Sec. 4001. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations

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Part VIII of subchapter B of chapter 1 is amended by inserting after section 245 the following new section: In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such dividend. For purposes of this section, the term specified 10-percent owned foreign corporation means any foreign corporation with respect to which any domestic corporation is a United States shareholder.

Such term shall not include any passive foreign investment company (within the meaning of subpart D of part VI of subchapter P) that is not a controlled foreign corporation. For purposes of this section— The foreign-source portion of any dividend is an amount which bears the same ratio to such dividend as— the post-1986 undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to the total post-1986 undistributed earnings of such foreign corporation.

The term post-1986 undistributed earnings means the amount of the earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986— as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and without diminution by reason of dividends distributed during such taxable year. The term post-1986 undistributed foreign earnings means the portion of the post-1986 undistributed earnings which is attributable to neither— income described in subparagraph

(A)of section 245(a)(5), nor dividends described in subparagraph

(B)of such section (determined without regard to section 245(a)(12)). In the case of any dividend paid out of earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning before January 1, 1987— paragraphs (1), (2), and

(3)shall be applied without regard to the phrase post-1986 each place it appears, and paragraph

(2)shall be applied by substituting after the date specified in section 316(a)(1) for in taxable years beginning after December 31, 1986 . Dividends shall be treated as paid out of post-1986 undistributed earnings to the extent thereof. In the case of any dividend from the specified 10-percent owned foreign corporation which is in excess of undistributed earnings (as determined under paragraph

(2)after taking into account the modifications described in clauses

(i)and

(ii)of paragraph (4)(A)), the foreign-source portion of such dividend is an amount which bears the same ratio to such dividend as— the portion of the earnings and profits described in subparagraph

(B)which is attributable to neither income described in paragraph (3)(A) nor dividends described in paragraph (3)(B), bears to the earnings and profits of such corporation for the taxable year in which such distribution is made (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year). No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section. No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph

(1)(determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . Section 246(c) is amended— by striking or 245 in paragraph

(1)and inserting 245, or 245A , and by adding at the end the following new paragraph: For purposes of section 245A— paragraph (1)(A) shall be applied— by substituting 180 days for 45 days each place it appears, and by substituting 361-day period for 91-day period , and paragraph

(2)shall not apply. For purposes of applying paragraph

(1)with respect to section 245A, the taxpayer shall be treated as holding the stock referred to in paragraph

(1)for any period only if— the specified 10-percent owned foreign corporation referred to in section 245A(a) is a specified 10-percent owned foreign corporation for such period, and the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation for such period. . Section 246(a)(1) is amended by striking and 245 and inserting 245, and 245A . Section 1059(b)(2)(B) is amended by striking or 245 and inserting 245, or 245A . Section 904(b) is amended by adding at the end the following new paragraph: For purposes of subsection (a), in the case of a United States shareholder with respect to a specified 10-percent owned foreign corporation, such shareholder’s taxable income from sources without the United States (and entire taxable income) shall be determined without regard to— the foreign-source portion of any dividend received from such foreign corporation, and any deductions properly allocable or apportioned to— income (other than subpart F income (as defined in section 952) and foreign high return amounts (as defined in section 951A(b)) with respect to stock of such specified 10-percent owned foreign corporation, or such stock (to the extent income with respect to such stock is other than subpart F income (as so defined) or foreign high return amounts (as so defined)). Any term which is used in section 245A and in this paragraph shall have the same meaning for purposes of this paragraph as when used in such section. . Section 245(a)(4) is amended by striking section 902(c)(1) and inserting section 245A(c)(2) applied by substituting . qualified 10-percent owned foreign corporation for specified 10-percent owned foreign corporation each place it appears Section 951(b) is amended by striking subpart and inserting title . Section 957(a) is amended by striking subpart in the matter preceding paragraph

(1)and inserting title . The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting after section 245 the following new item: Sec. 245A. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations. . The amendments made by this section shall apply to distributions made after (and, in the case of the amendments made by subsection (d), deductions with respect to taxable years ending after) December 31, 2017.