Since Section 1(h)(11) was enacted as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, questions have been raised on exactly how to interpret the section's legislative history. Under this provision, a dividend received by a U.S. individual taxpayer (directly or through a passthrough entity) from a domestic corporation or a "qualified foreign corporation" (QFC) is subject to a maximum U.S. federal income tax rate of 15%.
Under Section 1(h)(11)(C)(i)(II), a QFC includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the U.S. which the Secretary determines is satisfactory for this purpose and which contains an exchange of-information provision. According to the legislative history, "[t]he term ‘qualified foreign corporation’ includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the Treasury Department determines to be satisfactory for purposes of this provision, and which includes an exchange of information program.... The conferees further intend that a company will be eligible for benefits of a comprehensive income tax treaty within the meaning of this provision if it would qualify for the benefits of the treaty with respect to substantially all of its income in the taxable year in which the dividend is paid." (H. Rep't No. 108-126, 108th Cong., 1st Sess. 41-42 (2003) ("Conference Report") (emphasis added).)
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