Page:United States Statutes at Large Volume 102 Part 4.djvu/553

 PUBLIC LAW 100-647—NOV. 10, 1988

102 STAT. 3523

'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 "(11) the aggregate dividend equivalent amounts determined for such preceding taxable years." (B) For purposes of applying section 884 of the 1986 Code, the earnings and profits of any corporation shall be determined without regard to any increase in earnings and profits under sections 1023(e)(3)(C) and 1021(e)(2)(C) of the Reform Act or arising from section 823(b)(4)(C) of the 1986 Code. (2)(A) Paragraph (1) of section 884(e) of the 1986 Code is amended to read as follows: "(1) LIMITATION ON TREATY EXEMPTION.—No treaty between

the United States and a foreign country shall exempt any foreign corporation from the tax imposed by subsection (a) (or reduce the amount thereof) unless— "(A) such treaty is an income tax treaty, and "(B) such foreign corporation is a qualified resident of such foreign country." (B) Paragraph (3) of section 884(e) of the 1986 Code is amended to read as follows: "(3) C!OORDINATION WITH WITHHOLDING TAX.—

"(A) IN GENERAL.—If a foreign corporation is subject to the tax imposed by subsection (a) for any taxable year (determined after the application of any treaty), no tax shall be imposed by section 871(a), 881(a), 1441, or 1442 on any dividends paid by such corporation out of its earnings and profits for such taxable year. "(B) LIMITATION ON CERTAIN TREATY BENEFITS.—If—

"(i) any dividend described in section 861(a)(2)(B) is received by a foreign corporation, and "(ii) subparagraph (A) does not apply to such dividend, rules similar to the rules of subparagraphs (A) and (B) of subsection (f)(3) shall apply to such dividend." (C) Subsection (f) of section 884 of the 1986 Code is amended— (i) by striking out the 2nd sentence of paragraph (1), and (ii) by adding at the end thereof the following new paragraph: "(3) COORDINATION WITH TREATIES.— "(A) PAYOR MUST BE QUALIFIED RESIDENT.—In

the case of any interest described in paragraph (1) which is paid or accrued by a foreign corporation, no benefit under any treaty between the United States and the foreign country of which such corporation is a resident shall apply unless— "(i) such treaty is an income tax treaty, and "(ii) such foreign corporation is a qualified resident of such foreign country. "(B) RECIPIENT MUST BE QUALIFIED RESIDENT.—In the case of any interest described in paragraph (1) which is received or accrued by any corporation, no benefit under any treaty between the United States and the foreign country of which such corporation is a resident shall apply unless— "(i) such treaty is an income tax treaty, and

26 USC 884 note,

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