[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1164 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1164

 To amend the Internal Revenue Code of 1986 to simplify certain rules 
 relating to the taxation of United States business operating abroad, 
                        and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 27, 1999

   Mr. Hatch (for himself, Mr. Baucus, and Mr. Mack) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to simplify certain rules 
 relating to the taxation of United States business operating abroad, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``International Tax 
Simplification for American Competitiveness Act of 1999''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
         TITLE I--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS

Sec. 101. Permanent subpart F exemption for active financing income.
Sec. 102. Study of proper treatment of European Union under same 
                            country exceptions.
Sec. 103. Expansion of de minimis rule under subpart F.
Sec. 104. Subpart F earnings and profits determined under generally 
                            accepted accounting principles.
Sec. 105. Clarification of treatment of pipeline transportation income.
Sec. 106. Subpart F treatment of income from transmission of high 
                            voltage electricity.
Sec. 107. Look-through treatment for sales of partnership interests.
Sec. 108. Effective date.
          TITLE II--PROVISIONS RELATING TO FOREIGN TAX CREDIT

Sec. 201. Extension of period to which excess foreign taxes may be 
                            carried.
Sec. 202. Recharacterization of overall domestic loss.
Sec. 203. Special rules relating to financial services income.
Sec. 204. Look-thru rules to apply to dividends from noncontrolled 
                            section 902 corporations.
Sec. 205. Application of look-thru rules to foreign tax credit.
Sec. 206. Ordering rules for foreign tax credit carryovers.
Sec. 207. Repeal of limitation of foreign tax credit under alternative 
                            minimum tax.
Sec. 208. Repeal of special rules for applying foreign tax credit in 
                            case of foreign oil and gas income.
                      TITLE III--OTHER PROVISIONS

Sec. 301. Deduction for dividends received from certain foreign 
                            corporations.
Sec. 302. Application of uniform capitalization rules to foreign 
                            persons.
Sec. 303. Treatment of military property of foreign sales corporations.
Sec. 304. United States property not to include certain assets acquired 
                            by dealers in ordinary course of trade or 
                            business.
Sec. 305. Treatment of certain dividends of regulated investment 
                            companies.
Sec. 306. Regulatory authority to exclude certain preliminary 
                            agreements from definition of intangible 
                            property.
Sec. 307. Airline mileage awards to certain foreign persons.
Sec. 308. Repeal of reduction of subpart F income of export trade 
                            corporations.
Sec. 309. Study of interest allocation.
Sec. 310. Interest payments deductible where disqualified guarantee has 
                            economic effect.
Sec. 311. Modifications of reporting requirements for certain foreign 
                            owned corporations.

         TITLE I--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS

SEC. 101. PERMANENT SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME.

    (a) Banking, Financing, or Similar Businesses.--Section 954(h) 
(relating to special rule for income derived in the active conduct of 
banking, financing, or similar businesses) is amended by striking 
paragraph (9).
    (b) Insurance Businesses.--Section 953(e) (defining exempt 
insurance income) is amended by striking paragraph (10) and by 
redesignating paragraph (11) as paragraph (10).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of a foreign corporation beginning after 
December 31, 1999, and to taxable years of United States shareholders 
with or within which such taxable years of such foreign corporation 
end.

SEC. 102. STUDY OF PROPER TREATMENT OF EUROPEAN UNION UNDER SAME 
              COUNTRY EXCEPTIONS.

    (a) Study.--The Secretary of the Treasury or the Secretary's 
delegate shall conduct a study on the feasibility of treating all 
countries included in the European Union as 1 country for purposes of 
applying the same country exceptions under subpart F of part III of 
subchapter N of chapter 1 of the Internal Revenue Code of 1986. Such 
study shall include consideration of methods of ensuring that taxpayers 
are subject to a substantial effective rate of foreign tax in such 
countries if such treatment is adopted.
    (b) Report.--Not later than 6 months after the date of the 
enactment of this Act, the Secretary of the Treasury shall report to 
the Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate the results of the study conducted 
under subsection (a), including recommendations (if any) for 
legislation.

SEC. 103. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.

    (a) In General.--Subparagraph (A) of section 954(b)(3) (relating to 
de minimis, etc., rules) is amended--
            (1) by striking ``5 percent'' in clause (i) and inserting 
        ``10 percent'', and
            (2) by striking ``$1,000,000'' in clause (ii) and inserting 
        ``$2,000,000''.
    (b) Technical Amendments.--
            (1) Clause (ii) of section 864(d)(5)(A) is amended by 
        striking ``5 percent or $1,000,000'' and inserting ``10 percent 
        or $2,000,000''.
            (2) Clause (i) of section 881(c)(5)(A) is amended by 
        striking ``5 percent or $1,000,000'' and inserting ``10 percent 
        or $2,000,000''.

SEC. 104. SUBPART F EARNINGS AND PROFITS DETERMINED UNDER GENERALLY 
              ACCEPTED ACCOUNTING PRINCIPLES.

