Specific Instructions

Part I – Qualified Foreign Corporation

Line 1a.    Enter the name of the qualified foreign country (defined earlier) in which the foreign corporation was organized.

Line 1b.    Type of Equivalent Exemption. Check one (and only one) of the boxes on line 1b to indicate the type of equivalent exemption granted by the foreign country listed in line 1a. For a non-inclusive list of countries that grant equivalent exemptions, see Rev. Rul. 2008-17, 2008-12 I.R.B. 626, as modified by Announcement 2008-57, 2008-26 I.R.B. 1192.

Line 1c.    Applicable Authority. Enter the applicable authority of the equivalent exemption. For example, enter a citation of the statute in the country where the corporation is organized, a diplomatic note between the United States and such country, or an income tax convention between the United States and such country.

Line 2. Gross Income from Categories of Qualified Income

Line 2b.    Enter the gross income the foreign corporation derived from time or voyage (full) charter income of a ship or wet lease income of an aircraft. See Regulations section 1.883-1(e)(5) for definition of terms.

Line 2c.    Enter the gross income the foreign corporation derived from the bareboat charter of a ship or dry lease income of an aircraft. See Regulations section 1.883-1(e)(5) for definition of terms.

  

Lines 2d, 2e, and 2f.   Enter on these lines the gross amount the corporation derived from the activities (specified on these lines) that are incidental to the international operation of ships or aircraft (as defined in Regulations section 1.883-1(g)(1)). For types of activities that are not considered incidental to the international operation of ships or aircraft, see Regulations section 1.883-1(g)(2).

Part II — Stock Ownership Test for Publicly-Traded Corporations

A foreign corporation satisfies the stock ownership test of Regulations section 1.883-1(c)(2) if it is considered a publicly-traded corporation and satisfies the substantiation and reporting requirements of Regulations sections 1.883-2(e) and (f). To be considered a publicly traded corporation, the stock of the foreign corporation must be primarily and regularly traded (as defined below) on one or more established securities markets (as defined in Regulations section 1.883-2(b)) in either the United States or any qualified foreign country.

Primarily traded. Stock of a corporation is primarily traded in a country on one or more established securities markets (as defined in Regulations section 1.883-2(b)) if, with respect to each class of stock described in item 1 under Regularly traded below, the number of shares in each such class that are traded during the tax year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country.

Regularly traded. The stock of a corporation is regularly traded on one or more established securities markets if:

  1. One or more classes of stock of the corporation that, in the aggregate, represent more than 50% of the total combined voting power of all classes of stock of such corporation entitled to vote and the total value of the stock of such corporation are listed on such market or markets during the tax year, and

  2. With respect to each class relied on to meet the more than 50% requirement above (a) trades in each such class are effected, other than in de minimis quantities, on such market or markets on at least 60 days during the tax year 
    (or 1/6 of the number of days in a short tax year); and (b) the aggregate number of shares in each such class that are traded on such market or markets during the tax year are at least 10% of the average number of shares outstanding in that class during the tax year (or, in the case of a short tax year, a percentage that equals at least 10% of the average number of shares outstanding in that class during the tax year multiplied by the number of days in the short tax year, divided by 365).

A class of stock that is traded during the tax year on an established securities market located in the United States shall be considered to meet the trading requirement described in item 2 above if the stock is regularly quoted by dealers making a market in the stock.

A dealer makes a market in a stock only if the dealer regularly and actively offers to, and in fact does, purchase the stock from, and sell the stock to, customers who are not related persons (as defined in section 954(d)(3)) with respect to the dealer in the ordinary course of a trade or business.

In general, a class of stock of a foreign corporation that otherwise meets the requirements of the “regularly traded” rules described above shall not be treated as meeting such requirements for a tax year if, for more than half the number of days during the tax year, one or more 5% shareholders (defined below) own in the aggregate, 50% or more of the vote and value of the outstanding shares of the class of stock.

Note.

If the general rule described in the previous paragraph applies, the corporation must check the “Yes” box on line 9, and must complete lines 10a and 10b, to substantiate that the exception to this general rule (described next) applies. If the general rule described in the previous paragraph does not apply, the corporation checks the “No” box on line 9, and is not required to complete lines 10a and 10b.

