I 111th CONGRESS 2d Session H. R. 5328 IN THE HOUSE OF REPRESENTATIVES May 18, 2010 Mr. Doggett (for himself, Mr. McDermott, and Ms. DeLauro) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to reduce international tax avoidance and restore a level playing field for American businesses.

1.

Short title

This Act may be cited as the International Tax Competitiveness Act of 2010.

2.

Treatment of foreign corporations managed and controlled in the United States as domestic corporations

(a)

In general

Section 7701 of the Internal Revenue Code of 1986 (relating to definitions) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection: (p)

Certain corporations managed and controlled in the United States treated as domestic for income tax

(1)

In general

Notwithstanding subsection (a)(4), in the case of a corporation described in paragraph (2) if— (A)the corporation would not otherwise be treated as a domestic corporation for purposes of this title, but (B)the management and control of the corporation occurs, directly or indirectly, primarily within the United States, then, solely for purposes of chapter 1 (and any other provision of this title relating to chapter 1), the corporation shall be treated as a domestic corporation.(2)

Corporation described

(A)

In general

A corporation is described in this paragraph if— (i)the stock of such corporation is regularly traded on an established securities market, or (ii)the aggregate gross assets of such corporation (or any predecessor thereof), including assets under management for investors, whether held directly or indirectly, at any time during the taxable year or any preceding taxable year is $50,000,000 or more. (B)

General exception

A corporation shall not be treated as described in this paragraph if— (i)such corporation was treated as a corporation described in this paragraph in a preceding taxable year, (ii)such corporation— (I)is not regularly traded on an established securities market, and (II)has, and is reasonably expected to continue to have, aggregate gross assets (including assets under management for investors, whether held directly or indirectly) of less than $50,000,000, and (iii)the Secretary grants a waiver to such corporation under this subparagraph. (C)

Exception from gross assets test

Subparagraph (A)(ii) shall not apply to a corporation which is a controlled foreign corporation (as defined in section 957) and which is a member of an affiliated group (as defined section 1504, but determined without regard to section 1504(b)(3)) the common parent of which— (i)is a domestic corporation (determined without regard to this subsection), and (ii)has substantial assets (other than cash and cash equivalents and other than stock of foreign subsidiaries) held for use in the active conduct of a trade or business in the United States. (3)

Management and control

(A)

In general

The Secretary shall prescribe regulations for purposes of determining cases in which the management and control of a corporation is to be treated as occurring primarily within the United States. (B)

Executive officers and senior management

Such regulations shall provide that— (i)the management and control of a corporation shall be treated as occurring primarily within the United States if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the United States, and (ii)individuals who are not executive officers and senior management of the corporation (including individuals who are officers or employees of other corporations in the same chain of corporations as the corporation) shall be treated as executive officers and senior management if such individuals exercise the day-to-day responsibilities of the corporation described in clause (i). (C)

Corporations primarily holding investment assets

Such regulations shall also provide that the management and control of a corporation shall be treated as occurring primarily within the United States if— (i)the assets of such corporation (directly or indirectly) consist primarily of as sets being managed on behalf of investors, and (ii)decisions about how to invest the assets are made in the United States. . (b)

Effective date

The amendments made by this section shall apply to taxable years beginning on or after the date which is 2 years after the date of the enactment of this Act.

3.

Current taxation of royalties and other income from intangibles received from a controlled foreign corporation

(a)

Repeal of look-Thru rule for royalties received from controlled foreign corporations

Paragraph (6) of section 954(c) of the Internal Revenue Code of 1986 is amended— (1)by striking rents, and royalties in subparagraph (A) and inserting and rents, and (2)by striking , rent, or royalty both places it appears in subparagraph (B) and inserting or rent. (b)

Entities not permitted To be disregarded in determining royalties

Subsection (c) of section 954 of such Code is amended by adding at the end the following new paragraph: (7)

All royalties taken into account

For purposes of determining the foreign personal holding company income which consists of royalties, this subsection shall be applied without regard to any election to disregard any entity which would be taken into account for Federal income tax purposes but for such election. . (c)

Certain other income derived from United States intangibles taken into account as subpart F income

Subsection (d) of section 954 of such Code is amended by adding at the end the following new paragraph: (5)

Special rule for certain products produced pursuant to intangibles made available by United States persons

For purposes of this subsection, personal property shall be treated as having been purchased from a related person if any intangible property (within the meaning of section 936(h)(3)(B)) made available to a controlled foreign corporation, directly or indirectly, by a related person which is a United States person contributes, directly or indirectly, to the production of such personal property by the controlled foreign corporation. The preceding sentence shall not apply to any personal property produced directly by the controlled foreign corporation, without regard to any election to disregard any entity which would be taken into account for Federal income tax purposes but for such election. . (d)

Effective date

The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2010, and to taxable years of United States shareholders within which or with which such tax years of such foreign corporations end.

4.

Repeal of special rules for interest and dividends received from persons meeting the 80-percent foreign business requirements

(a)

Repeal of Special Rules for Interest as United States Source

Paragraph (1) of section 861(a) of the Internal Revenue Code of 1986 is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively. (b)

Repeal of Exception To Tax on Dividends Received by Nonresident Aliens and Foreign Corporations

Paragraph (2) of section 871(i) of such Code is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively. (c)

Conforming amendments

(1)Section 861 of such Code is amended by striking subsection (c) and by redesignating subsections (d), (e), and (f) as subsections (c), (d), and (e), respectively. (2)Paragraph (9) of section 904(h) of such Code is amended to read as follows: (9)

Treatment of certain domestic corporations

In the case of any dividend treated as not from sources with the United States under section 861(a)(2)(A), the corporation paying such dividend shall be treated for purposes of this subsection as a United States-owned foreign corporation. . (3)Subsection (c) of section 2104 of such Code is amended in the last sentence by striking or to a debt obligation of a domestic corporation and all that follows and inserting a period. (d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2010.

5.

Taxation of boot received in certain reorganizations involving foreign corporations

(a)

In general

Paragraph (2) of section 356(a) of the Internal Revenue Code of 1986 is amended to read as follows: (2)

Treatment as dividend

(A)

In general

The sum of such money and the fair market value of such other property received by the taxpayer in the exchange shall be treated as a dividend to the extent it would be so treated if such money and other property had been distributed to the taxpayer by the corporation immediately after the exchange in redemption of stock having a fair market value equal to the amount of such sum. (B)

Coordination with paragraph (1)

Gain shall be recognized under paragraph (1) only to the extent the amount which would be recognized under such paragraph without regard to this paragraph exceeds the amount treated as a dividend under subparagraph (A). (C)

Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph, including regulations to address interactions between this subchapter and subchapter N. . (b)

Effective date

The amendment made by this section shall apply to exchanges after December 31, 2010.