[Code of Federal Regulations] [Title 26, Volume 18] [Revised as of April 1, 2004] From the U.S. Government Printing Office via GPO Access [CITE: 26CFR301.7701-2] [Page 608-611] TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED) PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents Definitions Sec. 301.7701-2 Business entities; definitions. (a) Business entities. For purposes of this section and Sec. 301.7701-3, a business entity is any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under Sec. 301.7701-3) that is not properly classified as a trust under Sec. 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code. A business entity with two or more members is classified for federal tax purposes as either a corporation or a partnership. A business entity with only one owner is classified as a corporation or is disregarded; if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner. (b) Corporations. For federal tax purposes, the term corporation means-- (1) A business entity organized under a Federal or State statute, or under a statute of a federally recognized Indian tribe, if the statute describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic; (2) An association (as determined under Sec. 301.7701-3); (3) A business entity organized under a State statute, if the statute describes or refers to the entity as a joint-stock company or joint-stock association; (4) An insurance company; (5) A State-chartered business entity conducting banking activities, if any of its deposits are insured under the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1811 et seq., or a similar federal statute; (6) A business entity wholly owned by a State or any political subdivision thereof, or a business entity wholly owned by a foreign government or any other entity described in Sec. 1.892-2T; (7) A business entity that is taxable as a corporation under a provision of the Internal Revenue Code other than section 7701(a)(3); and (8) Certain foreign entities--(i) In general. Except as provided in paragraphs (b)(8)(ii) and (d) of this section, the following business entities formed in the following jurisdictions: American Samoa, Corporation Argentina, Sociedad Anonima Australia, Public Limited Company Austria, Aktiengesellschaft Barbados, Limited Company Belgium, Societe Anonyme Belize, Public Limited Company Bolivia, Sociedad Anonima Brazil, Sociedade Anonima Canada, Corporation and Company Chile, Sociedad Anonima People's Republic of China, Gufen Youxian Gongsi Republic of China (Taiwan), Ku-fen Yu-hsien Kung-szu Colombia, Sociedad Anonima Costa Rica, Sociedad Anonima Cyprus, Public Limited Company Czech Republic, Akciova Spolecnost Denmark, Aktieselskab Ecuador, Sociedad Anonima or Compania Anonima Egypt, Sharikat Al-Mossahamah El Salvador, Sociedad Anonima Finland, Julkinen Osakeyhtio/Publikt Aktiebolag France, Societe Anonyme Germany, Aktiengesellschaft Greece, Anonymos Etairia Guam, Corporation Guatemala, Sociedad Anonima Guyana, Public Limited Company Honduras, Sociedad Anonima Hong Kong, Public Limited Company Hungary, Reszvenytarsasag Iceland, Hlutafelag India, Public Limited Company Indonesia, Perseroan Terbuka Ireland, Public Limited Company Israel, Public Limited Company Italy, Societa per Azioni Jamaica, Public Limited Company Japan, Kabushiki Kaisha Kazakstan, Ashyk Aktsionerlik Kogham [[Page 609]] Republic of Korea, Chusik Hoesa Liberia, Corporation Luxembourg, Societe Anonyme Malaysia, Berhad Malta, Public Limited Company Mexico, Sociedad Anonima Morocco, Societe Anonyme Netherlands, Naamloze Vennootschap New Zealand, Limited Company Nicaragua, Compania Anonima Nigeria, Public Limited Company Northern Mariana Islands, Corporation Norway, Allment Aksjeselskap Pakistan, Public Limited Company Panama, Sociedad Anonima Paraguay, Sociedad Anonima Peru, Sociedad Anonima Philippines, Stock Corporation Poland, Spolka Akcyjna Portugal, Sociedade Anonima Puerto Rico, Corporation Romania, Societe pe Actiuni Russia, Otkrytoye Aktsionernoy Obshchestvo Saudi Arabia, Sharikat Al-Mossahamah Singapore, Public Limited Company Slovak Republic, Akciova Spolocnost South Africa, Public Limited Company Spain, Sociedad Anonima Surinam, Naamloze Vennootschap Sweden, Publika Aktiebolag Switzerland, Aktiengesellschaft Thailand, Borisat Chamkad (Mahachon) Trinidad and Tobago, Limited Company Tunisia, Societe Anonyme Turkey, Anonim Sirket Ukraine, Aktsionerne Tovaristvo Vidkritogo Tipu United Kingdom, Public Limited Company United States Virgin Islands, Corporation Uruguay, Sociedad Anonima Venezuela, Sociedad Anonima or Compania Anonima (ii) Clarification of list of corporations in paragraph (b)(8)(i) of this section--(A) Exceptions in certain cases. The following entities will not be treated as corporations under paragraph (b)(8)(i) of this section: (1) With regard to Canada, a Nova Scotia Unlimited Liability Company (or any other company or corporation all of whose owners have unlimited liability pursuant to federal or provincial law). (2) With regard to India, a company deemed to be a public limited company solely by operation of section 43A(1) (relating to corporate ownership of the company), section 43A(1A) (relating to annual average turnover), or section 43A(1B) (relating to ownership interests in other companies) of the Companies Act, 1956 (or any combination of these), provided that the organizational documents of such deemed public limited company continue to meet the requirements of section 3(1)(iii) of the Companies Act, 1956. (3) With regard to Malaysia, a Sendirian Berhad. (B) Inclusions in certain cases. With regard to Mexico, the term Sociedad Anonima includes a Sociedad Anonima that chooses to apply the variable capital provision of Mexican corporate law (Sociedad Anonima de Capital Variable). (iii) Public companies. For purposes of paragraph (b)(8)(i) of this section, with regard to Cyprus, Hong Kong, and Jamaica, the term Public Limited Company includes any Limited Company that is not defined as a private company under the corporate laws of those jurisdictions. In all other cases, where the term Public Limited Company is not defined, that term shall include any Limited Company defined as a public company under the corporate laws of the relevant