Exception: The rules discussed in the previous paragraph shall not apply to a class of stock if the foreign corporation can establish that qualified shareholders (defined later), applying the attribution rules of Regulations section 1.883-4(c), own sufficient shares in the closely-held block of stock to preclude nonqualified shareholders in the closely-held block of stock from owning 50% or more of the total value of the class of stock of which the closely-held block is a part for more than half the number of days during the tax year. Any shares that are owned, after application of the attribution rules in Regulations section 1.883-4(c), by a qualified shareholder shall not also be treated as owned by a nonqualified shareholder in the chain of ownership for purposes of the preceding sentence. A foreign corporation must obtain the documentation described in Regulations section 1.883-4(d) from the qualified shareholders relied upon to satisfy this exception. However, no person otherwise treated as a qualified shareholder under Regulations section 1.883-4(b) may be treated for purposes of Regulations section 1.883-2(d)(3) as a qualified shareholder if such person's interest in the foreign corporation, or in any intermediary corporation, is held through bearer shares that are not maintained in a dematerialized or immobilized book-entry system during the relevant period. See Regulations section 1.883-2(d)(3)(ii).

For purposes of the above rules, a 5% shareholder is a person who owns at least 5% of the total vote and value of the outstanding shares of a class of stock. For these purposes, persons related within the meaning of section 267(b) shall be treated as one person. In determining whether two or more corporations are members of the same controlled group under section 267(b)(3), a person is considered to own stock owned directly by such person, stock owned through the application of section 1563(e)(1), and stock owned through the application of section 267(c). In determining whether a corporation is related to a partnership under section 267(b)(10), a person is considered to own the partnership interest owned directly by such person and the partnership interest owned through the application of section 267(e)(3).

Note.

An investment company (as defined in Regulations section 1.883-2(d)(3)(iii)(B)) shall not be treated as a 5% shareholder.

Line 8.    Enter on line 8 a description of each class of stock the foreign corporation relied upon to satisfy the requirements of the “regularly traded” test described earlier. The description must include:
  • An indication as to whether the class of stock was issued in registered or bearer form and whether such bearer shares were maintained in a dematerialized or immobilized book-entry system.

  • The number of issued and outstanding shares in that class of stock as of the close of the tax year, and

  • The value of each class of stock in relation to the total value of all the corporation's shares outstanding as of the close of the tax year.

Line 9.    See Regularly traded, earlier, for instructions for completing this line 9.

Line 10.   If the answer to line 9 is “Yes” with respect to more than one class of the corporation's stock, the foreign corporation must complete lines 10a and 10b with respect to each such class. To do so, complete these lines as follows: Complete line 10 of the actual schedule for the class of stock with respect to which 5% shareholders own the largest percentage of the vote and value of the outstanding shares of the class of stock. For all other classes of stock, attach a statement that uses the same format as lines 10a and 10b.

Line 10b(ii).

Enter the applicable two-letter codes from the list of country codes at www.IRS.gov/countrycodes.

Part III — Stock Ownership Test for Controlled Foreign Corporations

A foreign corporation satisfies the stock ownership test of Regulations section 1.883-1(c)(2) if it satisfies the qualified U.S. person ownership test (see below) and it satisfies the substantiation requirements of Regulations section 1.883-3(c).

Qualified U.S. person ownership test.   This test is met only if:
  1. The foreign corporation is a CFC (as defined in section 957(a)) for more than half the days in the corporation's tax year, and

  2. More than 50% of the total value of its outstanding stock is owned (within the meaning of section 958(a) and Regulations section 1.883-3(b)(4)) by one or more qualified U.S. persons (defined below) for more than half the days of the CFC's tax year, provided such days of ownership are concurrent with the time period during which the foreign corporation was a CFC (as defined in item 1 above).

A qualified U.S. person is a U.S. citizen, resident alien, domestic corporation, or domestic trust described in section 501(a), but only if the person provides the CFC with an ownership statement as described in Regulations section 1.883-3(c)(2), and the CFC meets the reporting requirements of Regulations section 1.883-3(d) with respect to that person.

