26 U.S.C. § 245A — Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations

(a) In general. If a domestic corporation is a "United States shareholder" of a "specified 10-percent owned foreign corporation" and receives a dividend from it, the domestic corporation can deduct the foreign-source portion of that dividend. (b) Specified 10-percent owned foreign corporation. This term means any foreign corporation where a domestic corporation counts as a United States shareholder. It does not include a passive foreign investment company (as defined in section 1297) unless that company is also a controlled foreign corporation. (c) Foreign-source portion. The foreign-source portion of a dividend is a fraction of it: the dividend multiplied by the corporation's "undistributed foreign earnings" divided by its total "undistributed earnings." Undistributed earnings means the foreign corporation's earnings and profits (figured under sections 964(a) and 986), measured at the end of the year the dividend is paid, without subtracting that year's dividend payments. Undistributed foreign earnings is the part of undistributed earnings that is neither the U.S.-effectively-connected income described in section 245(a)(5)(A) nor the domestic-subsidiary dividends described in section 245(a)(5)(B). (d) Disallowance of foreign tax credit, etc. No foreign tax credit under section 901 is allowed for taxes paid on a dividend that gets this deduction. And no deduction anywhere else in this chapter is allowed for a tax that's denied a credit for this reason, treating the taxpayer as if it had elected the benefits under subpart A of part III of subchapter N. (e) Special rules for hybrid dividends. This deduction does not apply to a "hybrid dividend" — an amount from a controlled foreign corporation that would otherwise qualify for the deduction, but for which the foreign corporation also got a deduction or other tax benefit from a foreign country's or possession's income, war-profits, or excess-profits tax. If one controlled foreign corporation receives a hybrid dividend from another controlled foreign corporation, and a domestic corporation is a U.S. shareholder of both, the hybrid dividend is instead treated as taxable "subpart F income" of the receiving corporation, and the U.S. shareholder must include its pro-rata share of that income in its own gross income. The foreign-tax-credit denial rules in subsection (d) apply to any hybrid dividend or included amount. (f) Special rule for purging distributions of passive foreign investment companies. An amount treated as a dividend under section 1291(d)(2)(B) is not treated as a dividend for purposes of this section. (g) Regulations. The Secretary must issue regulations or other guidance needed to carry out this section, including rules for U.S. shareholders who own stock in a specified 10-percent owned foreign corporation through a partnership.