2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1003 - Definitions and General Provisions (§§ 30041 — 30045) › § 30044 - Controlled group of corporations

(a) Controlled group of corporations.— For purposes of this part, the term “controlled group of corporations” shall mean:
(1) A parent-subsidiary controlled group.— One or more chains of corporations connected through stock ownership with a common parent corporation if:
(A) Stock possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote or at least eighty percent (80%) of the total value of shares of all classes of stock of each of the corporations, except the common parent corporation, is owned (within the meaning of subsection (d)(1) of this section) by one or more of the other corporations, and
(B) the common parent corporation owns (within the meaning of subsection (d)(1) of this section) stock possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote or at least eighty percent (80%) of the total value of shares of all classes of stock of at least one of the other corporations, excluding, in computing such voting power or value, stock owned directly by such other corporations.
(2) Brother-sister controlled group.— Two or more corporations, if five or fewer persons other than corporations own (within the meaning of subsection (d)(2)(A) of this section) stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or more than fifty percent (50%) of the total value of shares of all classes of stock of each corporation.
(3) Combined group.— Three or more corporations each of which is a member of a group of corporations described in clause (1) or (2) of this subsection, and one of which:
(A) Is a common parent corporation included in a group of corporations described in clause (1) of this subsection, and also
(B) is included in a group of corporations described in clause (2) of this subsection.
(b) Component member.—
(1) General rule.— For purposes of this part, a corporation is a component member of a controlled group of corporations on December 31 of any taxable year (and with respect to the taxable year which includes December 31) if such corporation:
(A) Is a member of such controlled group of corporations on December 31 included in such year and is not treated as an excluded member under clause (2) of this subsection, or
(B) is not a member of such controlled group of corporations on December 31 included in such year but is treated as an additional member under clause (3) of this subsection.
(2) Excluded members.— A corporation which is a member of a controlled group of corporations on December 31 of any taxable year shall be treated as an excluded member of such group for the taxable year including such December 31 if such corporation:
(A) Is a member of such group for less than one-half the number of days in such taxable year which precede such December 31;
(B) is exempt from taxation under §§ 30471 et seq. of this title (except a corporation which is subject to tax on its unrelated net business taxable income under § 30481 of this title) for such taxable year;
(C) is a foreign corporation subject to tax not engaged in trade or business in Puerto Rico, or
(D) is an insurance company subject to taxation under §§ 30501—30512 of this title.
(3) Additional members.— A corporation which:
(A) Was a member of a controlled group of corporations at any time during a calendar year;
(B) is not a member of such group on December 31 of such calendar year, and
(C) is not described, with respect to such group, in paragraphs (B), (C), or (D) of clause (2),
shall be treated as an additional member of such group on December 31 for its taxable year, including such December 31, if it was a member of such group for one-half (or more) of the number of days in such taxable year which precede such December 31.
(4) Corporation member of more than one controlled group.— If a corporation is a component member of more than one controlled group of corporations with respect to any taxable year, such corporation shall be treated as a component member of only one controlled group. The determination as to the group of which such corporation is a component member shall be made under regulations prescribed by the Secretary which are consistent with the purposes of this section and this part.
(c) Certain stock excluded.—
(1) General rule.— For purposes of this section, the term “stock” does not include:
(A) Nonvoting stock which is limited and preferred as to dividends;
(B) treasury stock, and
(C) stock which is treated as “excluded stock” under clause (2) of this subsection.
(2) Stock treated as “excluded stock”.—
(A) Parent-subsidiary controlled group.— For purposes of subsection (a)(1), if a corporation (referred to in this paragraph as “parent corporation”) owns (within the meaning of subsections (d)(1) and (e)(4)), fifty percent (50%) or more of the total combined voting power of all classes of stock entitled to vote or fifty percent (50%) or more of the total value of shares of all classes of stock in another corporation (referred to in this paragraph as “subsidiary corporation”), the following stock of the subsidiary corporation shall be treated as excluded stock:
(i) Stock in the subsidiary corporation held by a trust which is part of a plan of deferred compensation for the benefit of the employees of the parent corporation or the subsidiary corporation;
(ii) stock in the subsidiary corporation owned by an individual (within the meaning of subsection (d)(2)(A)) who is a principal stockholder or officer of the parent corporation. For purposes of this clause, the term “principal stockholder” of a corporation means an individual who owns (within the meaning of subsection (d)(2)(A)) five percent (5%) or more of the total combined voting power of all classes of stock entitled to vote or five percent (5%) or more of the total value of shares of all classes of stock in such corporation, or
(iii) stock in the subsidiary corporation owned (within the meaning of subsection (d)(2)(A)) by an employee of the subsidiary corporation if such stock is subject to conditions which run in favor of such parent (or subsidiary) corporation and which substantially restrict or limit the employee’s right (or if the employee constructively owns such stock, the direct owner’s right) to dispose of such stock.
(B) Brother-sister controlled group.— For purposes of subsection (a)(2) of this section, if five (5) or fewer persons other than a corporation (referred to in this paragraph as “common owners”) own (within the meaning of subsection (d)(2)(A) of this section), fifty percent (50%) or more of the total combined voting power of all classes of stock entitled to vote or fifty percent (50%) or more of the total value of shares of all classes of stock in a corporation, the following stock of such corporation shall be treated as excluded stock :
(i) Stock in such corporation held by an employees’ trust described in § 30391 of this title which is exempt from tax under § 30471(a)(4)(D) of this title or § 30391 of this title, if such trust is for the benefit of the employees of such corporation,
(ii) stock in such corporation owned (within the meaning of subsection (d)(2)(A)) by an employee of the corporation if such stock is subject to conditions which run in favor of any of such common owners (or such corporation) and which substantially restrict or limit the employee’s right (or if the employee constructively owns such stock, the direct owner’s right) to dispose of such stock. If a condition which limits or restricts the employee’s right (or the direct owner’s right) to dispose of such stock also applies to the stock held by any of the common owners pursuant to a bona fide reciprocal stock purchase arrangement, such condition shall not be treated as one which restricts or limits the employee’s right to dispose of such stock.