    (a) In General.--Section 964(a) (relating to earnings and profits) 
is amended by striking ``rules substantially similar to those 
applicable to domestic corporations, under regulations prescribed by 
the Secretary'' and inserting ``generally accepted accounting 
principles in the United States''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to distributions during, and the determination of the inclusion 
under section 951 of the Internal Revenue Code of 1986 with respect to, 
taxable years of foreign corporations beginning after December 31, 
1999.

SEC. 105. CLARIFICATION OF TREATMENT OF PIPELINE TRANSPORTATION INCOME.

    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.''

SEC. 106. SUBPART F TREATMENT OF INCOME FROM TRANSMISSION OF HIGH 
              VOLTAGE ELECTRICITY.

    Section 954(e) (relating to foreign base company services income) 
is amended by adding at the end the following new paragraph:
            ``(3) Exception for income from transmission of high 
        voltage electricity.--The term `foreign base company services 
        income' does not include income derived in connection with the 
        performance of services which are related to the transmission 
        of high voltage electricity.''

SEC. 107. LOOK-THROUGH TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.

    (a) In General.--Section 954(c) (defining foreign personal holding 
company income) is amended by adding at the end the following new 
paragraph:
            ``(4) Look-through rule for certain partnership sales.--
                    ``(A) In general.--In the case of any sale by a 
                controlled foreign corporation of an interest in a 
                partnership with respect to which such corporation is a 
                10-percent owner, such corporation shall be treated for 
                purposes of this subsection as selling the 
                proportionate share of the assets of the partnership 
                attributable to such interest.
                    ``(B) 10-percent owner.--For purposes of this 
                paragraph, the term `10-percent owner' means a 
                controlled foreign corporation which owns 10 percent or 
                more of the capital or profits interest in the 
                partnership. The constructive ownership rules of 
                section 958(b) shall apply for purposes of the 
                preceding sentence.''
    (b) Conforming Amendment.--Section 954(c)(1)(B)(ii) is amended by 
inserting ``except as provided in paragraph (4),'' before ``which''.

SEC. 108. EFFECTIVE DATE.

    Except as otherwise provided in this title, the amendments made by 
this title shall apply to taxable years of controlled foreign 
corporations beginning after December 31, 1999, and taxable years of 
United States shareholders with or within which such taxable years of 
controlled foreign corporations end.

          TITLE II--PROVISIONS RELATING TO FOREIGN TAX CREDIT

SEC. 201. EXTENSION OF PERIOD TO WHICH EXCESS FOREIGN TAXES MAY BE 
              CARRIED.

    (a) General Rule.--Section 904(c) (relating to carryback and 
carryover of excess tax paid) is amended by striking ``in the first, 
second, third, fourth, or fifth'' and inserting ``in any of the first 
10''.
    (b) Excess Extraction Taxes.--Paragraph (1) of section 907(f) is 
amended by striking ``in the first, second, third, fourth, or fifth'' 
and inserting ``in any of the first 10''.
    (c) Effective Date.--The amendments made by this section shall 
apply to excess foreign taxes arising in taxable years beginning after 
December 31, 1999.

SEC. 202. 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, in the 
        case of any taxpayer who sustains an overall domestic loss for 
        any taxable year beginning after December 31, 1999, 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
                    ``(B) 50 percent of the taxpayer's taxable income 
                from sources within the United States for such 
                succeeding taxable year,
        shall be treated as income from sources without the United 
        States (and not as income from sources within the United 
        States).
            ``(2) Overall domestic loss defined.--For purposes of this 
        subsection and section 936--
                    ``(A) In general.--The term `overall domestic loss' 
                means any domestic loss to the extent such loss offsets 
                taxable income from sources without the United States 
                for the taxable year or for any preceding taxable year 
                by reason of a carryback. For purposes of the preceding 
                sentence, the term `domestic loss' means the amount by 
                which the gross income for the taxable year from 
                sources within the United States is exceeded by the sum 
of the deductions properly apportioned or allocated thereto (determined 
without regard to any carryback from a subsequent taxable year).
                    ``(B) Taxpayer must have elected foreign tax credit 
                for year of loss.--The term `overall domestic loss' 
                shall not include any loss for any taxable year unless 
                the taxpayer chose the benefits of this subpart for 
                such taxable year.
            ``(3) Characterization of subsequent income.--
                    ``(A) In general.--Any income from sources within 
                the United States that is treated as income from 
                sources without the United States under paragraph (1) 
                shall be allocated among and increase the income 
                categories in proportion to the loss from sources 
                within the United States previously allocated to those 
                income categories.
                    ``(B) Income category.--For purposes of this 
                paragraph, the term `income category' has the meaning 
                given such term by subsection (f)(5)(E)(i).
            ``(4) Coordination with subsection (f).--The Secretary 
        shall prescribe such regulations as may be necessary to 
        coordinate the provisions of this subsection with the 
        provisions of subsection (f).''
    (b) Conforming Amendments.--
            (1) Section 535(d)(2) is amended by striking ``section 
        904(g)(6)'' and inserting ``section 904(h)(6)''.
            (2) Subparagraph (A) of section 936(a)(2) is amended by 
        striking ``section 904(f)'' and inserting ``subsections (f) and 
        (g) of section 904''.
    (c) Effective Date.--The amendments made by this section shall 
apply to losses for taxable years beginning after December 31, 1999.

SEC. 203. SPECIAL RULES RELATING TO FINANCIAL SERVICES INCOME.

    (a) Exception for Interest on Certain Securities.--Section 
904(d)(2)(B) (relating to high withholding tax interest) is amended by 
redesignating clause (iii) as clause (iv) and by inserting after clause 
(ii) the following new clause:
                            ``(iii) Exception for interest on dealer 
                        property.--The term `high withholding tax 
                        interest' shall not include any interest on a 
                        security (within the meaning of section 
                        475(c)(2)) which is received or accrued by a 
                        person that holds the security in connection 
                        with the holder's activities as a dealer in 
                        securities (within the meaning of section 
                        475(c)(1)).''
    (b) Financial Services Income in Excess of 80  Percent of Gross 
Income.--Section 904(d)(2)(C) (relating to financial services income) 
is amended by adding at the end the following new clause:
                            ``(iv) Income exceeding 80 percent of gross 
                        income.--If the financial services income (as 
                        defined in clause (i)) of any person exceeds 80 
                        percent of gross income, the entire gross 
                        income for the taxable year shall be treated as 
                        financial services income.''
    (c) Exception for Income on Dealer Property.--Subsection 904(g) 
(relating to source rules in case of United States-owned foreign 
corporations) is amended by redesignating paragraph (11) as paragraph 
(12) and by adding after paragraph (10) the following new paragraph:
            ``(11) Exception for income on dealer property.--Paragraph 
        (1) shall not apply to any amount derived from a United States-
        owned foreign corporation that is derived from income on a 
        security (within the meaning of section 475(c)(2)) which is 
        received or accrued by a person that holds the security in 
        connection with the holder's activities as a dealer in 
        securities (within the meaning of section 475(c)(1)).''
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1999.
            (2) Deemed paid credits.--In the case of any credit under 
        section 901 of the Internal Revenue Code of 1986 by reason of 
        section 902 or 960 of such Code, the amendments made by this 
        section shall apply to taxable years of foreign corporations 
        beginning after December 31, 1999, and to taxable years of 
        United States shareholders in such corporations with or within 
        which such taxable years of foreign corporations end.

SEC. 204. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
              SECTION 902 CORPORATIONS.

    (a) In General.--Section 904(d)(4) (relating to look-thru rules 
apply to dividends from noncontrolled section 902 corporations) is 
amended to read as follows:
            ``(4) Look-thru applies to dividends from controlled 
        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.
                            ``(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.''
    (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, 1999.

SEC. 205. APPLICATION OF LOOK-THRU RULES TO FOREIGN TAX CREDIT.

    (a) Interest, Rents, and Royalties.--
            (1) Noncontrolled section 902 corporation.--Section 
        904(d)(4)(A), as amended by section 204, is amended to read as 
        follows:
                    ``(A) In general.--For purposes of this 
                subsection--
                            ``(i) any applicable dividend shall be 
                        treated as income in a separate category in 
                        proportion to the ratio of--
                                    ``(I) the portion of the earnings 
                                and profits attributable to income in 
                                such category, to
                                    ``(II) the total amount of earnings 
                                and profits, and
                            ``(ii) any interest, rent, or royalty which 
                        is received or accrued from a noncontrolled 
                        section 902 corporation with respect to the 
                        taxpayer shall be treated as income in a 
                        separate category to the extent it is properly 
                        allocable (under regulations prescribed by the 
                        Secretary) to income of such corporation in 
                        such category.''
            (2) Partnerships.--Section 904(d)(6)(C) (relating to 
        regulations) is amended--
                    (A) by inserting ``or (4)(A)(ii)'' after 
                ``paragraph (3)(C)'', and
                    (B) by inserting ``or noncontrolled section 902 
                corporations, whichever is applicable'' after 
                ``controlled foreign corporations''.
            (3) Conforming amendment.--The heading for section 
        904(d)(4), as amended by section 204, is amended by inserting 
        ``, interest, rents, or royalties'' after ``dividends''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 206. ORDERING RULES FOR FOREIGN TAX CREDIT CARRYOVERS.

