[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 2091 Introduced in Senate (IS)]
112th CONGRESS
2d Session
S. 2091
To amend the Internal Revenue Code of 1986 to reform the international
tax system of the United States, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
February 9, 2012
Mr. Enzi 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 reform the international
tax system of the United States, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``United States Job
Creation and International Tax Reform Act of 2012''.
(b) Amendment of 1986 Code.--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) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I--PARTICIPATION EXEMPTION SYSTEM FOR TAXATION OF FOREIGN INCOME
Sec. 101. Deduction for dividends received by domestic corporations
from certain foreign corporations.
Sec. 102. Application of dividends received deduction to certain sales
and exchanges of stock.
Sec. 103. Deduction for foreign intangible income derived from trade or
business within the United States.
Sec. 104. Treatment of deferred foreign income upon transition to
participation exemption system of taxation.
TITLE II--OTHER INTERNATIONAL TAX REFORMS
Subtitle A--Modifications of Subpart F
Sec. 201. Treatment of low-taxed foreign income as subpart F income.
Sec. 202. Permanent extension of look-thru rule for controlled foreign
corporations.
Sec. 203. Permanent extension of exceptions for active financing
income.
Sec. 204. Foreign base company income not to include sales or services
income.
Subtitle B--Modifications Related to Foreign Tax Credit
Sec. 211. Modification of application of sections 902 and 960 with
respect to post-2012 earnings.
Sec. 212. Separate foreign tax credit basket for foreign intangible
income.
Sec. 213. Inventory property sales source rule exceptions not to apply
for foreign tax credit limitation.
Subtitle C--Allocation of Interest on Worldwide Basis
Sec. 221. Acceleration of election to allocate interest on a worldwide
basis.
TITLE I--PARTICIPATION EXEMPTION SYSTEM FOR TAXATION OF FOREIGN INCOME
SEC. 101. DEDUCTION FOR DIVIDENDS RECEIVED BY DOMESTIC CORPORATIONS
FROM CERTAIN FOREIGN CORPORATIONS.
(a) Allowance of Deduction.--Part VIII of subchapter B of chapter 1
is amended by inserting after section 245 the following new section:
``SEC. 245A. DIVIDENDS RECEIVED BY DOMESTIC CORPORATIONS FROM CERTAIN
FOREIGN CORPORATIONS.
``(a) In General.--In the case of any dividend received from a
controlled foreign corporation by a domestic corporation which is a
United States shareholder with respect to such controlled foreign
corporation, there shall be allowed as a deduction an amount equal to
95 percent of the qualified foreign-source portion of the dividend.
``(b) Treatment of Electing Noncontrolled Section 902 Corporations
as Controlled Foreign Corporations.--
``(1) In general.--If a domestic corporation elects the
application of this subsection for any noncontrolled section
902 corporation with respect to the domestic corporation, then,
for purposes of this title--
``(A) the noncontrolled section 902 corporation
shall be treated as a controlled foreign corporation
with respect to the domestic corporation, and
``(B) the domestic corporation shall be treated as
a United States shareholder with respect to the
noncontrolled section 902 corporation.
``(2) Election.--
``(A) Time of election.--Any election under this
subsection with respect to any noncontrolled section
902 corporation shall be made not later than the due
date for filing the return of tax for the first taxable
year of the taxpayer with respect to which the foreign
corporation is a noncontrolled section 902 corporation
with respect to the taxpayer (or, if later, the first
taxable year of the taxpayer for which this section is
in effect).
``(B) Revocation of election.--Any election under
this subsection, once made, may be revoked only with
the consent of the Secretary.
``(C) Controlled groups.--If a domestic corporation
making an election under this subsection with respect
to any noncontrolled section 902 corporation is a
member of a controlled group of corporations (within
the meaning of section 1563(a), except that `more than
50 percent' shall be substituted for `at least 80
percent' each place it appears therein), then, except
as otherwise provided by the Secretary, such election
shall apply to all members of such group.
``(c) Qualified Foreign-Source Portion of Dividends.--For purposes
of this section--
``(1) Qualified foreign-source portion.--
``(A) In general.--The qualified foreign-source
portion of any dividend is an amount which bears the
same ratio to such dividend as--
``(i) the post-2012 undistributed qualified
foreign earnings, bears to
``(ii) the total post-2012 undistributed
earnings.
``(B) Post-2012 undistributed earnings.--The term
`post-2012 undistributed earnings' means the amount of
the earnings and profits of a controlled foreign
corporation (computed in accordance with sections
964(a) and 986) accumulated in taxable years beginning
after December 31, 2012--
``(i) as of the close of the taxable year
of the controlled foreign corporation in which
the dividend is distributed, and
``(ii) without diminution by reason of
dividends distributed during such taxable
years.
``(C) Post-2012 undistributed qualified foreign
earnings.--The term `post-2012 undistributed qualified
foreign earnings' means the portion of the post-2012
undistributed earnings which is attributable to income
other than--
``(i) income described in section
245(a)(5)(A), or
``(ii) dividends described in section
245(a)(5)(B).
``(2) Ordering rule for distributions of earnings and
profits.--Distributions shall be treated as first made out of
earnings and profits of a controlled foreign corporation which
are not post-2012 undistributed earnings and then out of post-
2012 undistributed earnings.
``(d) Disallowance of Foreign Tax Credit, etc.--
``(1) In general.--No credit shall be allowed under section
901 for any taxes paid or accrued (or treated as paid or
accrued) with respect to the qualified foreign-source portion
of any dividend.
``(2) Denial of deduction.--No deduction shall be allowed
under this chapter for any tax for which credit is not
allowable under section 901 by reason of paragraph (1).
``(3) Coordination with section 78.--Section 78 shall not
apply to any tax for which credit is not allowable under
section 901 by reason of paragraph (1).
``(4) Treatment of nondeductible portion in applying
foreign tax credit limit.--For purposes of applying the
limitation under section 904(a), the remaining 5 percent of the
qualified foreign-source portion of any dividend with respect
to which a deduction is not allowable to the domestic
corporation under subsection (a) shall be treated as income
from sources within the United States.
``(e) Special Rules for Hybrid Dividends.--
``(1) In general.--Subsection (a) shall not apply to any
dividend received by a United States shareholder from a
controlled foreign corporation if the dividend is a hybrid
dividend.
``(2) Hybrid dividends of tiered controlled foreign
corporations.--If a controlled foreign corporation with respect
to which a domestic corporation is a United States shareholder
receives a hybrid dividend from any other controlled foreign
corporation with respect to which such domestic corporation is
also a United States shareholder, then, notwithstanding any
other provision of this title--
``(A) the hybrid dividend shall be treated for
purposes of section 951(a)(1)(A) as subpart F income of
the receiving controlled foreign corporation for the
taxable year of the controlled foreign corporation in
which the dividend was received, and
``(B) the United States shareholder shall include
in gross income an amount equal to the shareholder's
pro rata share (determined in the same manner as under
section 951(a)(2)) of the subpart F income described in
subparagraph (A).
``(3) Denial of foreign tax credit, etc.--The rules of
subsection (d) shall apply to any hybrid dividend received by,
or any amount included under paragraph (2) in the gross income
of, a United States shareholder, except that, for purposes of
applying subsection (d)(4), all of such dividend or amount
shall be treated as income from sources within the United
States.
``(4) Hybrid dividend.--The term `hybrid dividend' means an
amount received from a controlled foreign corporation--
``(A) which is treated as a dividend for purposes
of this title, and
``(B) for which the controlled foreign corporation
received a deduction (or similar tax benefit) under the
laws of the country in which the controlled foreign
corporation was created or organized.
``(f) Definitions.--For purposes of this section--
``(1) United states shareholder.--The term `United States
shareholder' has the meaning given such term in section 951(b).
``(2) Controlled foreign corporation.--The term `controlled
foreign corporation' has the meaning given such term in section
957(a).
``(3) Noncontrolled section 902 corporation.--The term
`noncontrolled section 902 corporation' has the meaning given
such term in section 904(d)(2)(E)(i).
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the provisions of this
section.''.
(b) Application of Holding Period Requirement.--Subsection (c) of
section 246 is amended--
(1) by striking ``or 245'' in paragraph (1) and inserting
``245, or 245A'', and
(2) by adding at the end the following new paragraph:
``(5) Special rules for qualified foreign-source portion of
dividends received from controlled foreign corporations.--
``(A) 1-year holding period requirement.--For
purposes of section 245A--
``(i) paragraph (1)(A) shall be applied--
``(I) by substituting `365 days'
for `45 days' each place it appears,
and
``(II) by substituting `731-day
period' for `91-day period', and
``(ii) paragraph (2) shall not apply.
``(B) Status must be maintained during holding
period.--For purposes of section 245A, the holding
period requirement of this subsection shall be treated
as met only if--
``(i) the controlled foreign corporation
referred to in section 245A(a) is a controlled
foreign corporation at all times during such
period, and
``(ii) the taxpayer is a United States
shareholder (as defined in section 951) with
respect to such controlled foreign corporation
at all times during such period.
``(C) Special rules for electing noncontrolled
section 902 corporations.--In the case of an election
under section 245A(b) to treat a noncontrolled section
902 corporation as a controlled foreign corporation,
the requirements of subparagraph (B) shall be treated
as met for any continuous period ending on the day
before the effective date of the election for which the
taxpayer met the ownership requirements of section
904(d)(2)(E) with respect to such corporation.''.
(c) Application of Rules Generally Applicable to Deductions for
Dividends Received.--
(1) Treatment of dividends from tax-exempt corporations.--
Paragraph (1) of section 246(a) is amended by striking ``and
245'' and inserting ``245, and 245A''.
(2) Assets generating tax-exempt portion of dividend not
taken into account in allocating and apportioning deductible
expenses.--Paragraph (3) of section 864(e) is amended by
striking ``or 245(a)'' and inserting ``, 245(a), or 245A''.
(3) Coordination with section 1059.--Subparagraph (B) of
section 1059(b)(2) is amended by striking ``or 245'' and
inserting ``245, or 245A''.
(d) Conforming Amendments.--
(1) Clause (vi) of section 56(g)(4)(C) is amended by
inserting ``245A or'' before ``965''.
(2) Subsection (b) of section 951 is amended--
(A) by striking ``subpart'' and inserting
``title'', and
(B) by adding at the end the following: ``Such term
shall include, with respect to any entity treated as a
controlled foreign corporation under section 245A(b),
any domestic corporation treated as a United States
shareholder with respect to such entity under such
section.''.
(3) Subsection (a) of section 957 is amended--
(A) by striking ``subpart'' in the matter preceding
paragraph (1) and inserting ``title'', and
(B) by adding at the end the following: ``Such term
shall include any entity treated as a controlled
foreign corporation under section 245A(b).''.
(4) The table of sections for part VIII of subchapter B of
chapter 1 is amended by inserting after the item relating to
section 245 the following new item:
``Sec. 245A. Dividends received by domestic corporations from certain
foreign corporations.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2012, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 102. APPLICATION OF DIVIDENDS RECEIVED DEDUCTION TO CERTAIN SALES
AND EXCHANGES OF STOCK.
(a) Sales by United States Persons of Stock in CFC.--Section 1248
is amended by redesignating subsection (j) as subsection (k) and by
inserting after subsection (i) the following new subsection:
``(j) Coordination With Dividends Received Deduction.--
``(1) In general.--In the case of the sale or exchange by a
domestic corporation of stock in a foreign corporation held for
1 year or more, any amount received by the domestic corporation
which is treated as a dividend by reason of this section shall
be treated as a dividend for purposes of applying section 245A.
``(2) Losses disallowed.--If a domestic corporation--
``(A) sells or exchanges stock in a foreign
corporation in a taxable year of the domestic
corporation with or within which a taxable year of the
foreign corporation beginning after December 31, 2012,
ends, and
``(B) met the ownership requirements of subsection
(a)(2) with respect to such stock,
no deduction shall be allowed to the domestic corporation with
respect to any loss from the sale or exchange.''.
(b) Sale by a CFC of a Lower Tier CFC.--Section 964(e) is amended
by adding at the end the following new paragraph:
``(4) Coordination with dividends received deduction.--
``(A) In general.--If, for any taxable year of a
controlled foreign corporation beginning after December
31, 2012, any amount is treated as a dividend under
paragraph (1) by reason of a sale or exchange by the
controlled foreign corporation of stock in another
foreign corporation held for 1 year or more, then,
notwithstanding any other provision of this title--
``(i) the qualified foreign-source portion
of such dividend shall be treated for purposes
of section 951(a)(1)(A) as subpart F income of
the selling controlled foreign corporation for
such taxable year,
``(ii) a United States shareholder with
respect to the selling controlled foreign
corporation shall include in gross income for
the taxable year of the shareholder with or
within which such taxable year of the
controlled foreign corporation ends an amount
equal to the shareholder's pro rata share
(determined in the same manner as under section
951(a)(2)) of the amount treated as subpart F
income under clause (i), and
``(iii) the deduction under section 245A(a)
shall be allowable to the United States
shareholder with respect to the subpart F
income included in gross income under clause
(ii) in the same manner as if such subpart F
income were a dividend received by the
shareholder from the selling controlled foreign
corporation.
``(B) Effect of loss on earnings and profits.--For
purposes of this title, in the case of a sale or
exchange by a controlled foreign corporation of stock
in another foreign corporation in a taxable year of the
selling controlled foreign corporation beginning after
December 31, 2012, to which this paragraph would apply
if gain were recognized, the earnings and profits of
the selling controlled foreign corporation shall not be
reduced by reason of any loss from such sale or
exchange.
``(C) Qualified foreign-source portion.--For
purposes of this paragraph, the qualified foreign-
source portion of any amount treated as a dividend
under paragraph (1) shall be determined in the same
manner as under section 245A(c).''.
SEC. 103. DEDUCTION FOR FOREIGN INTANGIBLE INCOME DERIVED FROM TRADE OR
BUSINESS WITHIN THE UNITED STATES.
(a) In General.--Part VIII of subchapter B of chapter 1 is amended
by adding at the end the following new section:
``SEC. 250. FOREIGN INTANGIBLE INCOME DERIVED FROM TRADE OR BUSINESS
WITHIN THE UNITED STATES.
``(a) In General.--In the case of a domestic corporation, there
shall be allowed as a deduction an amount equal to 50 percent of the
qualified foreign intangible income of such domestic corporation for
the taxable year.
``(b) Qualified Foreign Intangible Income.--
``(1) In general.--The term `qualified foreign intangible
income' means, with respect to any domestic corporation,
foreign intangible income which is derived by the domestic
corporation from the active conduct of a trade or business
within the United States with respect to the intangible
property giving rise to the income.
``(2) Requirements relating to trade or business within the
united states.--For purposes of this section, foreign
intangible income shall be treated as derived by a domestic
corporation from the active conduct of a trade or business
within the United States only if--
``(A) the domestic corporation developed, created,
or produced within the United States the intangible
property giving rise to the income, or
``(B) in any case in which the domestic corporation
acquired such intangible property, the domestic
corporation added substantial value to the property
through the active conduct of such trade or business
within the United States.
``(c) Foreign Intangible Income.--For purposes of this section--
``(1) In general.--The term `foreign intangible income'
means any intangible income which is derived in connection
with--
``(A) property which is sold, leased, licensed, or
otherwise disposed of for use, consumption, or
disposition outside the United States, or
``(B) services provided with respect to persons or
property located outside the United States.
``(2) Exceptions for certain income.--The following amounts
shall not be taken into account in computing foreign intangible
income:
``(A) Any amount treated as received by the
domestic corporation under section 367(d)(2) with
respect to any intangible property.
``(B) Any payment under a cost-sharing arrangement
entered into under section 482.
``(C) Any amount received from a controlled foreign
corporation with respect to which the domestic
corporation is a United States shareholder to the
extent such amount is attributable or properly
allocable to income which is--
``(i) effectively connected with the
conduct of a trade or business within the
United States and subject to tax under this
chapter, or
``(ii) subpart F income.
For purposes of clause (ii), amounts not otherwise
treated as subpart F income shall be so treated if the
amount creates (or increases) a deficit which under
section 952(c) may reduce the subpart F income of the
payor or any other controlled foreign corporation.
``(3) Intangible income.--The term `intangible income'
means gross income from--
``(A) the sale, lease, license, or other
disposition of property in which intangible property is
used directly or indirectly, or
``(B) the provision of services related to
intangible property or in connection with property in
which intangible property is used directly or
indirectly,
to the extent that such gross income is properly attributable
to such intangible property.
``(4) Deductions to be taken into account.--The gross
income of a domestic corporation taken into account under this
subsection shall be reduced, under regulations prescribed by
the Secretary, so as to take into account deductions properly
allocable to such income.
``(5) Intangible property.--The term `intangible property'
has the meaning given such term by section 936(h)(3)(B).
``(d) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the provisions of this
section.''.
(b) Conforming Amendment.--The table of sections for part VIII of
subchapter B of chapter 1 is amended by adding at the end the following
new item:
``Sec. 250. Foreign intangible income derived from trade or business
within the United States.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of domestic corporations beginning after
December 31, 2012.
SEC. 104. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO
PARTICIPATION EXEMPTION SYSTEM OF TAXATION.
(a) In General.--Section 965 is amended to read as follows:
``SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO
PARTICIPATION EXEMPTION SYSTEM OF TAXATION.
``(a) Deduction Allowed.--In the case of a domestic corporation
which elects the application of this section to any controlled foreign
corporation with respect to which it is a United States shareholder,
there shall be allowed as a deduction for the taxable year of the
United States shareholder with or within which the first taxable year
of the controlled foreign corporation beginning after December 31,
2012, ends an amount equal to 70 percent of the amount determined under
subsection (b) for the taxable year.
``(b) Eligible Amount.--For purposes of subsection (a)--
``(1) In general.--The amount determined under this
subsection for a United States shareholder with respect to any
controlled foreign corporation for the taxable year of the
shareholder described in subsection (a) is the lesser of--
``(A) the shareholder's pro rata share of the
earnings and profits of the controlled foreign
corporation described in section 959(c)(3) as of the
close of the taxable year preceding the first taxable
year of the controlled foreign corporation beginning
after December 31, 2012, or
``(B) an amount equal to the sum of--
``(i) the dividends received by the
shareholder during such taxable year from the
controlled foreign corporation which are
attributable to the earnings and profits
described in subparagraph (A), plus
``(ii) the increase in subpart F income
required to be included in gross income of the
shareholder for the taxable year by reason of
the election under paragraph (2).
``(2) Election of deemed subpart f inclusion.--A United
States shareholder may elect for purposes of paragraph
(1)(B)(ii) to treat all (or any portion) of the shareholder's
pro rata share of the earnings and profits of a controlled
foreign corporation described in paragraph (1)(A) as subpart F
income includible in the gross income of the shareholder for
the taxable year of the shareholder described in subsection
(a).
``(3) Ordering rule.--For purposes of paragraph (1)(B)(i),
distributions shall be treated as first made out of earnings
and profits of a controlled foreign corporation described in
paragraph (1)(A).
``(4) Dividend.--The term `dividend' shall not include
amounts includible in gross income as a dividend under section
78.
``(c) Disallowance of Foreign Tax Credit, etc.--In the case of a
domestic corporation making an election under subsection (a) with
respect to any controlled foreign corporation--
``(1) In general.--No credit shall be allowed under section
901 for any taxes paid or accrued (or treated as paid or
accrued) with respect to the earnings and profits taken into
account in determining the amount under subsection (b).
``(2) Denial of deduction.--No deduction shall be allowed
under this chapter for any tax for which credit is not
allowable under section 901 by reason of paragraph (1).
``(3) Coordination with section 78.--Section 78 shall not
apply to any tax for which credit is not allowable under
section 901 by reason of paragraph (1).
``(4) Treatment of nondeductible portion in applying
foreign tax credit limit.--For purposes of applying the
limitation under section 904(a), the remaining 30 percent of
the amount determined under subsection (b) with respect to
which a deduction is not allowable under subsection (a) shall
be treated as income from sources within the United States.
``(d) Election To Pay Liability for Deemed Subpart F Income in
Installments.--
``(1) In general.--In the case of a United States
shareholder with respect to 1 or more controlled foreign
corporations to which elections under subsections (a) and
(b)(2) apply, such United States shareholder may elect to pay
the net tax liability determined with respect to its deemed
subpart F inclusions with respect to such corporations under
subsection (b)(2) for the taxable year described in subsection
(a) in 2 or more (but not exceeding 8) equal installments.
``(2) Date for payment of installments.--If an election is
made under paragraph (1), the first installment shall be paid
on the due date (determined without regard to any extension of
time for filing the return) for the return of tax for the
taxable year for which the election was made and each
succeeding installment shall be paid on the due date (as so
determined) for the return of tax for the taxable year
following the taxable year with respect to which the preceding
installment was made.
``(3) Acceleration of payment.--If there is an addition to
tax for failure to pay timely assessed with respect to any
installment required under this subsection, a liquidation or
sale of substantially all the assets of the taxpayer (including
in a title 11 or similar case), a cessation of business by the
taxpayer, or any similar circumstance, then the unpaid portion
of all remaining installments shall be due on the date of such
event (or in the case of a title 11 or similar case, the day
before the petition is filed).
``(4) Proration of deficiency to installments.--If an
election is made under paragraph (1) to pay the net tax
liability described in paragraph (1) in installments and a
deficiency has been assessed which increases such net tax
liability, the increase shall be prorated to the installments
payable under paragraph (1). The part of the increase so
prorated to any installment the date for payment of which has
not arrived shall be collected at the same time as, and as a
part of, such installment. The part of the increase so prorated
to any installment the date for payment of which has arrived
shall be paid upon notice and demand from the Secretary. This
subsection shall not apply if the deficiency is due to
negligence, to intentional disregard of rules and regulations,
or to fraud with intent to evade tax.
``(5) Time for payment of interest.--Interest payable under
section 6601 on the unpaid portion of any amount of tax the
time for payment of which as been extended under this
subsection shall be paid annually at the same time as, and as
part of, each installment payment of such tax. In the case of a
deficiency to which paragraph (4) applies, interest with
respect to such deficiency which is assigned under the
preceding sentence to any installment the date for payment of
which has arrived on or before the date of the assessment of
the deficiency, shall be paid upon notice and demand from the
Secretary.
``(6) Net tax liability for deemed subpart f inclusions.--
For purposes of this subsection--
``(A) In general.--The net tax liability described
in paragraph (1) with respect to any United States
shareholder for any taxable year is the excess (if any)
of--
``(i) such taxpayer's net income tax for
the taxable year, over
``(ii) such taxpayer's net income tax for
such taxable year determined as if the
elections under subsection (b)(2) with respect
to 1 or more controlled foreign corporations
had not been made.
``(B) Net income tax.--The term `net income tax'
means the net income tax (as defined in section
38(c)(1)) reduced by the credit allowed under section
38.
``(e) Special Rules.--For purposes of this section--
``(1) Elections.--Any election under subsection (a),
(b)(2), or (d)(1) shall be made not later than the due date
(including extensions) for the return of tax for the taxable
year for which made and shall be made in such manner as the
Secretary may provide.
``(2) Section not to apply to noncontrolled section 902
corporations treated as cfcs.--No election may be made under
subsection (a) with respect to a controlled foreign corporation
which was a noncontrolled section 902 corporation which a
United States shareholder elected under section 245A(b) to
treat as a controlled foreign corporation.
``(3) Pro rata share.--A shareholder's pro rata share of
any earnings and profits shall be determined in the same manner
as under section 951(a)(2).''
(b) Conforming Amendments.--
(1) Clause (vi) of section 56(g)(4)(C), as amended by this
Act, is amended--
(A) by striking ``965'' and inserting ``965(b)'',
and
(B) by inserting ``and inclusions'' after ``certain
distributions'' in the heading thereof.
(2) Paragraph (2) of section 6601(b) is amended--
(A) by striking ``section 6156(a)'' in the matter
preceding subparagraph (A) and inserting ``section
965(d)(1) or 6156(a)'', and
(B) by striking ``section 6156(b)'' in subparagraph
(A) and inserting ``section 965(d)(2) or 6156(b), as
the case may be''.
(3) The table of section for subpart F of part III of
subchapter N of chapter 1 is amended by striking the item
relating to section 965 and inserting the following:
``Sec. 965. Treatment of deferred foreign income upon transition to
participation exemption system of
taxation.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2012, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
TITLE II--OTHER INTERNATIONAL TAX REFORMS
Subtitle A--Modifications of Subpart F
SEC. 201. TREATMENT OF LOW-TAXED FOREIGN INCOME AS SUBPART F INCOME.
(a) In General.--Subsection (a) of section 952 is amended by
redesignating paragraphs (3), (4), and (5) as paragraphs (4), (5), and
(6), respectively, and by inserting after paragraph (2) the following
new paragraph:
``(3) low-taxed income (as defined under subsection
(e)),''.
(b) Low-Taxed Income.--Section 952 is amended by adding at the end
the following new subsection:
``(e) Low-Taxed Income.--
``(1) In general.--For purposes of subsection (a), except
as provided in paragraph (2), the term `low-taxed income'
means, with respect to any taxable year of a controlled foreign
corporation, the entire gross income of the controlled foreign
corporation unless the taxpayer establishes to the satisfaction
of the Secretary that such income was subject to an effective
rate of income tax (determined under rules similar to the rules
of section 954(b)(4)) imposed by a foreign country in excess of
one-half of the highest rate of tax under section 11(b) for
taxable years of United States corporations beginning in the
same calendar year as the taxable year of the controlled
foreign corporation begins.
``(2) Exception for qualified business income.--For
purposes of paragraph (1), qualified business income--
``(A) shall be taken into account in determining
the effective rate of income tax at which the entire
gross income of the controlled foreign corporation is
taxed, but
``(B) the amount of gross income treated as low-
taxed income under paragraph (1) shall be reduced by
the amount of the qualified business income.
``(3) Qualified business income.--For purposes of this
subsection--
``(A) In general.--The term `qualified business
income' means, with respect to any controlled foreign
corporation, income derived by the controlled foreign
corporation in a foreign country but only if--
``(i) such income is attributable to the
active conduct of a trade or business of such
corporation in such foreign country,
``(ii) the corporation maintains an office
or fixed place of business in such foreign
country, and
``(iii) officers and employees of the
corporation physically located at such office
or place of business in such foreign country
conducted (or significantly contributed to the
conduct of) activities within the foreign
country which are substantial in relation to
the activities necessary for the active conduct
of the trade or business to which such income
is attributable.
``(B) Exception for intangible income.--For
purposes of subparagraph (A), qualified business income
of a controlled foreign corporation shall not include
intangible income (as defined in section 250(c)(3)).
``(4) Determination of effective rate of foreign income tax
and qualified business income.--
``(A) Country-by-country determination.--For
purposes of determining the effective rate of income
tax imposed by any foreign country under paragraph (1)
and qualified business income under paragraph (3), each
such paragraph shall be applied separately with respect
to--
``(i) each foreign country in which a
controlled foreign corporation conducts any
trade or business, and
``(ii) the entire gross income and
qualified business income derived with respect
to such foreign country.
``(B) Treatment of losses.--For purposes of
determining the effective rate of income tax imposed by
any foreign country under paragraph (1)--
``(i) such effective rate shall be
determined without regard to any losses carried
to the relevant taxable year, and
``(ii) to the extent the income of the
controlled foreign corporation reduces losses
in the relevant taxable year, such effective
rate shall be treated as being the effective
rate which would have been imposed on such
income without regard to such losses.
``(5) Deductions to be taken into account.--The gross
income of a controlled foreign corporation taken into account
under this subsection shall be reduced, under regulations
prescribed by the Secretary, so as to take into account
deductions (including taxes) properly allocable to such
income.''.
(c) Conforming Amendments.--
(1) Subsection (a) of section 952 is amended--
(A) by striking ``paragraph (4)'' in the next to
last sentence and inserting ``paragraph (5)'', and
(B) by striking ``paragraph (5)'' in the last
sentence and inserting ``paragraph (6)''.
(2) Subsection (d) of section 952 is amended by striking
``subsection (a)(5)'' and inserting ``subsection (a)(6)''.
(3) Paragraphs (1) and (2) of section 999(c) are each
amended by striking ``section 952(a)(3)'' and inserting
``section 952(a)(4)''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2012, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 202. PERMANENT EXTENSION OF LOOK-THRU RULE FOR CONTROLLED FOREIGN
CORPORATIONS.
(a) In General.--Section 954(c)(6)(C) is amended by striking ``and
before January 1, 2012,''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2011, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 203. PERMANENT EXTENSION OF EXCEPTIONS FOR ACTIVE FINANCING
INCOME.
(a) Exception From Insurance Income.--Section 953(e)(10) is
amended--
(1) by striking ``and before January 1, 2012,'', and
(2) by striking the last sentence.
(b) Exception From Foreign Personal Holding Company Income.--
Section 954(h)(9) is amended by striking ``and before January 1,
2012,''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2011, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 204. FOREIGN BASE COMPANY INCOME NOT TO INCLUDE SALES OR SERVICES
INCOME.
(a) Repeal.--Paragraphs (2) and (3) of section 954(a) are repealed.
(b) Conforming Amendments.--
(1) Section 954(d) is amended by adding at the end the
following new paragraph:
``(5) Termination.--This subsection shall not apply to
taxable years of foreign corporations beginning after December
31, 2012, and to taxable years of United States shareholders
with or within which such taxable years of foreign corporations
end.''.
(2) Section 954(e) is amended by adding at the end the
following new paragraph:
``(3) Termination.--This subsection shall not apply to
taxable years of foreign corporations beginning after December
31, 2012, and to taxable years of United States shareholders
with or within which such taxable years of foreign corporations
end.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2012, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
Subtitle B--Modifications Related to Foreign Tax Credit
SEC. 211. MODIFICATION OF APPLICATION OF SECTIONS 902 AND 960 WITH
RESPECT TO POST-2012 EARNINGS.
(a) Section 902 Not To Apply to Dividends From Post-2012
Earnings.--Section 902 is amended by redesignating subsection (d) as
subsection (e) and by inserting after subsection (c) the following new
subsection:
``(d) Section Not To Apply to Dividends From Post-2012 Earnings.--
``(1) In general.--This section shall not apply to the
portion of any dividend paid by a foreign corporation to the
extent such portion is made out of earnings and profits of the
foreign corporation (computed in accordance with sections
964(a) and 986) accumulated in taxable years beginning after
December 31, 2012.
``(2) Coordination with distributions from pre-2013
earnings and profits.--For purposes of this section--
``(A) Ordering rule.--Any distribution in a taxable
year beginning after December 31, 2012, shall be
treated as first made out of earnings and profits of
the foreign corporation (computed in accordance with
sections 964(a) and 986) accumulated in taxable years
beginning before January 1, 2013.
``(B) Post-1986 undistributed earnings.--Post-1986
undistributed earnings shall not include earnings and
profits described in paragraph (1).''
(b) Determination of Section 960 Credit on Current Year Basis.--
Section 960 is amended by adding at the end the following new
subsection:
``(d) Deemed Paid Credit for Subpart F Inclusions Attributable to
Post-2012 Earnings.--
``(1) In general.--For purposes of this subpart, if there
is included in the gross income of a domestic corporation any
amount under section 951(a)--
``(A) with respect to any controlled foreign
corporation with respect to which such domestic
corporation is a United States shareholder, and
``(B) which is attributable to the earnings and
profits of the controlled foreign corporation (computed
in accordance with sections 964(a) and 986) accumulated
in taxable years beginning after December 31, 2012,
then subsections (a), (b), and (c) shall not apply and such
domestic corporation shall be deemed to have paid so much of
such foreign corporation's foreign income taxes as are properly
attributable to the amount so included.
``(2) Foreign income taxes.--For purposes of this
subsection, the term `foreign income taxes' means any income,
war profits, or excess profits taxes paid or accrued by the
controlled foreign corporation to any foreign country or
possession of the United States.
``(3) Regulations.--The Secretary shall provide such
regulations as may be necessary or appropriate to carry out the
provisions of this subsection.''.
SEC. 212. SEPARATE FOREIGN TAX CREDIT BASKET FOR FOREIGN INTANGIBLE
INCOME.
(a) In General.--Paragraph (1) of section 904(d) is amended by
striking ``and'' at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ``, and'', and by adding
at the end the following:
``(C) foreign intangible income (as defined in
paragraph (2)(J)).''.
(b) Foreign Intangible Income.--
(1) In general.--Section 904(d)(2) is amended by
redesignating subparagraphs (J) and (K) as subparagraphs (K)
and (L) and by inserting after subparagraph (I) the following:
``(J) Foreign intangible income.--For purposes of
this section--
``(i) In general.--The term `foreign
intangible income' has the meaning given such
term by section 250(c).
``(ii) Coordination.--Passive category
income and general category income shall not
include foreign intangible income.''
(2) General category income.--Section 904(d)(2)(A)(ii) is
amended by inserting ``or foreign intangible income'' after
``passive category income''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2012.
(2) Transitional rule.--For purposes of section 904(d)(1)
of the Internal Revenue Code of 1986 (as amended by this Act)--
(A) taxes carried from any taxable year beginning
before January 1, 2013, to any taxable year beginning
on or after such date, with respect to any item of
income, shall be treated as described in the
subparagraph of such section 904(d)(1) in which such
income would be described without regard to the
amendments made by this section, and
(B) any carryback of taxes with respect to foreign
intangible income from a taxable year beginning on or
after January 1, 2013, to a taxable year beginning
before such date shall be allocated to the general
income category.
SEC. 213. INVENTORY PROPERTY SALES SOURCE RULE EXCEPTIONS NOT TO APPLY
FOR FOREIGN TAX CREDIT LIMITATION.
(a) In General.--Section 904 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k) the
following new subsection:
``(l) Inventory Property Sales Source Rule Exceptions Not To
Apply.--Any amount which would be treated as derived from sources
without the United States by reason of the application of section
862(a)(6) or 863(b)(2) for any taxable year shall be treated as derived
from sources within the United States for purposes of this section.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2012.
Subtitle C--Allocation of Interest on Worldwide Basis
SEC. 221. ACCELERATION OF ELECTION TO ALLOCATE INTEREST ON A WORLDWIDE
BASIS.
Section 864(f)(6) is amended by striking ``December 31, 2020'' and
inserting ``December 31, 2012''.
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