(d) Rules for determining stock ownership.—
(1) Parent-subsidiary controlled group.— For purposes of determining whether a corporation is a member of a parent-subsidiary controlled group of corporations (within the meaning of subsection (a)(1)), “stock owned” by a corporation means:
(A) Stock owned directly by such corporation, and
(B) stock owned with the application of subsection (e)(1).
(2) Brother-sister controlled group.—
(A) Corporations.— For purposes of determining whether a corporation is a member of a brother-sister controlled group of corporations (within the meaning of subsection (a)(2)(A)), “stock owned” by a person other than a corporation“ means:
(i) Stock owned directly by such person, and
(ii) stock owned with the application of subsection (e).
(e) Constructive ownership.—
(1) Options.— If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this clause, an option to acquire such an option, and each one of a series of such options, shall be considered as an option to acquire such stock.
(2) Stock owned by partnerships.— Stock owned, directly or indirectly, by or for a partnership shall be considered as owned by any partner having an interest of five percent (5%) or more in either the capital or profits of the partnership in proportion to their interest in capital or profits, whichever is greater.
(3) Stock owned by estates or trusts.—
(A) Stock owned, directly or indirectly, by or for an estate or trust shall be considered as owned by any beneficiary who has an actuarial interest of five percent (5%) or more in such stock, to the extent of such actuarial interest. For purposes of this paragraph, the actuarial interest of each beneficiary shall be determined by assuming the maximum exercise of discretion by the fiduciary in favor of such beneficiary and the maximum use of such stock to satisfy his/her rights as a beneficiary.
(B) Stock owned, directly or indirectly, by or for any portion of a trust of which a person is considered the owner under §§ 30415 and 30416 of this title shall be considered as owned by such person.
(C) This clause shall not apply to stock owned by any employees” trust described in § 30391 of this title which is exempt from tax under § 30471 of this title or § 30391 of this title.
(4) Stock owned by corporations.— Stock owned, directly or indirectly, by or for a corporation shall be considered as owned by any person who owns (within the meaning of subsection (d)) five percent (5%) or more in value of its stock in that proportion which the value of the stock which such person so owns bears to the value of all the stock in such corporation.
(5) Stock owned by spouse.— An individual shall be considered as owning stock in a corporation owned, directly or indirectly, by or for his/her spouse (other than a spouse who is separated from the individual), except in the case of a corporation with respect to which each of the following conditions is satisfied for its taxable year:
(A) The individual does not, at any time during such taxable year, directly own any stock in such corporation;
(B) the individual is not a director or employee and does not participate in the management of such corporation at any time during such taxable year;
(C) not more than fifty percent (50%) of such corporation’s gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities, and
(D) such stock in such corporation is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse’s right to dispose of such stock and which run in favor of the individual or his/her children who have not attained the age of 21.
(6) Stock owned by children, grandchildren, parents, and grandparents.—
(A) Minor children.— An individual shall be considered as owning stock owned, directly or indirectly, by or for his/her children who have not attained the age of twenty-one (21), and, if the individual has not attained the age of twenty-one (21), the stock owned, directly or indirectly, by or for his/her parents.
(B) Adult children and grandchildren.— An individual who owns (within the meaning of subsection (d)(2), but without regard to this clause) more than fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or more than fifty percent (50%) of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his/her parents, grandparents, grandchildren, and children who have attained the age of twenty-one (21) years.
(C) Adopted children.— For purposes of this section, a legally adopted child of an individual shall be treated as a child of such individual by blood.
(f) Other definitions and rules.—
(1) Definition of employee.— For purposes of this section the term “employee” has the same meaning such term is given in § 30271 of this title.
(2) Operating rules.—
(A) In general.— Except as provided in paragraph (B) of this clause, stock constructively owned by a person by reason of the application of clauses (1), (2), (3), (4), (5), or (6) of subsection (e) shall, for purposes of applying such clauses, be treated as actually owned by such person.
(B) Members of family.— Stock constructively owned by an individual by reason of the application of clause (5) or (6) of subsection (e) shall not be treated as owned by him/her for purposes of again applying such clauses in order to make another the constructive owner of such stock.
(3) Special rules.— For purposes of this section:
(A) If stock may be considered as owned by a person under subsection (e)(1) and under any other clause of subsection (e), it shall be considered as owned by him/her under subsection (e)(1).
(B) If stock is owned (within the meaning of subsection (d)) by two or more persons, such stock shall be considered as owned by the person whose ownership of such stock results in the corporation being a component member of a controlled group. If by reason of the preceding sentence, a corporation would (but for this sentence) become a component member of two controlled groups, it shall be treated as a component member of one controlled group. The determination as to the group of which such corporation is a component member shall be made under regulations prescribed by the Secretary which are consistent with the purposes of this section.
(C) If stock is owned by a person within the meaning of subsection (d) and such ownership results in the corporation being a component member of a controlled group, such stock shall not be treated as excluded stock under subsection (c)(2), if by reason of treating such stock as excluded stock the result is that such corporation is not a component member of a controlled group of corporations.
History —Jan. 31, 2011, No. 1, § 1010.04, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 5.