    (a) In General.--Section 904(c) (relating to carryback and 
carryover of excess tax paid), as amended by section 201, is amended to 
read as follows:
    ``(c) Carryback and Carryover of Excess Tax Paid.--
            ``(1) In general.--If the sum of--
                    ``(A) the foreign tax credit carryovers under this 
                subsection to a taxable year, plus
                    ``(B) the amount of all taxes paid to foreign 
                countries or possessions of the United States for the 
                taxable year and for which the taxpayer elects to have 
                the benefits of this subpart apply,
        exceeds the limitation under subsection (a), such excess (to 
        the extent attributable to the taxes described in subparagraph 
        (B)) shall be a foreign tax credit carryback to each of the 2 
        preceding taxable years and a foreign tax credit carryforward 
        to each of the 10 following taxable years.
            ``(2) Ordering rules.--For purposes of any provision of the 
        title where it is necessary to ascertain the extent to which 
        the credits to which this subpart applies are used in a taxable 
        year or as a carryback or carryforward, such taxes shall be 
        treated as used--
                    ``(A) first from carryovers to such taxable year,
                    ``(B) then from credits arising in such taxable 
                year, and
                    ``(C) finally from carrybacks to such taxable year.
            ``(3) Limitations on carryovers.--
                    ``(A) Credit only.--A credit may be carried to a 
                taxable year under this subsection only if the taxpayer 
                chooses for such taxable year to have the benefits of 
                this subpart apply to taxes paid or accrued to foreign 
                countries or any possessions of the United States. Any 
                amount so carried may be availed of only as a credit 
                and not a deduction.
                    ``(B) Limitation to apply.--The amount of the 
                credit carryforward or carryback to a taxable year (the 
                `carryover year') from a taxable year under this 
                subsection shall not exceed the excess (if any) of--
                            ``(i) the limitation under subsection (a) 
                        for the carryover year, over
                            ``(ii) the sum of--
                                    ``(I) the credits arising in the 
                                carryover year, plus
                                    ``(II) carryforwards and carrybacks 
                                to the carryover year from taxable 
                                years earlier than the taxable year 
                                from which the credit is being carried 
                                (whether or not the taxpayer chooses to 
                                have the benefits of this subpart apply 
                                with respect to such earlier taxable 
                                year).''
    (b) Effective Date.--The amendment made by this section applies to 
taxable years beginning after December 31, 1999.

SEC. 207. REPEAL OF LIMITATION OF FOREIGN TAX CREDIT UNDER ALTERNATIVE 
              MINIMUM TAX.

    (a) In General.--Section 59(a) (relating to alternative minimum tax 
foreign tax credit) is amended by striking paragraph (2) and by 
redesignating paragraphs (3) and (4) as paragraphs (2) and (3), 
respectively.
    (b) Conforming Amendment.--Section 53(d)(1)(B)(i)(II) is amended by 
striking ``and if section 59(a)(2) did not apply''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 208. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX CREDIT IN 
              CASE OF FOREIGN OIL AND GAS INCOME.

    (a) In General.--Section 907 (relating to special rules in case of 
foreign oil and gas income) is repealed.
    (b) Conforming Amendments.--
            (1) Each of the following provisions are amended by 
        striking ``907,'':
                    (A) Section 245(a)(10).
                    (B) Section 865(h)(1)(B).
                    (C) Section 904(d)(1).
                    (D) Section 904(g)(10)(A).
            (2) Section 904(f)(5)(E)(iii) is amended by inserting ``, 
        as in effect before its repeal by the International Tax 
        Simplification for American Competitiveness Act of 1999'' after 
        ``section 907(c)(4)(B)''.
            (3) Section 954(g)(1) is amended by inserting ``, as in 
        effect before its repeal by the International Tax 
        Simplification for American Competitiveness Act of 1999'' after 
        ``907(c)''.
            (4) Section 6501(i) is amended--
                    (A) by striking ``, or under section 907(f) 
                (relating to carryback and carryover of disallowed oil 
                and gas extraction taxes)'', and
                    (B) by striking ``or 907(f)''.
            (5) The table of sections for subpart A of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 907.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

                      TITLE III--OTHER PROVISIONS

SEC. 301. DEDUCTION FOR DIVIDENDS RECEIVED FROM CERTAIN FOREIGN 
              CORPORATIONS.

    (a) Constructive Ownership Rules To Apply in Determining 80-Percent 
Ownership.--Section 245 (a)(5) (relating to post-1986 undistributed 
U.S. earnings) is amended by adding at the end the following flush 
sentence:
        ``Section 318(a) shall apply for purposes of subparagraph 
        (B).''
    (b) Dividends To Include Subpart F Distributions.--Section 245(a) 
(relating to dividends from 10-percent owned foreign corporations) is 
amended by adding at the end the following new paragraph:
            ``(12) Subpart f inclusions treated as dividends.--For 
        purposes of this subsection, the term `dividend' shall include 
        any amount the taxpayer is required to include in gross income 
        for the taxable year under section 951(a).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 302. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN 
              PERSONS.

    (a) In General.--Section 263A(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(7) Foreign persons.--This section shall apply to any 
        taxpayer who is not a United States person only for purposes of 
        applying sections 871(b)(1) and 882(a)(1).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1999. Section 481 
of the Internal Revenue Code of 1986 shall not apply to any change in a 
method of accounting by reason of such amendment.

SEC. 303. TREATMENT OF MILITARY PROPERTY OF FOREIGN SALES CORPORATIONS.

    (a) In General.--Section 923(a) (defining exempt foreign trade 
income) is amended by striking paragraph (5) and by redesignating 
paragraph (6) as paragraph (5).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1999.

SEC. 304. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS ACQUIRED 
              BY DEALERS IN ORDINARY COURSE OF TRADE OR BUSINESS.

    (a) In General.--Section 956(c)(2) (relating to exceptions from 
property treated as United States property) is amended by striking 
``and'' at the end of subparagraph (J), by striking the period at the 
end of subparagraph (K) and inserting ``; and'', and by adding at the 
end the following new subparagraph:
                    ``(L) securities acquired and held by a controlled 
                foreign corporation in the ordinary course of its 
                business as a dealer in securities if (i) the dealer 
                accounts for the securities as securities held 
                primarily for sale to customers in the ordinary course 
                of business, and (ii) the dealer disposes of the 
                securities (or such securities mature while held by the 
                dealer) within a period consistent with the holding of 
                securities for sale to customers in the ordinary course 
                of business.''
    (b) Conforming Amendment.--Section 956(c)(2) is amended by striking 
``and (K)'' in the last sentence and inserting ``, (K), and (L)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 1999, and to taxable years of United States shareholders or with or 
within which such taxable years of foreign corporations end.

SEC. 305. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT 
              COMPANIES.

    (a) Treatment of Certain Dividends.--
            (1) Nonresident alien individuals.--Section 871 (relating 
        to tax on nonresident alien individuals) is amended by 
        redesignating subsection (k) as subsection (l) and by inserting 
        after subsection (j) the following new subsection:
    ``(k) Exemption for Certain Dividends of Regulated Investment 
Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any interest-
                related dividend received from a regulated investment 
                company.
                    ``(B) Exceptions.--Subparagraph (A) shall not 
                apply--
                            ``(i) to any interest-related dividend 
                        received from a regulated investment company by 
                        a person to the extent such dividend is 
                        attributable to interest (other than interest 
                        described in subparagraph (E) (i) or (iii)) 
                        received by such company on indebtedness issued 
                        by such person or by any corporation or 
                        partnership with respect to which such person 
                        is a 10-percent shareholder,
                            ``(ii) to any interest-related dividend 
                        with respect to stock of a regulated investment 
                        company unless the person who would otherwise 
                        be required to deduct and withhold tax from 
                        such dividend under chapter 3 receives a 
                        statement (which meets requirements similar to 
                        the requirements of subsection (h)(5)) that the 
                        beneficial owner of such stock is not a United 
                        States person, and
                            ``(iii) to any interest-related dividend 
                        paid to any person within a foreign country (or 
                        any interest-related dividend payment addressed 
                        to, or for the account of, persons within such 
                        foreign country) during any period described in 
                        subsection (h)(6) with respect to such country.
                Clause (iii) shall not apply to any dividend with 
                respect to any stock which was acquired on or before 
                the date of the publication of the Secretary's 
                determination under subsection (h)(6).
                    ``(C) Interest-related dividend.--For purposes of 
                this paragraph, an interest-related dividend is any 
                dividend (or part thereof) which is designated by the 
                regulated investment company as an interest-related 
                dividend in a written notice mailed to its shareholders 
                not later than 60 days after the close of its taxable 
                year. If the aggregate amount so designated with 
                respect to a taxable year of the company (including 
                amounts so designated with respect to dividends paid 
                after the close of the taxable year described in 
                section 855) is greater than the qualified net interest 
                income of the company for such taxable year, the 
                portion of each distribution which shall be an 
                interest-related dividend shall be only that portion of 
                the amounts so designated which such qualified net 
                interest income bears to the aggregate amount so 
                designated.
                    ``(D) Qualified net interest income.--For purposes 
                of subparagraph (C), the term `qualified net interest 
                income' means the qualified interest income of the 
                regulated investment company reduced by the deductions 
                properly allocable to such income.
                    ``(E) Qualified interest income.--For purposes of 
                subparagraph (D), the term `qualified interest income' 
                means the sum of the following amounts derived by the 
                regulated investment company from sources within the 
                United States:
                            ``(i) Any amount includible in gross income 
                        as original issue discount (within the meaning 
                        of section 1273) on an obligation payable 183 
                        days or less from the date of original issue 
                        (without regard to the period held by the 
                        company).
                            ``(ii) Any interest includible in gross 
                        income (including amounts recognized as 
                        ordinary income in respect of original issue 
                        discount or market discount or acquisition 
                        discount under part V of subchapter P and such 
                        other amounts as regulations may provide) on an 
                        obligation which is in registered form; except 
                        that this clause shall not apply to--
                                    ``(I) any interest on an obligation 
                                issued by a corporation or partnership 
                                if the regulated investment company is 
                                a 10-percent shareholder in such 
                                corporation or partnership, and
                                    ``(II) any interest which is 
                                treated as not being portfolio interest 
                                under the rules of subsection (h)(4).
                            ``(iii) Any interest referred to in 
                        subsection (i)(2)(A) (without regard to the 
                        trade or business of the regulated investment 
                        company).
                            ``(iv) Any interest-related dividend 
                        includable in gross income with respect to 
                        stock of another regulated investment company.
                    ``(F) 10-percent shareholder.--For purposes of this 
                paragraph, the term `10-percent shareholder' has the 
                meaning given such term by subsection (h)(3)(B).
            ``(2) Short-term capital gain dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1)(A) of subsection (a) on any short-term 
                capital gain dividend received from a regulated 
                investment company.
                    ``(B) Exception for aliens taxable under subsection 
                (a)(2).--Subparagraph (A) shall not apply in the case 
                of any nonresident alien individual subject to tax 
                under subsection (a)(2).
                    ``(C) Short-term capital gain dividend.--For 
                purposes of this paragraph, a short-term capital gain 
                dividend is any dividend (or part thereof) which is 
                designated by the regulated investment company as a 
                short-term capital gain dividend in a written notice 
                mailed to its shareholders not later than 60 days after 
                the close of its taxable year. If the aggregate amount 
                so designated with respect to a taxable year of the 
                company (including amounts so designated with respect 
                to dividends paid after the close of the taxable year 
                described in section 855) is greater than the qualified 
                short-term gain of the company for such taxable year, 
                the portion of each distribution which shall be a 
                short-term capital gain dividend shall be only that 
                portion of the amounts so designated which such 
                qualified short-term gain bears to the aggregate amount 
                so designated.
                    ``(D) Qualified short-term gain.--For purposes of 
                subparagraph (C), the term `qualified short-term gain' 
                means the excess of the net short-term capital gain of 
                the regulated investment company for the taxable year 
                over the net long-term capital loss (if any) of such 
                company for such taxable year. For purposes of this 
                subparagraph--
                            ``(i) the net short-term capital gain of 
                        the regulated investment company shall be 
                        computed by treating any short-term capital 
                        gain dividend includible in gross income with 
                        respect to stock of another regulated 
                        investment company as a short-term capital 
                        gain, and
                            ``(ii) the excess of the net short-term 
                        capital gain for a taxable year over the net 
                        long-term capital loss for a taxable year (to 
                        which an election under section 4982(e)(4) does 
                        not apply) shall be determined without regard 
                        to any net capital loss or net short-term 
                        capital loss attributable to transactions after 
                        October 31 of such year, and any such net 
                        capital loss or net short-term capital loss 
                        shall be treated as arising on the 1st day of 
                        the next taxable year.
                To the extent provided in regulations, clause (ii) 
                shall apply also for purposes of computing the taxable 
                income of the regulated investment company.''
            (2) Foreign corporations.--Section 881 (relating to tax on 
        income of foreign corporations not connected with United States 
        business) is amended by redesignating subsection (e) as 
        subsection (f) and by inserting after subsection (d) the 
        following new subsection:
    ``(e) Tax Not To Apply to Certain Dividends of Regulated Investment 
Companies.--
            ``(1) Interest-related dividends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), no tax shall be imposed under 
                paragraph (1) of subsection (a) on any interest-related 
                dividend (as defined in section 871(k)(1)) received 
                from a regulated investment company.
                    ``(B) Exception.--Subparagraph (A) shall not 
                apply--
                            ``(i) to any dividend referred to in 
                        section 871(k)(1)(B), and
                            ``(ii) to any interest-related dividend 
                        received by a controlled foreign corporation 
                        (within the meaning of section 957(a)) to the 
                        extent such dividend is attributable to 
                        interest received by the regulated investment 
                        company from a person who is a related person 
                        (within the meaning of section 864(d)(4)) with 
                        respect to such controlled foreign corporation.
                    ``(C) Treatment of dividends received by controlled 
                foreign corporations.--The rules of subsection 
                (c)(5)(A) shall apply to any interest-related dividend 
                received by a controlled foreign corporation (within 
                the meaning of section 957(a)) to the extent such 
                dividend is attributable to interest received by the 
                regulated investment company which is described in 
                clause (ii) of section 871(k)(1)(E) (and not described 
                in clause (i) or (iii) of such section).
            ``(2) Short-term capital gain dividends.--No tax shall be 
        imposed under paragraph (1) of subsection (a) on any short-term 
        capital gain dividend (as defined in section 871(k)(2)) 
        received from a regulated investment company.''
            (3) Withholding taxes.--
                    (A) Section 1441(c) (relating to exceptions) is 
                amended by adding at the end the following new 
                paragraph:
            ``(12) Certain dividends received from regulated investment 
        companies.--
                    ``(A) In general.--No tax shall be required to be 
                deducted and withheld under subsection (a) from any 
                amount exempt from the tax imposed by section 
                871(a)(1)(A) by reason of section 871(k).
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), clause (i) of section 871(k)(1)(B) shall not apply 
                to any dividend unless the regulated investment company 
                knows that such dividend is a dividend referred to in 
such clause. A similar rule shall apply with respect to the exception 
contained in section 871(k)(2)(B).''
                    (B) Section 1442(a) (relating to withholding of tax 
                on foreign corporations) is amended--
                            (i) by striking ``and the reference in 
                        section 1441(c)(10)'' and inserting ``the 
                        reference in section 1441(c)(10)'', and
                            (ii) by inserting before the period at the 
                        end the following: ``, and the references in 
                        section 1441(c)(12) to sections 871(a) and 
                        871(k) shall be treated as referring to 
                        sections 881(a) and 881(e) (except that for 
                        purposes of applying subparagraph (A) of 
                        section 1441(c)(12), as so modified, clause 
                        (ii) of section 881(e)(1)(B) shall not apply to 
                        any dividend unless the regulated investment 
                        company knows that such dividend is a dividend 
                        referred to in such clause)''.
    (b) Estate Tax Treatment of Interest in Certain Regulated 
Investment Companies.--Section 2105 (relating to property without the 
United States for estate tax purposes) is amended by adding at the end 
the following new subsection:
    ``(d) Stock in a RIC.--
            ``(1) In general.--For purposes of this subchapter, stock 
        in a regulated investment company (as defined in section 851) 
        owned by a nonresident not a citizen of the United States shall 
        not be deemed property within the United States in the 
        proportion that, at the end of the quarter of such investment 
        company's taxable year immediately preceding a decedent's date 
        of death (or at such other time as the Secretary may designate 
        in regulations), the assets of the investment company that were 
        qualifying assets with respect to the decedent bore to the 
        total assets of the investment company.
            ``(2) Qualifying assets.--For purposes of this subsection, 
        qualifying assets with respect to a decedent are assets that, 
        if owned directly by the decedent, would have been--
                    ``(A) amounts, deposits, or debt obligations 
                described in subsection (b) of this section,
                    ``(B) debt obligations described in the last 
                sentence of section 2104(c), or
                    ``(C) other property not within the United 
                States.''
    (c) Treatment of Regulated Investment Companies Under Section 
897.--
            (1) Paragraph (1) of section 897(h) is amended by striking 
        ``REIT'' each place it appears and inserting ``qualified 
        investment entity''.
            (2) Paragraphs (2) and (3) of section 897(h) are amended to 
        read as follows:
            ``(2) Sale of stock in domestically controlled entity not 
        taxed.--The term `United States real property interest' does 
        not include any interest in a domestically controlled qualified 
        investment entity.
            ``(3) Distributions by domestically controlled qualified 
        investment entities.--In the case of a domestically controlled 
        qualified investment entity, rules similar to the rules of 
        subsection (d) shall apply to the foreign ownership percentage 
        of any gain.''
            (3) Subparagraphs (A) and (B) of section 897(h)(4) are 
        amended to read as follows:
                    ``(A) Qualified investment entity.--The term 
                `qualified investment entity' means any real estate 
                investment trust and any regulated investment company.
                    ``(B) Domestically controlled.--The term 
                `domestically controlled qualified investment entity' 
                means any qualified investment entity in which at all 
                times during the testing period less than 50 percent in 
                value of the stock was held directly or indirectly by 
                foreign persons.''
            (4) Subparagraphs (C) and (D) of section 897(h)(4) are each 
        amended by striking ``REIT'' and inserting ``qualified 
        investment entity''.
            (5) The subsection heading for subsection (h) of section 
        897 is amended by striking ``REITS'' and inserting ``Certain 
        Investment Entities''.
    (d) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        dividends with respect to taxable years of regulated investment 
        companies beginning after the date of the enactment of this 
        Act.
            (2) Estate tax treatment.--The amendment made by subsection 
        (b) shall apply to estates of decedents dying after the date of 
        the enactment of this Act.
            (3) Certain other provisions.--The amendments made by 
        subsection (c) (other than paragraph (1) thereof) shall take 
        effect on the date of the enactment of this Act.

SEC. 306. REGULATORY AUTHORITY TO EXCLUDE CERTAIN PRELIMINARY 
              AGREEMENTS FROM DEFINITION OF INTANGIBLE PROPERTY.

    (a) In General.--Section 936(h)(3)(B) (defining intangible 
property) is amended by adding at the end the following new sentence: 
``The Secretary shall by regulation provide that such term shall not 
include any preliminary agreement which is not legally enforceable.''
    (b) Effective Date.--The amendment made by this section shall apply 
to agreements entered into after the date of the enactment of this Act.

SEC. 307. AIRLINE MILEAGE AWARDS TO CERTAIN FOREIGN PERSONS.

    (a) In General.--The last sentence of section 4261(e)(3)(C) 
(relating to regulations) is amended by inserting ``and mileage awards 
which are issued to individuals whose mailing addresses on record with 
the person providing the right to air transportation are outside the 
United States'' before the period at the end thereof.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid, and benefits provided, after December 31, 1997.

SEC. 308. REPEAL OF REDUCTION OF SUBPART F INCOME OF EXPORT TRADE 
              CORPORATIONS.

    (a) In General.--Subpart G of part III of subchapter N of chapter 1 
(relating to export trade corporations) is repealed.
    (b) Treatment of Certain Actual Distributions.--
            (1) In general.--For purposes of applying sections 959 and 
        960(b) of the Internal Revenue Code of 1986, in the case of any 
        actual distribution of export trade income made after December 
        31, 1986, by an export trade corporation (or former export 
        trade corporation that was an export trade corporation on 
        December 31, 1986), notwithstanding any other provision of 
        chapter 1 of such Code, the earnings and profits attributable 
        to amounts which have been included in the gross income of a 
        United States shareholder under section 951(a) of such Code 
        shall be treated as including an amount equal to the amount of 
        export trade income that was included in gross income as a 
        dividend. If a distribution is excluded from gross income by 
        application of this subsection, the amount of such distribution 
        shall be treated as an amount described in section 951(a)(2)(B) 
        of such Code that reduces the amount described in section 
        951(a)(2)(A) of such Code for the taxable year.
            (2) Definitions.--For purposes of this subsection--
                    (A) Export trade corporation.--The term ``export 
                trade corporation'' has the meaning given such term by 
                section 971(a) of the Internal Revenue Code of 1986 (as 
                in effect before the amendment made by subsection (a)).
                    (B) Export trade income.--The term ``export trade 
                income'' has the meaning given such term by section 
                971(b) of the Internal Revenue Code of 1986 (as so in 
                effect).
    (c) Conforming Amendments.--
            (1) Section 865(e)(2)(A) is amended by striking the last 
        sentence.
            (2) Section 1297(b)(2)(D) is amended by striking ``or 
        export trade income of an export trade corporation (as defined 
        in section 971)''.
            (3) The table of parts for part III of subchapter N of 
        chapter 1 is amended by striking the item relating to subpart 
        G.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 309. STUDY OF INTEREST ALLOCATION.

    (a) Study.--The Secretary of the Treasury or the Secretary's 
delegate shall conduct a study of the rules under section 864(e) of the 
Internal Revenue Code of 1986 for allocating interest expense of 
members of an affiliated group. Such study shall include an analysis of 
the effect of such rules, including the effects such rules have on 
different industries.
    (b) Report.--Not later than 6 months after the date of the 
enactment of this Act, the Secretary of the Treasury shall report to 
the Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate the results of the study conducted 
under subsection (a), including recommendations (if any) for 
legislation.

SEC. 310. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED GUARANTEE HAS 
              ECONOMIC EFFECT.

    (a) In General.--Section 163(j)(6)(D)(ii) (relating to exceptions 
to disqualified guarantee) is amended by striking ``or'' at the end of 
subclause (I), by striking the period at the end of subclause (II) and 
inserting ``, or'', and by inserting after subclause (II) the following 
new subclause:
                                    ``(III) if, in the case of a 
                                guarantee by a foreign person, the 
                                taxpayer establishes to the 
                                satisfaction of the Secretary that the 
                                loan giving rise to the indebtedness 
                                would have been made by the unrelated 
                                person without regard to the guarantee 
                                and that the guarantee resulted in a 
                                reduction in the interest payable on 
                                the loan.''
    (b) Effective Date.--The amendments made by this section shall 
apply to guarantees issued on and after the date of the enactment of 
this Act.

SEC. 311. MODIFICATIONS OF REPORTING REQUIREMENTS FOR CERTAIN FOREIGN 
              OWNED CORPORATIONS.

    (a) De Minimis Exception.--Section 6038A(b) (relating to required 
information) is amended by adding at the end the following new flush 
sentence:
``The Secretary shall not require the reporting corporation to report 
any information with respect to any foreign person which is a related 
person if the aggregate value of the transactions between the 
corporation and the related person (and any person related to such 
person) during the taxable year does not exceed $5,000,000.''
    (b) Time for Providing Translations of Specific Documents.--
Notwithstanding Internal Revenue Service Regulation Sec. 1.6038A-
3(f)(2), a taxpayer shall have at least 60 days to provide translations 
of specific documents it is requested to translate. Nothing in this 
subsection shall limit the right of a taxpayer to file a written 
request for an extension of time to comply with the request.
    (c) Effective Dates.--
            (1) Exception.--The amendment made by subsection (a) shall 
        apply to taxable years beginning after December 31, 1999.
            (2) Translations.--Subsection (b) shall apply to requests 
        made by the Internal Revenue Service after December 31, 1999.
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