)(2)(B) are excluded, and the Secretary must issue rules, including for ownership through partnerships.