118 STAT. 1514 PUBLIC LAW 108–357—OCT. 22, 2004 (2) by adding at the end the following new paragraph: ‘‘(2) COMMONWEALTH OF PUERTO RICO.— ‘‘(A) IN GENERAL.—If dividends are received during a taxable year by a corporation— ‘‘(i) created or organized in, or under the law of, the Commonwealth of Puerto Rico, and ‘‘(ii) with respect to which the requirements of subparagraphs (A), (B), and (C) of section 881(b)(1) are met for the taxable year, subsection (a) shall be applied for such taxable year by substituting ‘10 percent’ for ‘30 percent’. ‘‘(B) APPLICABILITY.—If, on or after the date of the enactment of this paragraph, an increase in the rate of the Commonwealth of Puerto Rico’s withholding tax which is generally applicable to dividends paid to United States corporations not engaged in a trade or business in the Commonwealth to a rate greater than 10 percent takes effect, this paragraph shall not apply to dividends received on or after the effective date of the increase.’’. (c) CONFORMING AMENDMENTS.— (1) Subsection (b) of section 881 is amended by striking ‘‘GUAM AND VIRGIN ISLANDS CORPORATIONS’’ in the heading and inserting ‘‘POSSESSIONS’’. (2) Paragraph (1) of section 881(b) is amended by striking ‘‘IN GENERAL’’ in the heading and inserting ‘‘GUAM, AMERICAN SAMOA, THE NORTHERN MARIANA ISLANDS, AND THE VIRGIN ISLANDS’’. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to dividends paid after the date of the enactment of this Act. SEC. 421. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX. (a) IN GENERAL.— (1) Subsection (a) of section 59 is amended by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively. (2) Section 53(d)(1)(B)(i)(II) is amended by striking ‘‘and if section 59(a)(2) did not apply’’. (b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2004. SEC. 422. INCENTIVES TO REINVEST FOREIGN EARNINGS IN UNITED STATES. (a) IN GENERAL.—Subpart F of part III of subchapter N of chapter 1 (relating to controlled foreign corporations) is amended by adding at the end the following new section: ‘‘SEC. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION. ‘‘(a) DEDUCTION.— ‘‘(1) IN GENERAL.—In the case of a corporation which is a United States shareholder and for which the election under this section is in effect for the taxable year, there shall be allowed as a deduction an amount equal to 85 percent of the cash dividends which are received during such taxable year by such shareholder from controlled foreign corporations. ‘‘(2) DIVIDENDS PAID INDIRECTLY FROM CONTROLLED FOR EIGN CORPORATIONS.—If, within the taxable year for which the election under this section is in effect, a United States 26 USC 53 note. 26 USC 881 note.
�
