1. (a) Allowance of deduction

   1. (1) In general In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of—

      1. (A) 33.34 percent of the foreign-derived deduction eligible income of such domestic corporation for such taxable year, plus

      2. (B) 40 percent of—

         1. (i) the net CFC tested income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year, and
         2. (ii) the amount treated as a dividend received by such corporation under section 78 which is attributable to the amount described in clause (i).

   2. (2) Limitation based on taxable income

      1. (A) In general If, for any taxable year—

         1. (i) the sum of the foreign-derived deduction eligible income and the net CFC tested income amount otherwise taken into account by the domestic corporation under paragraph (1), exceeds
         2. (ii) the taxable income of the domestic corporation (determined without regard to this section),

         then the amount of the foreign-derived deduction eligible income and the net CFC tested income amount so taken into account shall be reduced as provided in subparagraph (B).

      2. (B) Reduction For purposes of subparagraph (A)—

         1. (i) foreign-derived deduction eligible income shall be reduced by an amount which bears the same ratio to the excess described in subparagraph (A) as such foreign-derived deduction eligible income bears to the sum described in subparagraph (A)(i), and
         2. (ii) the net CFC tested income amount shall be reduced by the remainder of such excess.

2. (b) Foreign-derived deduction eligible income For purposes of this section—

   1. (1) Foreign-derived deduction eligible income The term “foreign-derived deduction eligible income” means, with respect to any taxpayer for any taxable year, any deduction eligible income of such taxpayer which is derived in connection with—

      1. (A) property—

         1. (i) which is sold by the taxpayer to any person who is not a United States person, and
         2. (ii) which the taxpayer establishes to the satisfaction of the Secretary is for a foreign use, or
      2. (B) services provided by the taxpayer which the taxpayer establishes to the satisfaction of the Secretary are provided to any person, or with respect to property, not located within the United States.

   2. (2) Rules relating to foreign use property or services For purposes of this subsection—

      1. (A) Foreign use The term “foreign use” means any use, consumption, or disposition which is not within the United States.

      2. (B) Property or services provided to domestic intermediaries

         1. (i) Property If a taxpayer sells property to another person (other than a related party) for further manufacture or other modification within the United States, such property shall not be treated as sold for a foreign use even if such other person subsequently uses such property for a foreign use.
         2. (ii) Services If a taxpayer provides services to another person (other than a related party) located within the United States, such services shall not be treated as described in paragraph (1)(B) even if such other person uses such services in providing services which are so described.

      3. (C) Special rules with respect to related party transactions

         1. (i) Sales to related parties If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless—

            1. (I) such property is ultimately sold by a related party, or used by a related party in connection with property which is sold or the provision of services, to another person who is an unrelated party who is not a United States person, and
            2. (II) the taxpayer establishes to the satisfaction of the Secretary that such property is for a foreign use.

         For purposes of this clause, a sale of property shall be treated as a sale of each of the components thereof.

         1. (ii) Service provided to related parties If a service is provided to a related party who is not located in the United States, such service shall not be treated described ¹ in subparagraph (A)(ii) ² unless the taxpayer established to the satisfaction of the Secretary that such service is not substantially similar to services provided by such related party to persons located within the United States.

      4. (D) Related party For purposes of this paragraph, the term “related party” means any member of an affiliated group as defined in section 1504(a), determined—

         1. (i) by substituting “more than 50 percent” for “at least 80 percent” each place it appears, and
         2. (ii) without regard to paragraphs (2) and (3) of section 1504(b).

         Any person (other than a corporation) shall be treated as a member of such group if such person is controlled by members of such group (including any entity treated as a member of such group by reason of this sentence) or controls any such member. For purposes of the preceding sentence, control shall be determined under the rules of section 954(d)(3).

      5. (E) Sold For purposes of this subsection (other than paragraph (3)(A)(i)(VII)), the terms “sold”, “sells”, and “sale” shall include any lease, license, exchange, or other disposition.

   3. (3) Deduction eligible income

      1. (A) In general The term “deduction eligible income” means, with respect to any domestic corporation, the excess (if any) of—

         1. (i) gross income of such corporation determined without regard to—

            1. (I) any amount included in the gross income of such corporation under section 951(a)(1),
            2. (II) the net CFC tested income included in the gross income of such corporation under section 951A,
            3. (III) any financial services income (as defined in section 904(d)(2)(D)) of such corporation,
            4. (IV) any dividend received from a corporation which is a controlled foreign corporation of such domestic corporation,
            5. (V) any domestic oil and gas extraction income of such corporation,
            6. (VI) any foreign branch income (as defined in section 904(d)(2)(J)), and

            7. (VII) except as otherwise provided by the Secretary, any income and gain from the sale or other disposition (including pursuant to the deemed sale or other deemed disposition or a transaction subject to section 367(d)) of—

               1. (aa) intangible property (as defined in section 367(d)(4)), and
               2. (bb) any other property of a type that is subject to depreciation, amortization, or depletion by the seller, over
         2. (ii) expenses and deductions (including taxes), other than interest expense and research or experimental expenditures, properly allocable to such gross income.
      2. (B) Domestic oil and gas extraction income For purposes of subparagraph (A), the term “domestic oil and gas extraction income” means income described in section 907(c)(1), determined by substituting “within the United States” for “without the United States”.
3. (c) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.

