Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.269B(b)-1 also issued under 26 U.S.C. 269B(b).
Par. 2. Section 1.269B-1 is added to read as follows:
§1.269B-1 Stapled foreign corporations.
(a) Treatment as a domestic corporation—(1) General
rule. Except as otherwise provided, if a foreign corporation is
a stapled foreign corporation within the meaning of paragraph (b)(1) of this
section, such foreign corporation will be treated as a domestic corporation
for U.S. Federal income tax purposes. Accordingly, for example, the worldwide
income of such corporation will be subject to the tax imposed by section 11.
For application of the branch profits tax under section 884, and application
of sections 871(a), 881, 1441, and 1442 to dividends and interest paid by
a stapled foreign corporation, see §§1.884-1(h) and 1.884-4(d).
(2) Foreign owned exception. Paragraph (a)(1) of
this section will not apply if a foreign corporation and a domestic corporation
are stapled entities (as provided in paragraph (b) of this section) and such
foreign and domestic corporations are foreign owned within the meaning of
this paragraph (a)(2). A corporation will be treated as foreign owned if it
is established to the satisfaction of the Commissioner that United States
persons hold directly (or indirectly applying section 958(a)(2) and (3) and
section 318(a)(4)) less than 50 percent of the total combined voting power
of all classes of stock entitled to vote and less than 50 percent of the total
value of the stock of such corporation. For the consequences of a stapled
foreign corporation becoming or ceasing to be foreign owned, therefore converting
its status as either a foreign or domestic corporation within the meaning
of this paragraph (a)(2), see paragraph (c) of this section.
(b) Definition of a stapled foreign corporation—(1) General
rule. A foreign corporation is a stapled foreign corporation if
such foreign corporation and a domestic corporation are stapled entities.
A foreign corporation and a domestic corporation are stapled entities if more
than 50 percent of the aggregate value of each corporation’s beneficial
ownership consists of interests that are stapled. In the case of corporations
with more than one class of stock, it is not necessary for a class of stock
representing more than 50 percent of the beneficial ownership of the foreign
corporation to be stapled to a class of stock representing more than 50 percent
of the beneficial ownership of the domestic corporation, provided that more
than 50 percent of the aggregate value of each corporation’s beneficial
ownership (taking into account all classes of stock) are in fact stapled.
Interests are stapled if a transferor of one or more interests in one entity
is required, by form of ownership, restrictions on transfer, or other terms
or conditions, to transfer interests in the other entity. The determination
of whether interests are stapled for this purpose is based on the relevant
facts and circumstances, including, but not limited to, the corporations’
by-laws, articles of incorporation or association, and stock certificates,
shareholder agreements, agreements between the corporations, and voting trusts
with respect to the corporations. For the consequences of a foreign corporation
becoming or ceasing to be a stapled foreign corporation (e.g.,
a corporation that is no longer foreign owned) under this paragraph (b)(1),
see paragraph (c) of this section.
(2) Related party ownership rule. For purposes
of determining whether a foreign corporation is a stapled foreign corporation,
the Commissioner may, at his discretion, treat interests that otherwise would
be stapled interests as not being stapled if the same person or related persons
(within the meaning of section 267(b) or 707(b)) hold stapled interests constituting
more than 50 percent of the beneficial ownership of both corporations, and
a principal purpose of the stapling of those interests is the avoidance of
U.S. income tax. A stapling of interests may have a principal purpose of tax
avoidance even though the tax avoidance purpose is outweighed by other purposes
when taken together.
(3) Example. The principles of paragraph (b)(1)
of this section are illustrated by the following example:
Example. USCo, a domestic corporation, and FCo,
a foreign corporation, are publicly traded companies, each having two classes
of stock outstanding. USCo’s class A shares, which constitute 75% of
the value of all beneficial ownership in USCo, are stapled to FCo’s
class B shares, which constitute 25% of the value of all beneficial ownership
in FCo. USCo’s class B shares, which constitute 25% of the value of
all beneficial ownership in USCo, are stapled to FCo class A shares, which
constitute 75% of the value of all beneficial ownership in FCo. Because more
than 50% of the aggregate value of the stock of each corporation is stapled
to the stock of the other corporation, USCo and FCo are stapled entities within
the meaning of section 269B(c)(2).
