[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 196 Introduced in Senate (IS)]







109th CONGRESS
  1st Session
                                 S. 196

To amend the Internal Revenue Code of 1986 to provide for the taxation 
 of income of controlled foreign corporations attributable to imported 
                               property.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 26, 2005

  Mr. Dorgan (for himself, Ms. Mikulski, Mr. Feingold, Mr. Kohl, Mr. 
Harkin, Mr. Kennedy, Mr. Leahy, Mr. Levin, and Mr. Johnson) 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 provide for the taxation 
 of income of controlled foreign corporations attributable to imported 
                               property.

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

SECTION 1. TAXATION OF INCOME OF CONTROLLED FOREIGN CORPORATIONS 
              ATTRIBUTABLE TO IMPORTED PROPERTY.

    (a) General Rule.--Subsection (a) of section 954 of the Internal 
Revenue Code of 1986 (defining foreign base company income) is amended 
by striking ``and'' at the end of paragraph (4), by striking the period 
at the end of paragraph (5) and inserting ``, and'', and by adding at 
the end the following new paragraph:
            ``(6) imported property income for the taxable year 
        (determined under subsection (j) and reduced as provided in 
        subsection (b)(5)).''.
    (b) Definition of Imported Property Income.--Section 954 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new subsection:
    ``(j) Imported Property Income.--
            ``(1) In general.--For purposes of subsection (a)(6), the 
        term `imported property income' means income (whether in the 
        form of profits, commissions, fees, or otherwise) derived in 
        connection with--
                    ``(A) manufacturing, producing, growing, or 
                extracting imported property;
                    ``(B) the sale, exchange, or other disposition of 
                imported property; or
                    ``(C) the lease, rental, or licensing of imported 
                property.
        Such term shall not include any foreign oil and gas extraction 
        income (within the meaning of section 907(c)) or any foreign 
        oil related income (within the meaning of section 907(c)).
            ``(2) Imported property.--For purposes of this subsection--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `imported property' means 
                property which is imported into the United States by 
                the controlled foreign corporation or a related person.
                    ``(B) Imported property includes certain property 
                imported by unrelated persons.--The term `imported 
                property' includes any property imported into the 
                United States by an unrelated person if, when such 
                property was sold to the unrelated person by the 
                controlled foreign corporation (or a related person), 
                it was reasonable to expect that--
                            ``(i) such property would be imported into 
                        the United States; or
                            ``(ii) such property would be used as a 
                        component in other property which would be 
                        imported into the United States.
                    ``(C) Exception for property subsequently 
                exported.--The term `imported property' does not 
                include any property which is imported into the United 
                States and which--
                            ``(i) before substantial use in the United 
                        States, is sold, leased, or rented by the 
                        controlled foreign corporation or a related 
                        person for direct use, consumption, or 
                        disposition outside the United States; or
                            ``(ii) is used by the controlled foreign 
                        corporation or a related person as a component 
                        in other property which is so sold, leased, or 
                        rented.
            ``(3) Definitions and special rules.--
                    ``(A) Import.--For purposes of this subsection, the 
                term `import' means entering, or withdrawal from 
                warehouse, for consumption or use. Such term includes 
                any grant of the right to use intangible property (as 
                defined in section 936(h)(3)(B)) in the United States.
                    ``(B) United states.--For purposes of this 
                subsection, the term `United States' includes the 
                Commonwealth of Puerto Rico, the Virgin Islands of the 
                United States, Guam, American Samoa, and the 
                Commonwealth of the Northern Mariana Islands.
                    ``(C) Unrelated person.--For purposes of this 
                subsection, the term `unrelated person' means any 
                person who is not a related person with respect to the 
controlled foreign corporation.
                    ``(D) Coordination with foreign base company sales 
                income.--For purposes of this section, the term 
                `foreign base company sales income' shall not include 
                any imported property income.''.
    (c) Separate Application of Limitations on Foreign Tax Credit for 
Imported Property Income.--
            (1) Before 2007.--
                    (A) In general.--Paragraph (1) of section 904(d) of 
                the Internal Revenue Code of 1986 (relating to separate 
                application of section with respect to certain 
                categories of income), as in effect for taxable years 
                beginning before January 1, 2007, is amended by 
                striking ``and'' at the end of subparagraph (H), by 
                redesignating subparagraph (I) as subparagraph (J), and 
                by inserting after subparagraph (H) the following new 
                subparagraph:
                    ``(I) imported property income, and''.
                    (B) Imported property income defined.--Paragraph 
                (2) of section 904(d) of such Code, as so in effect, is 
                amended by redesignating subparagraphs (H) and (I) as 
                subparagraphs (I) and (J), respectively, and by 
                inserting after subparagraph (G) the following new 
                subparagraph:
                    ``(H) Imported property income.--The term `imported 
                property income' means any income received or accrued 
                by any person which is of a kind which would be 
                imported property income (as defined in section 
                954(j)).''.
                    (C) Look-thru rules to apply.--Subparagraph (F) of 
                section 904(d)(3) of such Code, as so in effect, is 
                amended by striking ``or (D)'' and inserting ``(D), or 
                (I)''.
            (2) After 2006.--
                    (A) In general.--Paragraph (1) of section 904(d) of 
                such Code (relating to separate application of section 
                with respect to certain categories of income), as in 
                effect for taxable years beginning after December 31, 
                2006, is amended by striking ``and'' at the end of 
                subparagraph (A), by redesignating subparagraph (B) as 
                subparagraph (C), and by inserting after subparagraph 
                (A) the following new subparagraph:
                    ``(B) imported property income, and''.
                    (B) Imported property income defined.--Paragraph 
                (2) of section 904(d) of such Code, as so in effect, is 
                amended by redesignating subparagraphs (I) and (J) as 
                subparagraphs (J) and (K), respectively, and by 
                inserting after subparagraph (H) the following new 
                subparagraph:
                    ``(I) Imported property income.--The term `imported 
                property income' means any income received or accrued 
                by any person which is of a kind which would be 
                imported property income (as defined in section 
                954(j)).''.
                    (C) Conforming amendment.--Clause (ii) of section 
                904(d)(2)(A) of such Code, as so in effect, is amended 
                by inserting ``or imported property income'' after 
                ``passive category income''.
    (d) Technical Amendments.--
            (1) Clause (iii) of section 952(c)(1)(B) of the Internal 
        Revenue Code of 1986 (relating to certain prior year deficits 
        may be taken into account) is amended--
                    (A) by redesignating subclauses (II), (III), (IV), 
                and (V) as subclauses (III), (IV), (V), and (VI), and
                    (B) by inserting after subclause (I) the following 
                new subclause:
                                    ``(II) imported property income,''.
            (2) Paragraph (5) of section 954(b) of such Code (relating 
        to deductions to be taken into account) is amended by striking 
        ``and the foreign base company oil related income'' and 
        inserting ``the foreign base company oil related income, and 
        the imported property income''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years of 
        foreign corporations beginning after the date of the enactment 
        of this Act, and to taxable years of United States shareholders 
        within which or with which such taxable years of such foreign 
        corporations end.
            (2) Subsection (c).--The amendments made by subsection 
        (c)(1) shall apply to taxable years beginning after the date of 
        the enactment of this Act and before January 1, 2007, and the 
        amendments made by subsection (c)(2) shall apply to taxable 
        years beginning after December 31, 2006.
                                 <all>