(Added Pub. L. 115–97, title I, § 14202(a), Dec. 22, 2017, 131 Stat. 2213; amended Pub. L. 119–21, title VII, §§ 70321(a), 70322(a)(1), (2), (b)(1), 70323(a)(3)(A)(i), (ii), (b)(1)–(2)(C)(i), July 4, 2025, 139 Stat. 204–206.)

Editorial Notes

Prior Provisions

A prior section 250, added Pub. L. 91–518, title IX, § 901(a), Oct. 30, 1970, 84 Stat. 1341; amended Pub. L. 93–496, § 12, Oct. 28, 1974, 88 Stat. 1531; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95–473, § 2(a)(2)(C), Oct. 17, 1978, 92 Stat. 1464; Pub. L. 96–454, § 3(b)(1), Oct. 15, 1980, 94 Stat. 2012; Pub. L. 97–261, § 6(d)(3), Sept. 20, 1982, 96 Stat. 1107; Pub. L. 99–521, § 4(3), Oct. 22, 1986, 100 Stat. 2993, related to certain payments to National Railroad Passenger Corporation, prior to repeal by Pub. L. 101–508, title XI, § 11801(a)(15), Nov. 5, 1990, 104 Stat. 1388–520.

Amendments

2025—Pub. L. 119–21, § 70323(b)(2)(C)(i), substituted “Foreign-derived deduction eligible” for “Foreign-derived intangible” in section catchline.

Pub. L. 119–21, § 70323(a)(3)(A)(ii), substituted “net CFC tested income” for “global intangible low-taxed income” in section catchline.

Subsec. (a)(1)(A). Pub. L. 119–21, § 70323(b)(1), substituted “foreign-derived deduction eligible income” for “foreign-derived intangible income”.

Pub. L. 119–21, § 70321(a)(1), substituted “33.34 percent” for “37.5 percent”.

Subsec. (a)(1)(B). Pub. L. 119–21, § 70321(a)(2), substituted “40 percent” for “50 percent” in introductory provisions.

Subsec. (a)(1)(B)(i). Pub. L. 119–21, § 70323(a)(3)(A)(i), substituted “net CFC tested income” for “global intangible low-taxed income”.

Subsec. (a)(2). Pub. L. 119–21, § 70323(b)(2)(A), substituted “foreign-derived deduction eligible income” for “foreign-derived intangible income” in cl. (i) and concluding provisions.

Pub. L. 119–21, § 70323(a)(3)(A)(i), substituted “net CFC tested income” for “global intangible low-taxed income” in cl. (i) and concluding provisions.

Subsec. (a)(3). Pub. L. 119–21, § 70321(a)(3), struck out par. (3). Text read as follows: “In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied by substituting—

“(A) ‘21.875 percent’ for ‘37.5 percent’ in subparagraph (A), and

“(B) ‘37.5 percent’ for ‘50 percent’ in subparagraph (B).”

Subsec. (b). Pub. L. 119–21, § 70323(b)(2)(B)(iv), substituted “deduction eligible” for “intangible” in heading.

Pub. L. 119–21, § 70323(b)(2)(B), struck out pars. (1) and (2), redesignated former pars. (4) and (5) as (1) and (2), respectively, and substituted “paragraph (1)(B)” for “paragraph (4)(B)” in par. (2)(B)(ii). Prior to amendment, pars. (1) and (2) defined “foreign-derived intangible income” for purposes of this section and “deemed intangible income” and “deemed tangible income return” for purposes of subsec. (b), respectively.

Subsec. (b)(3)(A)(i)(II). Pub. L. 119–21, § 70323(a)(3)(A)(i), substituted “net CFC tested income” for “global intangible low-taxed income”.

Subsec. (b)(3)(A)(i)(VII). Pub. L. 119–21, § 70322(a)(1), added subcl. (VII).

Subsec. (b)(3)(A)(ii). Pub. L. 119–21, § 70322(b)(1), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “the deductions (including taxes) properly allocable to such gross income.”

Subsec. (b)(5)(E). Pub. L. 119–21, § 70322(a)(2), inserted “(other than paragraph (3)(A)(i)(VII))” after “For purposes of this subsection”.

Statutory Notes and Related Subsidiaries

Effective Date of 2025 Amendment

Pub. L. 119–21, title VII, § 70321(b), July 4, 2025, 139 Stat. 204, provided that:

“The amendments made by this section [amending this section] shall apply to taxable years beginning after

December 31, 2025.”

Pub. L. 119–21, title VII, § 70322(a)(3), July 4, 2025, 139 Stat. 204, provided that:

“The amendments made by this subsection [amending this section] shall apply to sales or other dispositions (including pursuant to deemed sales or other deemed dispositions or a transaction subject to section 367(d) of the Internal Revenue Code of 1986) occurring after

June 16, 2025.”

Pub. L. 119–21, title VII, § 70322(b)(2), July 4, 2025, 139 Stat. 205, provided that:

“The amendment made by this subsection [amending this section] shall apply to taxable years beginning after

December 31, 2025.”

Amendment by section 70323(a)(3)(A)(i), (ii), (b)(1)–(2)(C)(i) of Pub. L. 119–21 applicable to taxable years beginning after Dec. 31, 2025, see section 70323(c) of Pub. L. 119–21, set out as a note under section 172 of this title.

Effective Date

Section applicable to taxable years beginning after Dec. 31, 2017, see section 14202(c) of Pub. L. 115–97, set out as an Effective Date of 2017 Amendment note under section 172 of this title.

¹ So in original. Probably should be preceded by “as”.

² So in original. Probably should be “(B)(ii)”.