(c) Changes in domestic or foreign status. The
deemed conversion of a foreign corporation to a domestic corporation under
section 269B is treated as a reorganization under section 368(a)(1)(F). Similarly,
the deemed conversion of a corporation that is treated as a domestic corporation
under section 269B to a foreign corporation is treated as a reorganization
under section 368(a)(1)(F). For the consequences of a deemed conversion, including
the closing of a corporation’s taxable year, see §§1.367(a)-1T(e),
(f) and 1.367(b)-2(f).
(d) Includible corporation—(1) Except as
provided in paragraph (d)(2) of this section, a stapled foreign corporation
treated as a domestic corporation under section 269B nonetheless is treated
as a foreign corporation in determining whether it is an includible corporation
within the meaning of section 1504(b). Thus, for example, a stapled foreign
corporation is not eligible to join in the filing of a consolidated return
under section 1501, and a dividend paid by such corporation is not a qualifying
dividend under section 243(b), unless a valid section 1504(d) election is
made with respect to such corporation.
(2) A stapled foreign corporation is treated as a domestic corporation
in determining whether it is an includible corporation under section 1504(b)
for purposes of applying §§1.904(i)-1 and 1.861-11T(d)(6).
(e) U.S. treaties—(1) A stapled foreign corporation
that is treated as a domestic corporation under section 269B may not claim
an exemption from U.S. income tax or a reduction in U.S. tax rates by reason
of any treaty entered into by the United States.
(2) The principles of this paragraph (e) are illustrated by the following
example:
Example. FCo, a Country X corporation, is a stapled
foreign corporation that is treated as a domestic corporation under section
269B. FCo qualifies as a resident of Country X pursuant to the income tax
treaty between the United States and Country X. Under such treaty, the United
States is permitted to tax business profits of a Country X resident only to
the extent that the business profits are attributable to a permanent establishment
of the Country X resident in the United States. While FCo earns income from
sources within and without the United States, it does not have a permanent
establishment in the United States within the meaning of the relevant treaty.
Under paragraph (e)(1) of this section, however, FCo is subject to U.S. Federal
income tax on its income as a domestic corporation without regard to the provisions
of the U.S.-Country X treaty and therefore without regard to the fact that
FCo has no permanent establishment in the United States.
(f) Tax assessment and collection procedures—(1) In
general. (i) Any income tax imposed on a stapled foreign corporation
by reason of its treatment as a domestic corporation under section 269B (whether
such income tax is shown on the stapled foreign corporation’s U.S. Federal
income tax return or determined as a deficiency in income tax) shall be assessed
as the income tax liability of such stapled foreign corporation.
(ii) Any income tax assessed as a liability of a stapled foreign corporation
under paragraph (f)(1)(i) of this section shall be considered as having been
properly assessed as an income tax liability of the stapled domestic corporation
(as defined in paragraph (f)(4)(i) of this section) and all 10-percent shareholders
of the stapled foreign corporation (as defined in paragraph (f)(4)(ii) of
this section). The date of such deemed assessment shall be the date the income
tax liability of the stapled foreign corporation was properly assessed. The
Commissioner may collect such income tax from the stapled domestic corporation
under the circumstances set forth in paragraph (f)(2) of this section and
may collect such income tax from any 10-percent shareholders of the stapled
foreign corporation under the circumstances set forth in paragraph (f)(3)
of this section.
(2) Collection from domestic stapled corporation.
If the stapled foreign corporation does not pay its income tax liability that
was properly assessed, the unpaid balance of such income tax or any portion
thereof may be collected from the stapled domestic corporation, provided that
the following conditions are satisfied—
(i) The Commissioner has issued a notice and demand for payment of such
income tax to the stapled foreign corporation in accordance with §301.6303-1
of this Chapter;
(ii) The stapled foreign corporation has failed to pay the income tax
by the date specified in such notice and demand;
(iii) The Commissioner has issued a notice and demand for payment of
the unpaid portion of such income tax to the stapled domestic corporation
in accordance with §301.6303-1 of this Chapter.
