Foreign corporations qualifying for JGTRRA's reduced dividend rate.

• Author: Levy, Marc

Notice 2003-71 defines stock considered "readily tradable on an established securities market in the United States" for purposes of the reduced tax rates on dividends paid by foreign corporations.

Background

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), Section 302(a), generally provides that dividends paid by either a domestic corporation or a "qualified foreign corporation" are subject to tax at reduced capital gain rates (generally, 15%). JGTRRA Section 302(a) added Sec. 1(h)(11), providing that net capital gain for purposes of Sec. 1(h) means net capital gain increased by "qualified dividend income." Under Sec. 1(h) (11)(B)(i), qualified dividend income consists of dividends received during the tax year from domestic corporations and "qualified foreign corporations" (as defined in Sec. 1(h)(11)(C)(i)).

A foreign corporation that does not satisfy Sec. 1(h)(11)(C)(i)'s two tests is nevertheless treated as a qualified foreign corporation under Sec. 1(h)(11)(C)(ii) for any dividends paid if its dividend-paying stock is readily tradable on an established securities market in the U.S. Dividends paid by a passive foreign investment company, foreign investment company or foreign personal holding company do not qualify.

Definition

Notice 2003-71 defines "readily tradable on an established securities market in the United States" as common or ordinary stock listed on a national securities exchange registered under Section 6 of the Securities Exchange of 1934 or on...