Interest and additions to tax: See § 3.291-1. Rates of tax: See §§ 3.11-1 to 3.14-3. Returns and payments of tax: See §§ 3.51-1 to 3.57-2, 3.141-1 to 3.150-1. SUPPLEMENT I-FOREIGN CORPORATIONS SEC. 231. TAX ON FOREIGN CORPORATIONS. (a) Nonresident corporations. There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by sections 13 and 14, upon the amount received by every foreign corporation not engaged in trade or business within the United States and not having an office or place of business therein, from sources within the United States as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, a tax of 15 per centum of such amount, except that in the case of dividends the rate shall be 10 per centum, and except that in the case of corporations organized under the laws of a contiguous country such rate of 10 per centum with respect to dividends shall be reduced to such rate (not less than 5 per centum) as may be provided by treaty with such country. (b) Resident corporations. A foreign corporation engaged in trade or business within the United States or having an office or place of business therein shall be taxable without regard to the provisions of subsection (a), but the normal tax imposed by section 13 shall be at the rate of 22 per centum instead of at the rates provided in such section. (c) Undistributed profits surtax. A foreign corporation shall not be subject to the surtax imposed by section 14. (d) Gross income. In the case of a foreign corporation gross income includes only the gross income from sources within the United States. (e) Ships under foreign flag. The income of a foreign corporation, which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States, shall not be included in gross income and shall be exempt from taxation under this title. 3.231-1 Taxation of foreign corporations. For the purposes of this section and §§ 3.231-3, 3.232–1, 3.235–1, 3.235–2, 3.236-1, foreign corporations are divided into two classes: (a) foreign corporations not engaged in trade or business within the United States and not having an office or place of business therein at any time within the taxable year, referred to in the regulations in this subpart as nonresident foreign corporations (see § 3.1001-8); and (b) foreign corporations which at any time within the taxable year are engaged in trade or business within the United States or have an office or place of business therein, referred to in the regulations in this subpart as resident foreign corporations (see § 3.1001-8). (a) Nonresident foreign corporations. For the purposes of this section the term "amount received" means "gross income". Every nonresident foreign corporation is liable to the tax upon gross income from sources within the United States, determined under the provisions of section 119 of the Act, which is fixed or determinable annual or periodical gains, profits, and income. Specific items of fixed or determinable annual or periodical income are enumerated in the Act as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, but other fixed or determinable annual or periodical gains, profits, and income are also Page 416 subject to the tax, as, for instance, royalties. As to the definition of fixed or determinable annual or periodical income see § 3.143-2. The items of fixed or determinable annual or periodical income from sources within the United States received by a corporation organized under the laws of France, which are exempt from Federal income tax under the provisions of the convention and protocol between the United States and France signed April 27, 1932, and effective January 1, 1936, are described in § 3.143-3. The fixed or determinable annual or periodical income from sources within the United States, including royalties, but excluding dividends, of a nonresident foreign corporation is taxable at the rate of 15 percent. Dividends which are treated as income from sources within the United States are taxable at the rate of 10 percent, except that in the case of a nonresident foreign corporation organized under the laws of a contiguous country, such rate of 10 percent shall be reduced to such rate (not less than 5 percent) as may be provided by treaty with such country. (b) Resident foreign corporations. A resident foreign corporation is not taxable at the rate of 15 percent upon the items of fixed or determinable annual or periodical income enumerated in section 231 (a) of the Act. A resident foreign corporation is liable to a normal tax of 22 percent upon its net income from sources within the United States (gross income from sources within the United States minus the statutory deductions provided in sections 23 and 232 of the Act) less the credits allowed against net income by section 26 (a) and (b) of the Act for the purpose of computing the normal tax of a corporation. As used in section 231, section 119, section 143, section 144, and section 211 of the Act, the phrase "engaged in trade or business within the United States" includes the performance of personal services within the United States at any time within the taxable year. Such phrase does not include the effecting of transactions in the United States in stocks, securities, or commodities (including hedging transactions) through a resident broker, commission agent, or custodian. Whether a foreign corporation has an "office or place of business" within the United States depends upon the facts in a particular case. The term "office or place of business," however, implies a place for the regular transaction of business and does not include a place where casual or incidental transactions might be, or are, effected. These provisions apply to taxable years beginning on or after January 1, 1936, but have no retroactive application to prior taxable years. The increased rates of tax are applicable to taxable years beginning on or after January 1, 1936, notwithstanding the fact that the provisions of sections 143 and 144 of the Act relating to the increased rates of withholding were not effective until July 2, 1936. (See § 3.143-1.)