100 STAT. 2542
PUBLIC LAW 99-514—OCT. 22, 1986
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.. "(i) such section shall be applied by substituting ' the
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individual or corporation making the payment ' for 'controlled foreign corporation' each place it appears, and "(ii) such section shall be applied by substituting '10 percent' for '50 percent' each place it a p p e a r s. " (b) TREATMENT
OF DIVIDENDS.—Subparagraph
(A) of
section
861(a)(2) (relating to dividends) is amended to read a s follows: "(A) from a domestic corporation other than a corporation which has a n election in effect under section 936, or". (c) W I T H H O L D I N G T A X N O T TO A P P L Y TO CERTAIN INTEREST AND DIVIDENDS.—
(1) NONRESIDENT ALIENS.—Section 871 (relating to tax on nonresident aliens) is amended by redesignating subsection (i) a s subsection (j) and by inserting after subsection (h) the following new subsection: "(i) T A X N O T TO A P P L Y TO CERTAIN INTEREST AND DIVIDENDS.—
"(1) IN GENERAL.—No tax shall be imposed under paragraph (1)(A) or (1)(C) of subsection (a) on any a m o u n t described in paragraph (2). "(2)
AMOUNTS
TO W H I C H
PARAGRAPH
(D
APPLIES.—The
a m o u n t s described in this paragraph a r e a s follows: ,,, "(A) I n t e r e s t on deposits, if such interest is not effectively connected with the conduct of a trade or business within the United States. "(B) A p e r c e n t a g e of any dividend paid by a domestic corporation m e e t i n g the 80-percent foreign business 3;jc requirements of section 861(c)(l) equal to the percentage determined for purposes of section 861(c)(2)(A). , "(C) Income derived by a foreign central bank of issue from b a n k e r s ' acceptances. "(3) DEPOSITS.—For purposes of paragraph (2), the term 'deposits' means a m o u n t s which a r e — "(A) deposits with persons c a r r y i n g on the b a n k i n g business, "(B) deposits or w i t h d r a w a b l e accounts with savings institutions c h a r t e r e d and supervised a s savings and loan or similar associations under Federal or State law, b u t only to the e x t e n t that a m o u n t s paid or credited on such deposits
or accounts a r e deductible under section 591 (determined without regard to sections 265 and 291) in computing the tax a b l e income of such institutions, and "(C) a m o u n t s held by a n insurance company under a n a g r e e m e n t to pay interest the r e o n. " (2) FOREIGN CORPORATIONS.—Section 881 (relating to tax on
foreign corporations) is amended by redesignating subsection (d) a s subsection (e) and by inserting after subsection (c) the following new subsection: "(d) T A X N O T TO A P P L Y TO CERTAIN INTEREST AND D IV I D E N D S. — N o
tax shall be imposed under paragraph (1) or (3) of subsection (a) on any a m o u n t described in section 871(i)(2)." (3) WITHHOLDING TAX.—Subsection (c) of section 1441 (relating to exceptions) is amended by adding a t the end thereof the following new pargigraph: "(10) EXCEPTION FOR CERTAIN INTEREST A N D DIVIDENDS.—No
tax shall be required to be deducted and withheld under subsection (a) from any a m o u n t described in section 871(i)(2)."
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