§ 957. Controlled foreign corporations; United States persons

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(a)General rule For purposes of this title, the term “controlled foreign corporation” means any foreign corporation if more than 50 percent of—

(1)the total combined voting power of all classes of stock of such corporation entitled to vote, or

(2)the total value of the stock of such corporation,

is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such foreign corporation.

(b)Special rule for insurance For purposes only of taking into account income described in section 953(a) (relating to insurance income), the term “controlled foreign corporation” includes not only a foreign corporation as defined by subsection

(a)but also one of which more than 25 percent of the total combined voting power of all classes of stock (or more than 25 percent of the total value of stock) is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such corporation, if the gross amount of premiums or other consideration in respect of the reinsurance or the issuing of insurance or annuity contracts not described in section 953(e)(2) exceeds 75 percent of the gross amount of all premiums or other consideration in respect of all risks.

(c)United States person For purposes of this subpart, the term “United States person” has the meaning assigned to it by section 7701(a)(30) except that—

(1)with respect to a corporation organized under the laws of the Commonwealth of Puerto Rico, such term does not include an individual who is a bona fide resident of Puerto Rico, if a dividend received by such individual during the taxable year from such corporation would, for purposes of section 933(1), be treated as income derived from sources within Puerto Rico, and

(2)with respect to a corporation organized under the laws of Guam, American Samoa, or the Northern Mariana Islands—

(A)80 percent or more of the gross income of which for the 3-year period ending at the close of the taxable year (or for such part of such period as such corporation or any predecessor has been in existence) was derived from sources within such a possession or was effectively connected with the conduct of a trade or business in such a possession, and

(B)50 percent or more of the gross income of which for such period (or part) was derived from the active conduct of a trade or business within such a possession,

such term does not include an individual who is a bona fide resident of Guam, American Samoa, or the Northern Mariana Islands.

For purposes of subparagraphs

(A)and

(B)of paragraph (2), the determination as to whether income was derived from the active conduct of a trade or business within a possession shall be made under regulations prescribed by the Secretary.

(Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1017; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99–514, title XII, §§ 1221(b)(3)(C), 1222(a), 1224(a), 1273(a), Oct. 22, 1986, 100 Stat. 2553, 2556, 2558, 2595; Pub. L. 108–357, title VIII, § 908(c)(5), Oct. 22, 2004, 118 Stat. 1656; Pub. L. 115–97, title I, § 14101(e)(2), Dec. 22, 2017, 131 Stat. 2192; Pub. L. 115–141, div. U, title IV, § 401(a)(164), Mar. 23, 2018, 132 Stat. 1192.)

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