Line 11a.    Enter the percentage of the value of the shares of the CFC that is owned by all qualified U.S. persons identified in the qualified ownership statements. In determining the percentage to enter on line 11, the numerator is the total value of the CFC's outstanding stock that is owned (within the meaning of section 958(a) and Regulations section 1.883-3(b)(4)) by all qualified U.S. persons, not including the value of any bearer shares (unless such shares are maintained in a dematerialized or immobilized book-entry system). The denominator is the total value of the CFC's outstanding stock, including the value of any bearer shares.

Line 11b.   Enter the percentage of the value of the outstanding shares of the CFC that are bearer shares maintained in a dematerialized or immobilized book-entry system. In determining the percentage to enter on line 11b, the numerator is the total value of bearer shares owned by the qualified U.S. persons and maintained in a dematerialized or immobilized book-entry system. The denominator is the total value of all the CFC's outstanding stock, including the value of any bearer shares.

Line 12.   Specify the days of the foreign corporation's tax year during which more than 50% of the total value of its outstanding stock was owned (within the meaning of section 958(a) and Regulations section 1.883-3(b)(4)) by qualified U.S. persons.

Line 13.   Specify the days of the foreign corporation's tax year during which it was a CFC (as defined in section 957(a)).

Part IV — Qualified Shareholder Stock Ownership Test

A foreign corporation satisfies the stock ownership test of Regulations section 1.883-1(c)(2) if more than 50% of the value of its outstanding shares is owned, or treated as owned, by applying the attribution rules of Regulations section 1.883-4(c), for at least half of the number of days in the foreign corporation's tax year by one or more qualified shareholders, as defined below. A shareholder may be a qualified shareholder with respect to one category of income while not being a qualified shareholder with respect to another. A foreign corporation will not be considered to satisfy the qualified shareholder stock ownership test unless the foreign corporation meets the substantiation and reporting requirements described in Regulations section 1.883-4(d) and (e).

A shareholder is a qualified shareholder only if the shareholder:

  1. With respect to the category of income for which the foreign corporation is seeking an exemption, is:

    (A) An individual who is a resident of a qualified foreign country. An individual is a resident of a qualified foreign country only if the individual is fully liable to tax as a resident in such country (e.g., an individual who is liable to tax on a remittance basis in a foreign country will not be treated as a resident of that country unless all residents of that country are taxed on a remittance basis only) and, in addition (1) the individual has a tax home, within the meaning of Regulations section 1.883-4(b)(2)(ii), in that qualified foreign country for 183 days or more of the tax year or (2) the individual is treated as a resident of a qualified foreign country based on special rules pursuant to Regulations section 1.883-4(d)(3).

    (B) The government of a qualified foreign country (or a political subdivision or local authority of such country).

    (C) A foreign corporation that is organized in a qualified foreign country and meets the publicly traded test of Regulations section 1.883-2(a).

    (D) A not-for-profit organization described in Regulations section 1.883-4(b)(4) that is not a pension fund as defined in Regulations section 1.883-4(b)(5) and that is organized in a qualified foreign country.

    (E) An individual beneficiary of a pension fund (as defined in Regulations section 1.883-4(b)(5)(iv)) that is administered in or by a qualified foreign country, who is treated as a resident under Regulations section 1.883-4(d)(3)(iii) of a qualified foreign country, or

    (F) A shareholder of a foreign corporation that is an airline covered by a bilateral Air Services Agreement in force between the United States and the qualified foreign country in which the airline is organized, provided the United States has not waived the ownership requirement in the Air Services Agreement, or that the ownership requirement has not otherwise been made ineffective.

  2. Does not own its interest in the foreign corporation through bearer shares, either directly or by applying the attribution rules of Regulations section 1.883-4(c). However, the shareholder may own its interest in the foreign corporation through bearer shares if such shares are maintained in a dematerialized or immobilized book-entry system.

  3. Provides to the foreign corporation the documentation required in Regulations section 1.883-4(d).

Line 16b.

Enter the applicable two-letter codes from the list of country codes at www.IRS.gov/countrycodes.

Line 16c.

Enter the percentage of the value of the outstanding shares that is owned by the qualified shareholders as bearer shares maintained in a dematerialized or immobilized book-entry system. In determining the percentage to enter on line 16c, the numerator is the total value of bearer shares owned by the qualified shareholders and maintained in a dematerialized or immobilized book-entry system. The denominator is the total value of all outstanding shares of the corporation, including the value of any bearer shares.


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