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.