jurisdiction. (iv) Limited companies. For purposes of this paragraph (b)(8), any reference to a Limited Company includes, as the case may be, companies limited by shares and companies limited by guarantee. (v) Multilingual countries. Different linguistic renderings of the name of an entity listed in paragraph (b)(8)(i) of this section shall be disregarded. For example, an entity formed under the laws of Switzerland as a Societe Anonyme will be a corporation and treated in the same manner as an Aktiengesellschaft. (c) Other business entities. For federal tax purposes-- (1) The term partnership means a business entity that is not a corporation under paragraph (b) of this section and that has at least two members. (2) Wholly owned entities--(i) In general. A business entity that has a single owner and is not a corporation under paragraph (b) of this section is disregarded as an entity separate from its owner. (ii) Special rule for certain business entities. If the single owner of a business entity is a bank (as defined in section 581, or, in the case of a foreign bank, as defined in section 585(a)(2)(B) without [[Page 610]] regard to the second sentence thereof), then the special rules applicable to banks under the Internal Revenue Code will continue to apply to the single owner as if the wholly owned entity were a separate entity. For this purpose, the special rules applicable to banks under the Internal Revenue Code do not include the rules under sections 864(c), 882(c), and 884. (d) Special rule for certain foreign business entities--(1) In general. Except as provided in paragraph (d)(3) of this section, a foreign business entity described in paragraph (b)(8)(i) of this section will not be treated as a corporation under paragraph (b)(8)(i) of this section if-- (i) The entity was in existence on May 8, 1996; (ii) The entity's classification was relevant (as defined in Sec. 301.7701-3(d)) on May 8, 1996; (iii) No person (including the entity) for whom the entity's classification was relevant on May 8, 1996, treats the entity as a corporation for purposes of filing such person's federal income tax returns, information returns, and withholding documents for the taxable year including May 8, 1996; (iv) Any change in the entity's claimed classification within the sixty months prior to May 8, 1996, occurred solely as a result of a change in the organizational documents of the entity, and the entity and all members of the entity recognized the federal tax consequences of any change in the entity's classification within the sixty months prior to May 8, 1996; (v) A reasonable basis (within the meaning of section 6662) existed on May 8, 1996, for treating the entity as other than a corporation; and (vi) Neither the entity nor any member was notified in writing on or before May 8, 1996, that the classification of the entity was under examination (in which case the entity's classification will be determined in the examination). (2) Binding contract rule. If a foreign business entity described in paragraph (b)(8)(i) of this section is formed after May 8, 1996, pursuant to a written binding contract (including an accepted bid to develop a project) in effect on May 8, 1996, and all times thereafter, in which the parties agreed to engage (directly or indirectly) in an active and substantial business operation in the jurisdiction in which the entity is formed, paragraph (d)(1) of this section will be applied to that entity by substituting the date of the entity's formation for May 8, 1996. (3) Termination of grandfather status--(i) In general. An entity that is not treated as a corporation under paragraph (b)(8)(i) of this section by reason of paragraph (d)(1) or (d)(2) of this section will be treated permanently as a corporation under paragraph (b)(8)(i) of this section from the earliest of: (A) The effective date of an election to be treated as an association under Sec. 301.7701-3; (B) A termination of the partnership under section 708(b)(1)(B) (regarding sale or exchange of 50 percent or more of the total interest in an entity's capital or profits within a twelve month period); (C) A division of the partnership under section 708(b)(2)(B); or (D) The date any person or persons, who were not owners of the entity as of November 29, 1999, own in the aggregate a 50 percent or greater interest in the entity. (ii) Special rule for certain entities. For purposes of paragraph (d)(2) of this section, paragraph (d)(3)(i)(B) of this section shall not apply if the sale or exchange of interests in the entity is to a related person (within the meaning of sections 267(b) and 707(b)) and occurs no later than twelve months after the date of the formation of the entity. (e) Effective date. Except as otherwise provided in this paragraph (e), the rules of this section apply as of January 1, 1997, except that paragraph (b)(6) applies on or after January 14, 2002, to a business entity wholly owned by a foreign government regardless of any prior entity classification, and paragraph (c)(2)(ii) of this section applies to taxable years beginning after January 12, 2001. The reference to the Finnish, Maltese, and Norwegian entities in paragraph (b)(8)(i) of this section is applicable on November 29, 1999. The reference to the Trinidadian entity in [[Page 611]] paragraph (b)(8)(i) of this section applies to entities formed on or after November 29, 1999. Any Maltese or Norwegian entity that becomes an eligible entity as a result of paragraph (b)(8)(i) of this section in effect on November 29, 1999 may elect by February 14, 2000 to be classified for federal tax purposes as an entity other than a corporation retroactive to any period from and including January 1, 1997. Any Finnish entity that becomes an eligible entity as a result of paragraph (b)(8)(i) of this section in effect on November 29, 1999 may elect by February 14, 2000 to be classified for federal tax purposes as an entity other than a corporation retroactive to any period from and including September 1, 1997. However, paragraph (d)(3)(i)(D) of this section applies on or after October 22, 2003. [T.D. 8697, 61 FR 66589, Dec. 18, 1996, as amended by T.D. 8844, 64 FR 66583, Nov. 29, 1999; T.D. 9012, 67 FR 49864, Aug. 1, 2002; T.D. 9093, 68 FR 60298, Oct. 22, 2003]