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H.R.2488
Taxpayer Refund and Relief Act of 1999 (Enrolled Bill (Sent to
President))
TITLE IX--INTERNATIONAL TAX RELIEF
SEC. 901. INTEREST AL LOCATION RU LES.
(a) ELECTION TO ALLOCATE INTEREST
ON A WORLDWIDE BASIS- Subsection (e) of section 864 (relating to rules
for allocating interest, e tc.)
is amended by redesignating paragraphs (6) and (7) as paragraphs (7) and (8),
respectively, and by inserting after paragraph (5) the following new
paragraph:
`(6) ELECTION TO ALLOCATE INTEREST ON A WORLDWIDE BASIS-
`(A) IN GENERAL- Except as provided in this paragraph, this subsection
shall be applied by treating a worldwide affiliated group for which an
election under this paragraph is in effect as an affiliated group solely
for purposes of allocating and apportioning interest ex pense of each domestic corporation
which is a member of such group.
`(B) WORLDWIDE AFFILIATED GROUP- For purposes of this paragraph, the
term `worldwide affiliated group' means the group of corporations which
consists of--
`(i) all corporations in an affiliated group (as defined in section
1504 without regard to paragraphs (2) and (4) of section 1504(b)),
and
`(ii) all foreign corporations (other than a FSC, as defined in
section 922(a)) with respect to which corporations described in clause
(i) own stock meeting the ownership requirements of section
957(a).
For purposes of clause (ii), ownership shall be determined under
section 958; except that paragraphs (3) and (4) of section 318(a) shall
not apply for purposes of section 958(b).
`(C) TREATMENT OF WORLDWIDE AFFILIATED GROUP- For purposes of applying
paragraph (1), the taxable income of the domestic members of a worldwide
affiliated group from sources outside the United States shall be
determined by allocating and apportioning the interest ex pense of such domestic members to
such income in an amount equal to the excess (if any) of--
`(i) the total interest
ex pense of the
worldwide affiliated group multiplied by the ratio which the foreign
assets of the worldwide affiliated group bears to all the assets of the
worldwide affiliated group, over
`(ii) the interest ex
pense of all foreign
corporations which are members of the worldwide affiliated group to the
extent such interest ex
pense of such foreign
corporations would have been allocated and apportioned to foreign source
income if this subsection were applied to a group consisting of all the
foreign corporations in such worldwide affiliated group.
`(D) ASSETS AND INTEREST
EX PENSE OF FOREIGN
CORPORATIONS-
`(i) IN GENERAL- For purposes of subparagraph (C), only the
applicable percentage of the interest ex pense an d assets of a foreign
corporation described in subparagraph (B)(ii) shall be taken into
account.
`(ii) APPLICABLE PERCENTAGE- For purposes of this paragraph, the
term `applicable percentage' means, with respect to any foreign
corporation, the percentage equal to the ratio which the value of the
stock in such corporation taken into account under subparagraph (B)(ii)
(without regard to stock considered as owned under section 958(b)) bears
to the aggregate value of all stock in such corporation.
`(E) ELECTION- An election under this paragraph with respect to any
worldwide affiliated group may be made only by the common parent of the
affiliated group referred to in subparagraph (B)(i) and may be made only
for the first taxable year beginning after December 31, 2001, in which a
worldwide affiliated group exists which includes such affiliated group and
at least one corporation described in subparagraph (B)(ii). Such an
election, once made, shall apply to such common parent and all other
corporations which are members of such worldwide affiliated group for such
taxable year and all subsequent years unless revoked with the consent of
the Secretary.'.
(b) ELECTION TO ALLOCATE INTEREST
WI THIN FINANCIAL INSTITUTION GROUPS AND SUBSIDIARY GROUPS- Section 864
is amended by redesignating subsection (f) as subsection (g) and by inserting
after subsection (e) the following new subsection:
`(f) ELECTION TO APPLY SUBSECTION (e) ON BASIS OF FINANCIAL INSTITUTION
GROUP AND SUBSIDIARY GROUPS-
`(1) IN GENERAL- In the case of a worldwide affiliated group for which
an election under subsection (e)(6) is in effect, subsection (e) shall be
applied--
`(A) by treating an electing financial institution group as if it were
a separate worldwide affiliated group, and
`(B) by treating each electing subsidiary group as if it were a
separate worldwide affiliated group for purposes of allocating interest ex pense wi th respect to qualified
indebtedness of members of an electing subsidiary group.
Subsection (e) shall apply to any such electing group in the same manner
as subsection (e) applies to the pre-election worldwide affiliated group of
which such electing group is a part.
`(2) ELECTING FINANCIAL INSTITUTION GROUP- For purposes of this
subsection--
`(A) IN GENERAL- The term `electing financial institution group' means
any group of corporations if--
`(i) such group consists only of all of the financial corporations
in the pre-election worldwide affiliated group, and
`(ii) an election under this paragraph is in effect for such group
of corporations.
`(B) FINANCIAL CORPORATION-
`(i) IN GENERAL- The term `financial corporation' means any
corporation if at least 80 percent of its gross income is income
described in section 904(d)(2)(C)(ii) and the regulations thereunder
which is derived from transactions with unrelated persons.
`(ii) INCOME FROM RELATED FINANCIAL CORPORATIONS- Dividend income,
and income described in section 904(d)(2)(C)(ii) and the regulations
thereunder, which is derived directly or indirectly from a financial
corporation (as defined in clause (i) without regard to this clause)
which is not an unrelated person shall be treated as income described in
clause (i).
`(iii) BANK HOLDING COMPANIES- To the extent provided in regulations
prescribed by the Secretary, a bank holding company (within the meaning
of section 2(a) of the Bank Holding Company Act of 1956) shall be
treated as a corporation meeting the requirements of clause
(i).
`(iv) ANTIABUSE RULE- For purposes of this subparagraph, there shall
be disregarded any item of income or gain from a transaction or series
of transactions a principal purpose of which is the qualification of any
corporation as a financial corporation.
`(C) EFFECT OF CERTAIN TRANSACTIONS- Rules similar to the rules of
paragraph (3)(D) shall apply to transactions between any member of the
electing financial institution group and any member of the pre-election
worldwide affiliated group (other than a member of the electing financial
institution group).
`(D) ELECTION- An election under this paragraph with respect to any
financial institution group may be made only by the common parent of the
pre-election worldwide affiliated group and may be made only for the first
taxable year beginning after December 31, 2001, in which such affiliated
group includes one or more financial corporations described in
subparagraph (B). Such an election, once made, shall apply to such taxable
year and all subsequent years unless revoked with the consent of the
Secretary.
`(3) ELECTING SUBSIDIARY GROUPS-
`(A) IN GENERAL- The term `electing subsidiary group' means any group
of corporations if--
`(i) such group consists only of corporations in the pre-election
worldwide affiliated group,
`(ii) such group includes--
`(I) a domestic corporation (which is not the common parent of the
pre-election worldwide affiliated group or a member of an electing
financial institution group) which incurs interest ex pense wi th respect to
qualified indebtedness, and
`(II) every other corporation (other than a member of an electing
financial institution group) which is in the pre-election worldwide
affiliated group and which would be a member of an affiliated group
having such domestic corporation as the common parent,
and
`(iii) an election under this paragraph is in effect for such
group.
`(B) EQUALIZATION RULE- All interest ex pense of a domestic corporation
which is a member of a pre-election worldwide affiliated group (other than
subsidiary group interest ex
pense) s hall be treated as
allocated to foreign source income to the extent such expense do es not exceed the excess
(if any) of--
`(i) the interest ex
pense of the pre-election
worldwide affiliated group (including subsidiary group interest ex pense) w hich would (but for any
election under this paragraph) be allocated to foreign source income,
over
`(ii) the subsidiary group interest ex pense al located to foreign
source income.
For purposes of the preceding sentence, the subsidiary group interest ex pense is the interest ex pense to which subsection (e)
applies separately by reason of paragraph (1)(B).
`(C) QUALIFIED INDEBTEDNESS- For purposes of this subsection, the term
`qualified indebtedness' means any indebtedness of a domestic
corporation--
`(i) which is held by an unrelated person, and
`(ii) which is not guaranteed (or otherwise supported) by any
corporation which is a member of the pre-election worldwide affiliated
group other than a corporation which is a member of the electing
subsidiary group.
`(D) EFFECT OF CERTAIN TRANSACTIONS ON QUALIFIED INDEBTEDNESS- In the
case of a corporation which is a member of an electing subsidiary group,
to the extent that such corporation--
`(i) distributes dividends or makes other distributions with respect
to its stock after the date of the enactment of this paragraph to any
member of the pre-election worldwide affiliated group (other than to a
member of the electing subsidiary group) in excess of the greater
of--
`(I) its average annual dividend (expressed as a percentage of
current earnings and profits) during the 5-taxable-year period ending
with the taxable year preceding the taxable year, or
`(II) 25 percent of its average annual earnings and profits for
such 5 taxable year period, or
`(ii) deals with any person in any manner not clearly reflecting the
income of the corporation (as determined under principles similar to the
principles of section 482),
except as provided by the Secretary, an amount of qualified
indebtedness equal to the excess distribution or the understatement or
overstatement of income, as the case may be, shall be recharacterized (for
the taxable year and subsequent taxable years) for purposes of this
subsection as indebtedness which is not qualified indebtedness. If a
corporation has not been in existence for 5 taxable years, this
subparagraph shall be applied with respect to the period it was in
existence.
`(E) ELECTION- An election under this paragraph with respect to any
electing subsidiary group may be made only by the common parent of the
pre-election worldwide affiliated group. Such an election, once made,
shall apply to the taxable year for which made and the 4 succeeding
taxable years unless revoked with the consent of the Secretary. No
election may be made under this paragraph if the effect of the election
would be to have the same member of the pre-election worldwide affiliated
group included in more than one electing subsidiary group.
`(4) PRE-ELECTION WORLDWIDE AFFILIATED GROUP- For purposes of this
subsection, the term `pre-election worldwide affiliated group' means, with
respect to a corporation, the worldwide affiliated group of which such
corporation would (but for an election under this subsection) be a member
for purposes of applying subsection (e).
`(5) UNRELATED PERSON- For purposes of this subsection, the term
`unrelated person' means any person not bearing a relationship specified in
section 267(b) or 707(b)(1) to the corporation.
`(6) REGULATIONS- The Secretary shall prescribe such regulations as may
be appropriate to carry out this subsection and subsection (e), including
regulations--
`(A) providing for the direct allocation of interest ex pense in other circumstances where
such allocation wo uld be
appropriate to carry out the purposes of this subsection,
`(B) preventing assets or interest ex pense fr om being taken into
account more than once, and
`(C) dealing with changes in members of any group (through
acquisitions or otherwise) treated under this subsection as an affiliated
group for purposes of subsection (e).'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
taxable years beginning after December 31, 2001.
SEC. 902. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED SECTION
902 CORPORATIONS.
(a) IN GENERAL- Section 904(d)(4) (relating to application of look-thru
rules to dividends from noncontrolled section 902 corporations) is amended to
read as follows:
`(4) LOOK-THRU APPLIES TO DIVIDENDS FROM NONCONTROLLED SECTION 902
CORPORATIONS-
`(A) IN GENERAL- For purposes of this subsection, any dividend from a
noncontrolled section 902 corporation with respect to the taxpayer shall
be treated as income in a separate category in proportion to the ratio
of--
`(i) the portion of earnings and profits attributable to income in
such category, to
`(ii) the total amount of earnings and profits.
