In the case of foreign corporations subject to taxation under this subtitle, there shall be deducted and withheld at the source in the same manner and on the same items of income as is provided in section 1441 a tax equal to 30 percent thereof. For purposes of the preceding sentence, the references in section 1441(b) to sections 871(a)(1)(C) and (D) shall be treated as referring to sections 881(a)(3) and (4), the reference in section 1441(c)(1) to section 871(b)(2) shall be treated as referring to section 842 or section 882(a)(2), as the case may be, the reference in section 1441(c)(5) to section 871(a)(1)(D) shall be treated as referring to section 881(a)(4), the reference in section 1441(c)(8) to section 871(a)(1)(C) shall be treated as referring to section 881(a)(3), the references in section 1441(c)(9) to sections 871(h) and 871(h)(3) or (4) shall be treated as referring to sections 881(c) and 881(c)(3) or (4), the reference in section 1441(c)(10) to section 871(i)(2) shall be treated as referring to section 881(d), and the references in section 1441(c)(12) to sections 871(a) and 871(k) shall be treated as referring to sections 881(a) and 881(e) (except that for purposes of applying subparagraph (A) of section 1441(c)(12), as so modified, clause (ii) of section 881(e)(1)(B) shall not apply to any dividend unless the regulated investment company knows that such dividend is a dividend referred to in such clause).

Subject to such terms and conditions as may be provided by regulations prescribed by the Secretary, subsection (a) shall not apply in the case of a foreign corporation engaged in trade or business within the United States if the Secretary determines that the requirements of subsection (a) impose an undue administrative burden and that the collection of the tax imposed by section 881 on such corporation will not be jeopardized by the exemption.

If dividends are received during a taxable year by a corporation—

(1) Guam, American Samoa, the Northern Mariana Islands, and the Virgin Islands For purposes of this section, the term “foreign corporation” does not include a corporation created or organized in Guam, American Samoa, the Northern Mariana Islands, or the Virgin Islands or under the law of any such possession if the requirements of subparagraphs (A), (B), and (C) of section 881(b)(1) are met with respect to such corporation.

If dividends are received during a taxable year by a corporation—

(A) In generalIf 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.

(Aug. 16, 1954, ch. 736, 68A Stat. 358; Pub. L. 89–809, title I, § 104(c), Nov. 13, 1966, 80 Stat. 1557; Pub. L. 92–178, title III, § 313(e), Dec. 10, 1971, 85 Stat. 528; Pub. L. 92–606, § 1(e)(2), Oct. 31, 1972, 86 Stat. 1497; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–369, div. A, title I, §§ 127(e)(2), 130(b), title IV, § 474(r)(29)(I), July 18, 1984, 98 Stat. 652, 661, 845; Pub. L. 99–514, title XII, § 1273(b)(2)(B), title XVIII, § 1810(d)(3)(E), Oct. 22, 1986, 100 Stat. 2596, 2825; Pub. L. 100–647, title I, § 1012(g)(7), Nov. 10, 1988, 102 Stat. 3501; Pub. L. 103–66, title XIII, § 13237(c)(5), Aug. 10, 1993, 107 Stat. 508; Pub. L. 108–357, title IV, §§ 411(a)(3)(B), 420(b), Oct. 22, 2004, 118 Stat. 1504, 1513.)