Page:United States Statutes at Large Volume 100 Part 3.djvu/771

 PUBLIC LAW 99-514—OCT. 22, 1986 ^

100 STAT. 2579

"(C) SECRETARIAL AUTHORITY.—The Secretary may, in his

sole discretion, treat a foreign corporation as being a qualified resident of a foreign country if such corporation establishes to the satisfaction of the Secretary that such corporation meets such requirements as the Secretary may establish to ensure that individuals who are not residents of such foreign country do not use the treaty between such foreign country and the United States in a manner inconsistent with the purposes of this subsection. "(f) TREATMENT OF INTEREST ALLOCABLE TO EFFECTIVELY CONNECTED INCOME.—

"(1) IN GENERAL.—In the case of a foreign corporation engaged in a trade or business in the United States, for purposes i of sections 871, 881, 1441, and 1442— "(A) any interest paid by such trade or business in the , United States shall be treated as if it were paid by a domestic corporation, and "(B) to the extent the amount of interest allowable as a deduction under section 882 in computing the effectively % P' connected taxable income of such foreign corporation exceeds the interest described in subparagraph (A), such foreign corporation shall be liable for tax under section 881(a) in the same manner as if such excess were interest paid to such foreign corporation by a wholly owned domestic corporation on the last day of such foreign corporation's taxable year. Rules similar to the rules of subsection (e)(3)(B) shall apply to interest described in the preceding sentence. "(2) EFFECTIVELY CONNECTED TAXABLE INCOME.—For purposes of this subsection, the term 'effectively connected taxable income' means tsixable income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business within the United States. "(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations providing for appropriate adjustments in the determination of the dividend equivalent amount in connection with the distribution to shareholders or transfer to a controlled corporation of the taxpayer's U.S. assets and other adjustments in such determination as are necessary or appropriate to carry out the purposes of this section." (b) AMENDMENTS TO INTEREST AND DIVIDEND SOURCING RULES.—

(1) INTEREST.—Paragraph (1) of section 861(a) (as amended by section 1214) is amended— >R (A) by striking out "residents, corporate or otherwise," in i: the matter preceding subparagraph (A) and inserting in lieu thereof "noncorporate residents or domestic corporailaite f tions", and (B) by striking out subparagraphs (B) and (C) and by redesignating subparagraphs (D), (E), and (F) as subpara** graphs (B), (C), and (D), respectively. (2) DIVIDENDS.—Subparagraph (B) of section 861(a)(2) is amended— (A) by striking out "50 percent" and inserting in lieu thereof "25 percent", and f (B) by striking out "effectively connected" each place it vd J •» appears and inserting in lieu thereof "effectively connected

