II 110th CONGRESS 1st Session S. 1006 IN THE SENATE OF THE UNITED STATES March 28, 2007 Mr. Kerry 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 deny qualified dividend income treatment to certain foreign dividends.

1.

Certain foreign dividends not treated as qualified dividend income

(a)

In general

Clause (ii) of section 1(h)(11)(B) of the Internal Revenue Code of 1986 (relating to certain dividends excluded) is amended by striking and at the end of subclause (II), by striking the period at the end of subclause (III) and inserting , and, and by adding at the end the following new subclause: (IV)any nonqualified dividend from a foreign corporation. . (b)

Nonqualified dividend from a foreign corporation

Paragraph (11) of section 1(h) of such Code (relating to dividends taxed as net capital gain) is amended by redesignating subparagraph (D) as subparagraph (E) and by inserting after subparagraph (C) the following new subparagraph: (D)

Nonqualified dividend from a foreign corporation

For purposes of subparagraph (B)(ii)(IV), the term nonqualified dividend from a foreign corporation means any dividend from a foreign corporation if— (i)any amount is allowable as a deduction to any person at any time under the taxation law of any foreign country (or any amount is otherwise creditable against the tax imposed under such law) with respect to such dividend, (ii)for the taxable year of the corporation in which the distribution is made, or the preceding taxable year— (I)such corporation is not treated as a corporation for purposes of the taxation laws of any foreign country to which it would be subject to tax if it were treated as a corporation, (II)such corporation is exempt from tax under the taxation laws of any foreign country to which (but for such exemption) it would otherwise be subject to tax (except for exemption on the basis of nonresidence, nondomicile, or similar criteria), or (III)such corporation is a passive foreign investment company (as defined in section 1297 (without regard to subsection (e) thereof)), or (iii)such dividend is paid with respect to an instrument which is treated as other than stock (or a similar equity interest) under the taxation laws of any foreign country with respect to which the payment is taken into account. . (c)

Conforming amendment

Subparagraph (C) of section 1(h)(11) of such Code is amended by striking clause (iii) and by redesignating clause (iv) as clause (iii). (d)

Effective date

The amendments made by this section shall apply to dividends received after the date of the enactment of this Act.

2.

Modification to the definition of qualified foreign corporation

(a)

In general

Clause (ii) of section 1(h)(11)(C) of the Internal Revenue Code of 1986 (relating to dividends on stock readily tradable on United States securities market) is amended by striking by such corporation if the stock and all that follows and inserting by such corporation if—(I)the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States, and (II)such corporation is created or organized under the laws of a foreign country which has a comprehensive income tax system which the Secretary determines is satisfactory for the purposes of this paragraph. . (b)

Effective date

The amendment made by this section shall apply to dividends received after the date of the enactment of this Act.