10% Rule

Also known as the 10% Rule.

The portion of dividend income and other items of undistributed foreign base company income exempt from current taxation under the United States Internal Revenue Code if for the taxable year such income items amount to less than 10% of the total gross income of the controlled foreign corporation. This means that the controlled foreign corporation is treated as having no foreign base company income.

This rule is also known as the 10-70 Rule because, if foreign-base company income is more than 70%, then all the company's income is treated as foreign base company income.