[Congressional Record Volume 149, Number 59 (Friday, April 11, 2003)]
[Senate]
[Pages S5374-S5375]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH (for himself, Mr. Breaux, and Mr. Hatch):
  S. 914. A bill to amend the Internal Revenue Code of 1986 to apply 
look-thru rules for purposes of the foreign tax credit limitation to 
dividends from foreign corporations not controlled by a domestic 
corporation; to the Committee on Finance.
  Mr. SMITH. Mr. President I rise today to introduce legislation to 
simplify an unnecessarily complex portion of the tax code that serves 
as an impediment to U.S. businesses attempting to compete in foreign 
markets. I am proud to be joined in this effort by my friends and 
colleagues Sens. Breaux and Hatch. The Foreign Tax Credit, FTC, was 
designed to ensure that U.S. corporations were not subject to double 
taxation on foreign income. A number of limitations were placed on 
these credits in order to guard against attempts to reduce U.S. taxes 
on income earned here. Consequently, income earned abroad is sorted 
into separate ``baskets'' based on how the income is earned, also known 
as ``look-through'' treatment.

[[Page S5375]]

  Unfortunately, income from certain corporate joint ventures has not 
always been afforded look-through treatment. In the past, income from a 
10/50 company, a U.S. firm has substantial ownership, at least 10 
percent but not a controlling interest 50 percent, was subject to 
different tax treatment. In 1997, Congress attempted to address 
disparity with legislation affording look-through treatment for 
dividends paid by 10/50 companies. However, the bill included vague 
transition rules that were complex and expensive for U.S. companies.
  Our bill would resolve these transition issues by restoring parity in 
the tax treatment of joint-venture income to other income earned 
overseas by U.S. companies. Everyone, from the Joint Committee on 
Taxation in the 2001 simplification study to the Clinton Administration 
in its budget documents, has called for simplification in this area.
  Legal and political realities in foreign markets often necessitate 
the use of corporate joint ventures with local firms. U.S. 
international tax rules should not penalize companies with overly 
complicated and costly limitations purely because they choose or are 
forced to do business in a certain form. The 10/50 transition rules 
didn't allow the full use of foreign tax credits, thus over-taxing 
income generated from these business ventures. We need to eliminate the 
last vestiges of the 10/50 regime in order to level the international 
playing field for U.S. companies.
  I ask that all my colleagues consider and support this important 
legislation. I ask unanimous consent that the text of this bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 914

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM 
                   NONCONTROLLED SECTION 902 CORPORATIONS.

       (a) In General.--Paragraph (4) of section 904(d) of the 
     Internal Revenue Code of 1986 (relating to separate 
     application of section with respect to certain categories of 
     income) is amended to read as follows:
       ``(4) Look-thru applies to dividends from noncontrolled 
     section 902 corporations.--
       ``(A) In general.--For purposes of this subsection, any 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer shall be treated as income in a 
     separate category in proportion to the ratio of--
       ``(i) the portion of earnings and profits attributable to 
     income in such category, to
       ``(ii) the total amount of earnings and profits.
       ``(B) Special rules.--For purposes of this paragraph--
       ``(i) In general.--Rules similar to the rules of paragraph 
     (3)(F) shall apply.
       ``(ii) Earnings and profits.--

       ``(I) In general.--The rules of section 316 shall apply.
       ``(II) Regulations.--The Secretary may prescribe 
     regulations regarding the treatment of distributions out of 
     earnings and profits for periods before the taxpayer's 
     acquisition of the stock to which the distributions relate.

       ``(iii) Dividends not allocable to separate category.--The 
     portion of any dividend from a noncontrolled section 902 
     corporation which is not treated as income in a separate 
     category under subparagraph (A) shall be treated as a 
     dividend to which subparagraph (A) does not apply.
       ``(iv) Look-thru with respect to carryforwards of credit.--
     Rules similar to the rules of subparagraph (A) also shall 
     apply to any carryforward under subsection (c) from a taxable 
     year beginning before January 1, 2003, of tax allocable to a 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (E) of section 904(d)(1) of the Internal 
     Revenue Code of 1986, as in effect both before and after the 
     amendments made by section 1105 of the Taxpayer Relief Act of 
     1997, is hereby repealed.
       (2) Section 904(d)(2)(C)(iii) of such Code, as so in 
     effect, is amended by striking subclause (II) and by 
     redesignating subclause (III) as subclause (II).
       (3) The last sentence of section 904(d)(2)(D) of such Code, 
     as so in effect, is amended to read as follows: ``Such term 
     does not include any financial services income.''.
       (4) Section 904(d)(2)(E) of such Code is amended--
       (A) by inserting ``or (4)'' after ``paragraph (3)'' in 
     clause (i), and
       (B) by striking clauses (ii) and (iv) and by redesignating 
     clause (iii) as clause (ii).
       (5) Section 904(d)(3)(F) of such Code is amended by 
     striking ``(D), or (E)'' and inserting ``or (D)''.
       (6) Section 864(d)(5)(A)(i) of such Code is amended by 
     striking ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
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