(3) Collection from 10-percent shareholders of the stapled
foreign corporation. The unpaid balance of the stapled foreign
corporation’s income tax liability may be collected from a 10-percent
shareholder of the stapled foreign corporation, limited to each such shareholder’s
income tax liability as determined under paragraph (f)(4)(iv) of this section,
provided the following conditions are satisfied—
(i) The Commissioner has issued a notice and demand to the stapled domestic
corporation for the unpaid portion of the stapled foreign corporation’s
income tax liability, as provided in paragraph (f)(2)(iii) of this section;
(ii) The stapled domestic corporation has failed to pay the income tax
by the date specified in such notice and demand;
(iii) The Commissioner has issued a notice and demand for payment of
the unpaid portion of such income tax to such 10-percent shareholder of the
stapled foreign corporation in accordance with §301.6303-1 of this Chapter.
(4) Special rules and definitions. For purposes
of this paragraph (f), the following rules and definitions apply:
(i) Stapled domestic corporation. A domestic corporation
is a stapled domestic corporation with respect to a stapled
foreign corporation if such domestic corporation and the stapled foreign corporation
are stapled entities as described in paragraph (b)(1) of this section.
(ii) 10-percent shareholder. A 10-percent
shareholder of a stapled foreign corporation is any person that
owned directly 10 percent or more of the total value or total combined voting
power of all classes of stock in the stapled foreign corporation for any day
of the stapled foreign corporation’s taxable year with respect to which
the income tax liability relates.
(iii) 10-percent shareholder in the case of indirect ownership
of stapled foreign corporation stock. [Reserved].
(iv) Determination of a 10-percent shareholder’s income
tax liability. The income tax liability of a 10-percent shareholder
of a stapled foreign corporation, for the income tax of the stapled foreign
corporation under section 269B and this section, is determined by assigning
an equal portion of the total income tax liability of the stapled foreign
corporation for the taxable year to each day in such corporation’s taxable
year, and then dividing that portion ratably among the shares outstanding
for that day on the basis of the relative values of such shares. The liability
of any 10-percent shareholder for this purpose is the sum of the income tax
liability allocated to the shares held by such shareholder for each day in
the taxable year.
(v) Income tax. The term income tax means
any income tax liability imposed on a domestic corporation under title 26
of the United States Code, including additions to tax, additional amounts,
penalties, and interest related to such income tax liability.
(g) Effective dates—(1) Except as provided
in this paragraph (g), the provisions of this section are applicable for taxable
years that begin after July 29, 2005.
(2) Paragraphs (d)(1) and (f) of this section (except as applied to
the collection of tax from any 10-percent shareholder of a stapled foreign
corporation that is a foreign person) are applicable beginning on—
(i) July 18, 1984, for any foreign corporation that became stapled to
a domestic corporation after June 30, 1983; and
(ii) January 1, 1987, for any foreign corporation that was stapled to
a domestic corporation as of June 30, 1983.
(3) Paragraph (d)(2) of this section is applicable for taxable years
beginning after July 22, 2003, except that in the case of a foreign corporation
that becomes stapled to a domestic corporation on or after July 22, 2003,
paragraph (d)(2) of this section applies for taxable years ending on or after
July 22, 2003.
(4) Paragraph (e) of this section is applicable beginning on July 18,
1984, except as provided in paragraph (g)(5) of this section.
(5) In the case of a foreign corporation that was stapled to a domestic
corporation as of June 30, 1983, which was entitled to claim benefits under
an income tax treaty as of that date, and which remains eligible for such
treaty benefits, paragraph (e) of this section will not apply to such foreign
corporation and for all purposes of the Internal Revenue Code such corporation
will continue to be treated as a foreign entity. The prior sentence will continue
to apply even if such treaty is subsequently modified by protocol, or superseded
by a new treaty, so long as the stapled foreign corporation continues to be
eligible to claim such treaty benefits. If the treaty benefits to which the
stapled foreign corporation was entitled as of June 30, 1983, are terminated,
then a deemed conversion of the foreign corporation to a domestic corporation
shall occur pursuant to paragraph (c) of this section as of the date of such
termination.
Par. 3. In §1.367(b)-2, paragraph (g) is revised to read as follows:
