1.Short title; amendment of
1986 code; table of contents
(a)This Act may be cited
as the Close Foreign Tax Loopholes: Make it in America Act
of 2010
.
(b)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)The table of contents for this Act is as follows:
Sec. 1. Short title; amendment of 1986 code; table of
contents.
Sec. 2. Rules to prevent splitting foreign tax credits from the
income to which they relate.
Sec. 3. Denial of foreign tax credit with respect to foreign
income not subject to United States taxation by reason of covered asset
acquisitions.
Sec. 4. Separate application of foreign tax credit limitation,
etc., to items resourced under treaties.
Sec. 5. Limitation on the amount of foreign taxes deemed paid
with respect to section 956 inclusions.
Sec. 6. Special rule with respect to certain redemptions by
foreign subsidiaries.
Sec. 7. Modification of affiliation rules for purposes of rules
allocating interest expense.
Sec. 8. Termination of special rules for interest and dividends
received from persons meeting the 80-percent foreign business
requirements.
Sec. 9. Source rules for income on guarantees.
Sec. 10. Limitation on extension of statute of limitations for
failure to notify Secretary of certain foreign transfers.
2.Rules to prevent
splitting foreign tax credits from the income to which they relate
(a)Subpart A of part III
of subchapter N of chapter 1 is amended by adding at the end the following new
section:
909.Suspension of
taxes and credits until related income taken into account
(a)If there is a foreign
tax credit splitting event with respect to a foreign income tax paid or accrued
by the taxpayer, such tax shall not be taken into account for purposes of this
title before the taxable year in which the related income is taken into account
under this chapter by the taxpayer.
(b)Special rules
with respect to section 902 corporationsIf there is a foreign tax credit splitting
event with respect to a foreign income tax paid or accrued by a section 902
corporation, such tax shall not be taken into account—
(1)for purposes of
section 902 or 960, or
(2)for purposes of
determining earnings and profits under section 964(a),
before
the taxable year in which the related income is taken into account under this
chapter by such section 902 corporation or a domestic corporation which meets
the ownership requirements of subsection (a) or (b) of section 902 with respect
to such section 902 corporation.(c)For purposes of this section—
(1)Application to
partnerships, etcIn the case
of a partnership, subsections (a) and (b) shall be applied at the partner
level. Except as otherwise provided by the Secretary, a rule similar to the
rule of the preceding sentence shall apply in the case of any S corporation or
trust.
(2)Treatment of
foreign taxes after suspensionIn the case of any foreign income tax not
taken into account by reason of subsection (a) or (b), except as otherwise
provided by the Secretary, such tax shall be so taken into account in the
taxable year referred to in such subsection (other than for purposes of section
986(a)) as a foreign income tax paid or accrued in such taxable year.
(d)For
purposes of this section—
(1)Foreign tax
credit splitting eventThere
is a foreign tax credit splitting event with respect to a foreign income tax if
the related income is (or will be) taken into account under this chapter by a
covered person.
(2)The term foreign
income tax means any income, war profits, or excess profits tax paid or
accrued to any foreign country or to any possession of the United
States.
(3)The term related income means, with respect
to any portion of any foreign income tax, the income (or, as appropriate,
earnings and profits) to which such portion of foreign income tax
relates.
(4)The term covered person means, with respect
to any person who pays or accrues a foreign income tax (hereafter in this
paragraph referred to as the payor)—
(A)any entity in
which the payor holds, directly or indirectly, at least a 10 percent ownership
interest (determined by vote or value),
(B)any person which
holds, directly or indirectly, at least a 10 percent ownership interest
(determined by vote or value) in the payor,
(C)any person which
bears a relationship to the payor described in section 267(b) or 707(b),
and
(D)any other person
specified by the Secretary for purposes of this paragraph.
(5)The term section 902 corporation means
any foreign corporation with respect to which one or more domestic corporations
meets the ownership requirements of subsection (a) or (b) of section
902.
(e)The
Secretary may issue such regulations or other guidance as is necessary or
appropriate to carry out the purposes of this section, including regulations or
other guidance which provides—
(1)appropriate
exceptions from the provisions of this section, and
(2)for the proper
application of this section with respect to hybrid
instruments.
.
(b)The table of
sections for subpart A of part III of subchapter N of chapter 1 is amended by
adding at the end the following new item:
Sec. 909. Suspension of taxes and credits until related income
taken into
account.
.
(c)The amendments made by this section shall apply to—
(1)foreign income taxes (as defined in section
909(d) of the Internal Revenue Code of 1986, as added by this section) paid or
accrued after May 20, 2010; and
(2)foreign income
taxes (as so defined) paid or accrued by a section 902 corporation (as so
defined) on or before such date (and not deemed paid under section 902(a) or
960 of such Code on or before such date), but only for purposes of applying
sections 902 and 960 with respect to periods after such date.
Section
909(b)(2) of the Internal Revenue Code of 1986, as added by this section, shall
not apply to foreign income taxes described in paragraph (2).3.Denial of foreign
tax credit with respect to foreign income not subject to United States taxation
by reason of covered asset acquisitions
(a)Section 901 is
amended by redesignating subsection (m) as subsection (n) and by inserting
after subsection (l) the following new subsection:
(m)Denial of
foreign tax credit with respect to foreign income not subject to United States
taxation by reason of covered asset acquisitions
(1)In the case of a
covered asset acquisition, the disqualified portion of any foreign income tax
determined with respect to the income or gain attributable to the relevant
foreign assets—
(A)shall not be taken
into account in determining the credit allowed under subsection (a), and
(B)in the case of a
foreign income tax paid by a section 902 corporation (as defined in section
909(d)(5)), shall not be taken into account for purposes of section 902 or
960.
(2)Covered asset
acquisitionFor purposes of this section, the term covered
asset acquisition means—
(A)a qualified stock
purchase (as defined in section 338(d)(3)) to which section 338(a)
applies,
(B)any transaction
which—
(i)is
treated as an acquisition of assets for purposes of this chapter, and
(ii)is treated as the
acquisition of stock of a corporation (or is disregarded) for purposes of the
foreign income taxes of the relevant jurisdiction,
(C)any acquisition of
an interest in a partnership which has an election in effect under section 754,
and
(D)to the extent
provided by the Secretary, any other similar transaction.
(3)For purposes of this
section—
(A)The term disqualified portion means, with
respect to any covered asset acquisition, for any taxable year, the ratio
(expressed as a percentage) of—
(i)the aggregate
basis differences (but not below zero) allocable to such taxable year under
subparagraph (B) with respect to all relevant foreign assets, divided by
(ii)the income on
which the foreign income tax referred to in paragraph (1) is determined (or, if
the taxpayer fails to substantiate such income to the satisfaction of the
Secretary, such income shall be determined by dividing the amount of such
foreign income tax by the highest marginal tax rate applicable to such income
in the relevant jurisdiction).
(B)Allocation of
basis differenceFor purposes of subparagraph (A)(i)—
(i)The basis difference with respect to any relevant foreign
asset shall be allocated to taxable years using the applicable cost recovery
method under this chapter.
(ii)Special rule
for disposition of assetsExcept as otherwise provided by the
Secretary, in the case of the disposition of any relevant foreign asset—
(I)the basis
difference allocated to the taxable year which includes the date of such
disposition shall be the excess of the basis difference with respect to such
asset over the aggregate basis difference with respect to such asset which has
been allocated under clause (i) to all prior taxable years, and
(II)no basis
difference with respect to such asset shall be allocated under clause (i) to
any taxable year thereafter.
(C)
(i)The term basis difference means, with
respect to any relevant foreign asset, the excess of—
(I)the adjusted basis of such asset
immediately after the covered asset acquisition, over
(II)the adjusted
basis of such asset immediately before the covered asset acquisition.
(ii)In the case of a relevant foreign asset with respect to
which the amount described in clause (i)(II) exceeds the amount described in
clause (i)(I), such excess shall be taken into account under this subsection as
a basis difference of a negative amount.
(iii)Special rule
for section 338 electionsIn the case of a covered asset
acquisition described in paragraph (2)(A), the covered asset acquisition shall
be treated for purposes of this subparagraph as occurring at the close of the
acquisition date (as defined in section 338(h)(2)).
(4)For purposes of this section, the term relevant
foreign asset means, with respect to any covered asset acquisition, any
asset (including any goodwill, going concern value, or other intangible) with
respect to such acquisition if income, deduction, gain, or loss attributable to
such asset is taken into account in determining the foreign income tax referred
to in paragraph (1).
(5)For purposes of this
section, the term foreign income tax means any income, war
profits, or excess profits tax paid or accrued to any foreign country or to any
possession of the United States.
(6)Taxes allowed as
a deduction, etcSections 275 and 78 shall not apply to any tax
which is not allowable as a credit under subsection (a) by reason of this
subsection.
(7)The
Secretary may issue such regulations or other guidance as is necessary or
appropriate to carry out the purposes of this subsection, including to exempt
from the application of this subsection certain covered asset acquisitions, and
relevant foreign assets with respect to which the basis difference is de
minimis.
.
(b)
(1)Except as provided in paragraph (2), the amendments made
by this section shall apply to covered asset acquisitions (as defined in
section 901(m)(2) of the Internal Revenue Code of 1986, as added by this
section) after—
(A)May 20, 2010, if
the transferor and the transferee are related, and
(B)the date of the
enactment of this Act in any other case.
(2)The amendments made by
this section shall not apply to any covered asset acquisition (as so defined)
with respect to which the transferor and the transferee are not related if such
acquisition is—
(A)made pursuant to a
written agreement which was binding on May 20, 2010, and at all times
thereafter,
(B)described in a
ruling request submitted to the Internal Revenue Service on or before such
date, or
(C)described on or
before such date in a public announcement or in a filing with the Securities
and Exchange Commission.
(3)For purposes of this
subsection, a person shall be treated as related to another person if the
relationship between such persons is described in section 267 or 707(b) of the
Internal Revenue Code of 1986.
4.Separate
application of foreign tax credit limitation, etc., to items resourced under
treaties
(a)Subsection (d) of
section 904 is amended by redesignating paragraph (6) as paragraph (7) and by
inserting after paragraph (5) the following new paragraph:
(6)Separate
application to items resourced under treaties
(A)If—
(i)without regard to
any treaty obligation of the United States, any item of income would be treated
as derived from sources within the United States,
(ii)under a treaty
obligation of the United States, such item would be treated as arising from
sources outside the United States, and
(iii)the taxpayer
chooses the benefits of such treaty obligation,
subsections (a), (b), and (c) of
this section and sections 902, 907, and 960 shall be applied separately with
respect to each such item.(B)Coordination
with other provisionsThis paragraph shall not apply to any item
of income to which subsection (h)(10) or section 865(h) applies.
(C)The Secretary may issue such regulations or
other guidance as is necessary or appropriate to carry out the purposes of this
paragraph, including regulations or other guidance which provides that related
items of income may be aggregated for purposes of this
paragraph.
.
(b)The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.
5.Limitation on the
amount of foreign taxes deemed paid with respect to section 956
inclusions
(a)Section 960 is
amended by adding at the end the following new subsection:
(c)Limitation with
respect to section 956 inclusions
(1)If there is included
under section 951(a)(1)(B) in the gross income of a domestic corporation any
amount attributable to the earnings and profits of a foreign corporation which
is a member of a qualified group (as defined in section 902(b)) with respect to
the domestic corporation, the amount of any foreign income taxes deemed to have
been paid during the taxable year by such domestic corporation under section
902 by reason of subsection (a) with respect to such inclusion in gross income
shall not exceed the amount of the foreign income taxes which would have been
deemed to have been paid during the taxable year by such domestic corporation
if cash in an amount equal to the amount of such inclusion in gross income were
distributed as a series of distributions (determined without regard to any
foreign taxes which would be imposed on an actual distribution) through the
chain of ownership which begins with such foreign corporation and ends with
such domestic corporation.
(2)Authority to
prevent abuseThe Secretary
shall issue such regulations or other guidance as is necessary or appropriate
to carry out the purposes of this subsection, including regulations or other
guidance which prevent the inappropriate use of the foreign corporation’s
foreign income taxes not deemed paid by reason of paragraph
(1).
.
(b)The amendment made by
this section shall apply to acquisitions of United States property (as defined
in section 956(c) of the Internal Revenue Code of 1986) after May 20,
2010.
6.Special rule with
respect to certain redemptions by foreign subsidiaries
(a)Paragraph (5) of
section 304(b) is amended by redesignating subparagraph (B) as subparagraph (C)
and by inserting after subparagraph (A) the following new subparagraph:
(B)Special rule in
case of foreign acquiring corporationIn the case of any acquisition to which
subsection (a) applies in which the acquiring corporation is a foreign
corporation, no earnings and profits shall be taken into account under
paragraph (2)(A) (and subparagraph (A) shall not apply) if more than 50 percent
of the dividends arising from such acquisition (determined without regard to
this subparagraph) would not—
(i)be
subject to tax under this chapter for the taxable year in which the dividends
arise, or
(ii)be includible in
the earnings and profits of a controlled foreign corporation (as defined in
section 957 and without regard to section
953(c)).
.
(b)The amendments made by
this section shall apply to acquisitions after May 20, 2010.
7.Modification of
affiliation rules for purposes of rules allocating interest expense
(a)Subparagraph (A) of
section 864(e)(5) is amended by adding at the end the following:
Notwithstanding the preceding sentence, a
foreign corporation shall be treated as a member of the affiliated group
if—(i)more than 50 percent of the gross income of
such foreign corporation for the taxable year is effectively connected with the
conduct of a trade or business within the United States, and
(ii)at least 80
percent of either the vote or value of all outstanding stock of such foreign
corporation is owned directly or indirectly by members of the affiliated group
(determined with regard to this
sentence).
.
(b)The amendment made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.
8.Termination of special
rules for interest and dividends received from persons meeting the 80-percent
foreign business requirements
(a)Paragraph (1) of
section 861(a) is amended by striking subparagraph (A) and by redesignating
subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.
(b)Grandfather rule
with respect to withholding on interest and dividends received from persons
meeting the 80-Percent foreign business requirements
(1)Subparagraph (B) of section 871(i)(2) is amended to read
as follows:
(B)The active foreign business percentage
of—
(i)any dividend paid
by an existing 80/20 company, and
(ii)any interest paid
by an existing 80/20
company.
.
(2)Definitions and
special rulesSection 871 is amended by redesignating subsections
(l) and (m) as subsections (m) and (n), respectively, and by inserting after
subsection (k) the following new subsection:
(l)Rules relating
to existing 80/20 companiesFor purposes of this subsection and
subsection (i)(2)(B)—
(1)
(A)The term existing 80/20 company means any
corporation if—
(i)such corporation
met the 80-percent foreign business requirements of section 861(c)(1) (as in
effect before the enactment of this subsection) for such corporation’s last
taxable year beginning before January 1, 2011,
(ii)such corporation
meets the 80-percent foreign business requirements of subparagraph (B) with
respect to each taxable year after the taxable year referred to in clause (i),
and
(iii)there has not
been an addition of a substantial line of business with respect to such
corporation after the date of the enactment of this subsection.
(B)Foreign business
requirements
(i)A corporation meets
the 80-percent foreign business requirements of this subparagraph if it is
shown to the satisfaction of the Secretary that at least 80 percent of the
gross income from all sources of such corporation for the testing period is
active foreign business income.
(ii)Active foreign
business incomeFor purposes of clause (i), the term
active foreign business income
means gross income which—
(I)is derived from
sources outside the United States (as determined under this subchapter),
and
(II)is attributable
to the active conduct of a trade or business in a foreign country or possession
of the United States.
(iii)For purposes of this
subsection, the term testing period means the 3-year period ending
with the close of the taxable year of the corporation preceding the payment (or
such part of such period as may be applicable). If the corporation has no gross
income for such 3-year period (or part thereof), the testing period shall be
the taxable year in which the payment is made.
(2)Active foreign
business percentageThe term
active foreign business percentage means, with respect to any
existing 80/20 company, the percentage which—
(A)the active foreign
business income of such company for the testing period, is of
(B)the gross income
of such company for the testing period from all sources.
(3)For purposes of
applying paragraph (1) (other than subparagraph (A)(i) thereof) and paragraph
(2)—
(A)The corporation referred to in paragraph (1)(A) and all
of such corporation’s subsidiaries shall be treated as one corporation.
(B)For purposes of subparagraph (A), the term
subsidiary means any corporation in which the corporation referred
to in subparagraph (A) owns (directly or indirectly) stock meeting the
requirements of section 1504(a)(2) (determined by substituting 50
percent
for 80 percent
each place it appears and without
regard to section 1504(b)(3)).
(4)The Secretary may issue such regulations or
other guidance as is necessary or appropriate to carry out the purposes of this
section, including regulations or other guidance which provide for the proper
application of the aggregation rules described in paragraph
(3).
.
(c)
(1)Section 861 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) is amended to read as follows:
(9)Treatment of
certain domestic corporationsIn the case of any dividend treated as not
from sources within 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 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)
(1)Except as provided in paragraph (2), the amendments made
by this section shall apply to taxable years beginning after December 31,
2010.
(2)Grandfather rule
for outstanding debt obligations
(A)The amendments made by this section shall not apply to
payments of interest on obligations issued before the date of the enactment of
this Act.
(B)Exception for
related party debtSubparagraph (A) shall not apply to any
interest which is payable to a related person (determined under rules similar
to the rules of section 954(d)(3)).
(C)Significant
modifications treated as new issuesFor purposes of subparagraph
(A), a significant modification of the terms of any obligation (including any
extension of the term of such obligation) shall be treated as a new
issue.
9.Source rules for
income on guarantees
(a)Amounts sourced
within the United StatesSubsection (a) of section 861 is amended by
adding at the end the following new paragraph:
(9)Amounts—
(A)received from
noncorporate residents or domestic corporations with respect to guarantees,
and
(B)paid by any foreign person with respect to
guarantees if such amount is connected with income which is effectively
connected (or treated as effectively connected) with the conduct of a trade or
business in the United
States.
.
(b)Amounts sourced
without the United StatesSubsection (a) of section 862 is
amended by striking and
at the end of paragraph (7), by striking
the period at the end of paragraph (8) and inserting ; and
, and
by adding at the end the following new paragraph:
(9)amounts received with respect to guarantees
other than those derived from sources within the United States as provided in
section
861(a)(9).
.
(c)Clause (ii) of section 864(c)(4)(B) is amended by
striking dividends or interest
and inserting dividends,
interest, or amounts with respect to guarantees
.
(d)The amendments made by this section shall apply to
guarantees issued after the date of the enactment of this Act.
10.Limitation on
extension of statute of limitations for failure to notify Secretary of certain
foreign transfers
(a)Paragraph (8) of
section 6501(c) is amended—
(1)by striking
In the case of any information
and inserting the following:
(A)In the case of any
information
;
and
(2)by adding at the
end the following:
(B)Application to
failures due to reasonable causeIf the failure to furnish the information
referred to in subparagraph (A) is due to reasonable cause and not willful
neglect, subparagraph (A) shall apply only to the item or items related to such
failure.
.
(b)The amendments made by this section shall take effect as if
included in section 513 of the Hiring Incentives to Restore Employment
Act.