LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.

SEC. 420. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.(a) In General.—Subsection (b) of section 881 is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph:“(2) Commonwealth of puerto rico.—“(A) In general.—If dividends are received during a taxable year by a corporation—“(i) created or organized in, or under the law of, the Commonwealth of Puerto Rico, and“(ii) with respect to which the requirements of subparagraphs (A), (B), and (C) of paragraph (1) are met for the taxable year, subsection (a) shall be applied for such taxable year by substituting ‘10 percent’ for ‘30 percent’.“(B) Applicability.—If, on or after the date of the enactment of this paragraph, an increase in the rate of the Commonwealth of Puerto Rico’s withholding tax which is generally applicable to dividends paid to United States corporations not engaged in a trade or business in the Commonwealth to a rate greater than 10 percent takes effect, this paragraph shall not apply to dividends received on or after the effective date of the increase.”.(b) Withholding.—Subsection (c) of section 1442 (relating to withholding of tax on foreign corporations) is amended—(1) by striking “For purposes” and inserting the following:“(1) Guam, american samoa, the northern mariana islands, and the virgin islands.—For purposes”, and118 STAT. 1514(2) by adding at the end the following new paragraph:“(2) Commonwealth of puerto rico.—“(A) In general.—If dividends are received during a taxable year by a corporation—“(i) created or organized in, or under the law of, the Commonwealth of Puerto Rico, and“(ii) with respect to which the requirements of subparagraphs (A), (B), and (C) of section 881(b)(1) are met for the taxable year, subsection (a) shall be applied for such taxable year by substituting ‘10 percent’ for ‘30 percent’.“(B) Applicability.—If, on or after the date of the enactment of this paragraph, an increase in the rate of the Commonwealth of Puerto Rico’s withholding tax which is generally applicable to dividends paid to United States corporations not engaged in a trade or business in the Commonwealth to a rate greater than 10 percent takes effect, this paragraph shall not apply to dividends received on or after the effective date of the increase.”.(c) Conforming Amendments.—(1) Subsection (b) of section 881 is amended by striking “Guam and Virgin Islands Corporations” in the heading and inserting “Possessions”.(2) Paragraph (1) of section 881(b) is amended by striking “In general” in the heading and inserting “Guam, american samoa, the northern mariana islands, and the virgin islands”.(d) Effective Date.—The amendments made by this section shall apply to dividends paid after the date of the enactment of this Act.