*+ 3.231-2 Undistributed profits surtax. A foreign corporation, whether resident or nonresident, is not subject to the surtax imposed by section 14 of the Act.*+ **For statutory and source citations, see note to § 3.1-1. Page 417 [417] 3.231-3 Gross income of foreign corporations. In the case of a foreign corporation, including a life insurance company not carrying on an insurance business within the United States and holding no reserve funds upon business transacted within the United States (see section 201 (b) (3) of the Act), an insurance company other than life or mutual not carrying on an insurance business within the United States (see section 204 (a) (3)) and a mutual insurance company other than life not carrying on an insurance business within the United States (see section 207 (a)), the term "gross income" means gross income from sources within the United States as defined and described in section 119. (See §§ 3.119-1 to 3.119-14.) The items of gross income from sources without the United States and therefore not taxable to foreign corporations are described in section 119 (c) of the Act. As to the definition of a foreign corporation see section 1001 (a) (2) and (5). As to foreign life insurance companies, see §3.201 (b)-2. As to foreign corporations formed or availed of to avoid surtax see § 3.102-4. As to personal holding companies organized under the laws of foreign countries see § 3.351-3, as amended and § 3.351-1 (1937). As to foreign personal holding companies see §§ 3.331-1 to 3.340-2. (a) Nonresident foreign corporations. A nonresident foreign corporation is taxable under section 231 (a) of the Act only on fixed or determinable annual or periodical gross income received from sources within the United States. Its taxable income does not include profits derived from the effecting of transactions in the United States in stocks, securities, or commodities (including hedging transactions) through a resident broker, commission agent, or custodian, or profits derived from the sale within the United States of personal property or real property located therein. (b) Resident foreign corporations. The gross income from sources within the United States of a resident foreign corporation is not limited to the items of fixed or determinable annual or periodical income referred to in section 231 (a) of the Act, but includes every item of gross income which is treated as income from sources within the United States, except those items which are specifically exempt from taxation by statute or treaty or which are not taxable by the Federal Government under the Constitution. (See sections 22 (b), 119, and 231 (e) of the Act.) A foreign corporation which effects transactions in the United States in stocks, securities, or commodities (including hedging transactions) through a resident broker, commission agent, or custodian is not merely by reason of such transactions considered as being engaged in trade or business within the United States which would cause it to be classed as a resident foreign corporation. However, a foreign corporation which at any time within the taxable year is otherwise engaged in trade or business in the United States or has an office or place of business therein, being a resident foreign corporation, is taxable upon all income derived from sources within the United States, including the profits realized from such transactions. Page 418 A resident foreign corporation is also required to include in its gross income capital gains, gains from hedging transactions, and profits derived from the sale within the United States of personal property, or of real property located therein.** [As amended by T.D. 4791, Jan. 14, 1938, 3 F.R. 107] 3.231-4 Exclusion of earnings of foreign ships from gross income. A resident foreign corporation may exclude from gross income under section 231 (e) of the Act so much of its income from sources within the United States as consists of earnings derived from the operation of a ship or ships documented under the laws of a foreign country, to the same extent as provided in § 3.212-2 with respect to nonresident alien individuals. A nonresident foreign corporation is not required to include in gross income such income from sources within the United States as is derived from the operation of a ship or ships, whether or not the foreign country under the laws of which such ships are documented meets the equivalent exemption requirements of the statute.** SEC. 232. DEDUCTIONS. (a) In general. In the case of a foreign corporation the deductions shall be allowed only if and to the extent that they are connected with income from sources within the United States; and the proper apportionment and allocation of the deductions with respect to sources within and without the United States shall be determined as provided in section 119, under rules and regulations prescribed by the Commissioner with the approval of the Secretary. (b) Charitable, and so forth, contributions. The so-called "charitable contribution" deduction allowed by section 23 (q) shall be allowed whether or not connected with income from sources within the United States. 