`(B) SPECIAL RULES- For purposes of this paragraph--
`(i) IN GENERAL- Rules similar to the rules of paragraph (3)(F)
shall apply; except that the term `separate category' shall include the
category of income described in paragraph (1)(I).
`(ii) EARNINGS AND PROFITS-
`(I) IN GENERAL- The rules of section 316 shall
apply.
`(II) REGULATIONS- The Secretary may prescribe regulations
regarding the treatment of distributions out of earnings and profits
for periods before the taxpayer's acquisition of the stock to which
the distributions relate.
`(iii) DIVIDENDS NOT ALLOCABLE TO SEPARATE CATEGORY- The portion of
any dividend from a noncontrolled section 902 corporation which is not
treated as income in a separate category under subparagraph (A) shall be
treated as a dividend to which subparagraph (A) does not
apply.
`(iv) LOOK-THRU WITH RESPECT TO CARRYFORWARDS OF CREDIT- Rules
similar to subparagraph (A) also shall apply to any carryforward under
subsection (c) from a taxable year beginning before January 1, 2002, of
tax allocable to a dividend from a noncontrolled section 902 corporation
with respect to the taxpayer.'.
(b) CONFORMING AMENDMENTS-
(1) Subparagraph (E) of section 904(d)(1), as in effect both before and
after the amendments made by section 1105 of the Taxpayer Relief Act of
1997, is hereby repealed.
(2) Section 904(d)(2)(C)(iii), as so in effect, is amended by striking
subclause (II) and by redesignating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D), as so in effect, is
amended to read as follows: `Such term does not include any financial
services income.'.
(4) Section 904(d)(2)(E) is amended by striking clauses (ii) and (iv)
and by redesignating clause (iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by striking `(D), or (E)' and
inserting `or (D)'.
(6) Section 864(d)(5)(A)(i) is amended by striking `(C)(iii)(III)' and
inserting `(C)(iii)(II)'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
taxable years beginning after December 31, 2001.
SEC. 903. CLARIFICATION OF TREATMENT OF PIPELINE TRANSPORTATION INCOME.
(a) IN GENERAL- Section 954(g)(1) (defining foreign base company oil
related income) is amended by striking `or' at the end of subparagraph (A), by
striking the period at the end of subparagraph (B) and inserting `, or', and
by inserting after subparagraph (B) the following new subparagraph:
`(C) the pipeline transportation of oil or gas within such foreign
country.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
taxable years of controlled foreign corporations beginning after December 31,
2001, and taxable years of United States shareholders with or within which
such taxable years of controlled foreign corporations end.
SEC. 904. SUBPART F TREATMENT OF INCOME FROM TRANSMISSION OF HIGH VOLTAGE
ELECTRICITY.
(a) IN GENERAL- Paragraph (2) of section 954(e) (relating to foreign base
company services income) is amended by striking `or' at the end of
subparagraph (A), by striking the period at the end of subparagraph (B) and
inserting `, or', and by inserting after subparagraph (B) the following new
subparagraph:
`(C) the transmission of high voltage electricity.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
taxable years of controlled foreign corporations beginning after December 31,
2001, and taxable years of United States shareholders with or within which
such taxable years of controlled foreign corporations end.
SEC. 905. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) GENERAL RULE- Section 904 is amended by redesignating subsections (g),
(h), (i), (j), and (k) as subsections (h), (i), (j), (k), and (l),
respectively, and by inserting after subsection (f) the following new
subsection:
`(g) RECHARACTERIZATION OF OVERALL DOMESTIC LOSS-
`(1) GENERAL RULE- For purposes of this subpart and section 936, in the
case of any taxpayer who sustains an overall domestic loss for any taxable
year beginning after December 31, 2005, that portion of the taxpayer's
taxable income from sources within the United States for each succeeding
taxable year which is equal to the lesser of--
`(A) the amount of such loss (to the extent not used under this
paragraph in prior taxable years), or
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