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basis at the same rates as other U.S. taxpayers. Sec. 882(a)9.
Second, amounts received by a foreign corporation that are fixed
or determinable, annual or periodic (FDAP), from sources within
the United States (U.S. source), and not effectively connected
with the conduct of a U.S. trade or business (non-ECI) are
subject to a flat 30-percent tax. Sec. 881(a). FDAP includes
interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, and emoluments. Sec. 881(a)(1).
If a U.S. trade or business is a subsidiary of a foreign
corporation (FC), distributions by the subsidiary to the foreign
corporation, such as dividends or interest, generally are subject
to the 30-percent withholding tax imposed by section 881(a)(1).
Also, the Commissioner has broad powers to distribute, apportion,
or allocate gross income, deductions, credits, or allowances
between organizations controlled or owned by the same interests
if it is determined that such action is necessary to prevent the
evasion of tax or to clearly reflect income. Sec. 482; Hospital
Corp. of America v. Commissioner, 81 T.C. 520, 592 (1983). Thus
if a U.S. corporation transfers earnings and profits offshore
through improperly valued intercompany transactions, section 482
provides a means whereby the Commissioner may recharacterize the
9 Sec. 882(a) provides:
(1) In General.--A foreign corporation engaged in trade
or business within the United States during the taxable year
shall be taxable as provided in section 11 or 1201(a) on its
taxable income which is effectively connected with the
conduct of a trade or business within the United States.
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