3.232-1 Deductions allowed foreign corporations-(a) Nonresident foreign corporations. A nonresident foreign corporation is not allowed any deductions from gross income from sources within the United States, the tax being imposed upon the amount of gross income received. (See § 3.231-1.) (b) Resident foreign corporations. A resident foreign corporation is allowed the same deductions from its gross income arising from sources within the United States as are allowed a domestic corporation under section 23 of the Act to the extent that such deductions are connected with such gross income, except that the socalled charitable contribution deduction allowed by section 23 (q) of the Act is allowed whether or not connected with income from sources within the United States. The proper apportionment and allocation of the deductions with respect to sources within and without the United States shall be determined as provided in section 119 of the Act. As to foreign life insurance companies, see § 3.201 (b)-2. As to foreign corporations formed or availed of to avoid surtax see § 3.102-4. As to personal holding companies organized under the laws of foreign countries see § 3.351-3, as amended, and § 3.351-1 (1937). As to foreign personal holding companies see §§ 3.331-1 to 3.340-2.* [As amended by T.D. 4791, Jan. 14, 1938, 3 F.R. 107] SEC. 233. ALLOWANCE OF DEDUCTIONS AND CREDITS. A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this title only by filing or causing to be filed with the collector a true and accurate return of its total income received from all sources in the **For statutory and source citations, see note to § 3.1-1. Page 419 United States, in the manner prescribed in this title; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits. 3.233-1 Allowance of deductions and credits. The benefit of the deductions and credits allowed a resident foreign corporation can be had only by filing or causing to be filed with the collector a true and accurate return of its total income received from sources within the United States. Only items of interest and dividends included in gross income may be credited under section 26 (a) and (b) of the Act. Inasmuch as a nonresident foreign corporation is taxable under section 231 (a) of the Act only upon fixed or determinable annual or periodical gross income received from sources within the United States, such foreign corporation may not receive the benefit of the deductions and credits by filing a return of income.*† SEC. 234. CREDITS AGAINST TAX. Foreign corporations shall not be allowed the credits against the tax for taxes of foreign countries and possessions of the United States allowed by section 131. SEO. 235. RETURNS. (a) Time of filing. In the case of a foreign corporation not having any office or place of business in the United States the return, in lieu of the time prescribed in section 53 (a) (1), shall be made on or before the fifteenth day of the sixth month following the close of the fiscal year, or, if the return is made on the basis of the calendar year then on or before the fifteenth day of June. If any foreign corporation has no office or place of business in the United States but has an agent in the United States, the return shall be made by the agent. (b) Exemption from requirement. Subject to such conditions, limitations, and exceptions and under such regulations as may be prescribed by the Commissioner, with the approval of the Secretary, corporations subject to the tax imposed by section 231 (a) may be exempted from the requirement of filing returns of such tax. 3.235-1 Time and place for filing returns of foreign corporations-(a) Nonresident foreign corporations. The return in the case of a nonresident foreign corporation must be made on or before the 15th day of the sixth month following the close of the fiscal year, or, if the return is made on the basis of a calendar year then on or before the 15th day of June. If a nonresident foreign corporation has an agent in the United States, the return shall be made by the agent. The return must be filed with the collector of internal revenue, Baltimore, Md. (See section 53 (b) (2) of the Act.) For failure to make and file a return within the time prescribed see section 291 of the Act. For cases in which no return is required see § 3.235-2 (a). (b) Resident foreign corporations. The return in the case of a resident foreign corporation, in lieu of the time prescribed in section 235 of the Act, shall be made on or before the 15th day of the third month following the close of the fiscal year, or on or before the 15th day of March if on the basis of the calendar year. (See section 53 (a) (1) of the Act.) The return must be filed with the collector of internal revenue for the district in which the resident foreign corporation has its principal place of business or principal office or agency in the United States. (See section 53 (b) (2) of the Act.) For failure to make and file a return within the time prescribed see section 291 of the Act.** Page 420 **For statutory and source citations, see note to § 3.1-1. |