Branch Profits Tax

Definition

Section 884 imposes a 30 percent branch profits tax (often reduced by treaty) on the 'dividend equivalent amount' of effectively connected earnings of a foreign corporation's U.S. branch. The tax is designed to put foreign corporations on similar footing with U.S. subsidiaries that distribute dividends.

Examples

• A foreign corporation operating through a U.S. branch must compute branch profits tax annually on Form 1120-F.