Excludes from gross income "extraterritorial income," except that extraterritorial income which is not qualifying "qualifying foreign trade income" shall not be excluded from gross income.
Defines "extraterritorial income" as gross income of the taxpayer attributable to "foreign trading gross receipts" of the taxpayer.
Defines "qualifying foreign trade income," with respect to any transaction, as the amount of gross income which, if excluded, will result in a reduction of the taxable income of the taxpayer from such transaction equal to the greatest of: (1) 30 percent of the foreign sale and leasing income derived by the taxpayer from such transaction; (2) 1.2 percent of the foreign trading gross receipts derived by the taxpayer from the transaction; or (3) 15 percent of the foreign trade income derived by the taxpayer from the transaction. Prohibits in any event the amount determined under clause (2) from exceeding 200 percent of the amount determined under clause (3). Permits an alternative computation.
Defines "foreign trading gross receipts" as the gross receipts of the taxpayer which are: (1) from the sale, exchange, or other disposition of qualifying foreign trade property; (2) from the lease or rental of qualifying foreign trade property for use by the lessee outside the United States; (3) for services which are related and subsidiary to either any sale, exchange, or other disposition of qualifying foreign trade property by such taxpayer, or any lease or rental of qualifying foreign trade property described in clause (2) by such taxpayer; (4) for engineering or architectural services for construction projects located (or proposed for location) outside the United States; or (5) for the performance of managerial services for a person other than a related person in furtherance of the production of foreign trading gross receipts described in clause (1), (2), or (3). Prohibits clause (5) from applying to a taxpayer for any taxable year unless at least 50 percent of its foreign trading gross receipts (determined without regard to this sentence) for such taxable year is derived from activities described in clause (1), (2), or (3). Excludes specified receipts from the definition.
Sets forth additional definitions and rules.
[106th Congress Public Law 519]
[From the U.S. Government Publishing Office]
<DOC>
[DOCID: f:publ519.106]
[[Page 114 STAT. 2423]]
Public Law 106-519
106th Congress
An Act
To amend the Internal Revenue Code of 1986 to repeal the provisions
relating to foreign sales corporations (FSCs) and to exclude
extraterritorial income from gross income. <<NOTE: Nov. 15,
2000 - [H.R. 4986]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, <<NOTE: FSC Repeal and
Extraterritorial Income Exclusion Act of 2000.>>
SECTION 1. SHORT TITLE.
(a) <<NOTE: 26 USC 1 note.>> Short Title.--This Act may be cited as
the ``FSC Repeal and Extraterritorial Income Exclusion Act of 2000''.
(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.
SEC. 2. REPEAL OF FOREIGN SALES CORPORATION RULES.
Subpart C of part III of subchapter N of chapter 1 <<NOTE: 26 USC
921-927.>> (relating to taxation of foreign sales corporations) is
hereby repealed.
SEC. 3. TREATMENT OF EXTRATERRITORIAL INCOME.
(a) In General.--Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by inserting
before section 115 the following new section:
``SEC. 114. EXTRATERRITORIAL INCOME.
``(a) Exclusion.--Gross income does not include extraterritorial
income.
``(b) Exception.--Subsection (a) shall not apply to extraterritorial
income which is not qualifying foreign trade income as determined under
subpart E of part III of subchapter N.
``(c) Disallowance of Deductions.--
``(1) In general.--Any deduction of a taxpayer allocated
under paragraph (2) to extraterritorial income of the taxpayer
excluded from gross income under subsection (a) shall not be
allowed.
``(2) Allocation.--Any deduction of the taxpayer properly
apportioned and allocated to the extraterritorial income derived
by the taxpayer from any transaction shall be allocated on a
proportionate basis between--
``(A) the extraterritorial income derived from such
transaction which is excluded from gross income under
subsection (a), and
``(B) the extraterritorial income derived from such
transaction which is not so excluded.
[[Page 114 STAT. 2424]]
``(d) Denial of Credits for Certain Foreign Taxes.--Notwithstanding
any other provision of this chapter, no credit shall be allowed under
this chapter for any income, war profits, and excess profits taxes paid
or accrued to any foreign country or possession of the United States
with respect to extraterritorial income which is excluded from gross
income under subsection (a).
``(e) Extraterritorial Income.--For purposes of this section, the
term `extraterritorial income' means the gross income of the taxpayer
attributable to foreign trading gross receipts (as defined in section
942) of the taxpayer.''.
(b) Qualifying Foreign Trade Income.--Part III of subchapter N of
chapter 1 is amended by inserting after subpart D the following new
subpart:
``Subpart E--Qualifying Foreign Trade Income
``Sec. 941. Qualifying foreign trade income.
``Sec. 942. Foreign trading gross receipts.
``Sec. 943. Other definitions and special rules.
``SEC. 941. QUALIFYING FOREIGN TRADE INCOME.
``(a) Qualifying Foreign Trade Income.--For purposes of this subpart
and section 114--
``(1) In general.--The term `qualifying foreign trade
income' means, with respect to any transaction, the amount of
gross income which, if excluded, will result in a reduction of
the taxable income of the taxpayer from such transaction equal
to the greatest of--
``(A) 30 percent of the foreign sale and leasing
income derived by the taxpayer from such transaction,
``(B) 1.2 percent of the foreign trading gross
receipts derived by the taxpayer from the transaction,
or
``(C) 15 percent of the foreign trade income derived
by the taxpayer from the transaction.
In no event shall the amount determined under subparagraph (B)
exceed 200 percent of the amount determined under subparagraph
(C).
``(2) Alternative computation.--A taxpayer may compute its
qualifying foreign trade income under a subparagraph of
paragraph (1) other than the subparagraph which results in the
greatest amount of such income.
``(3) Limitation on use of foreign trading gross receipts
method.--If any person computes its qualifying foreign trade
income from any transaction with respect to any property under
paragraph (1)(B), the qualifying foreign trade income of such
person (or any related person) with respect to any other
transaction involving such property shall be zero.
``(4) Rules for marginal costing.--The Secretary shall
prescribe regulations setting forth rules for the allocation of
expenditures in computing foreign trade income under paragraph
(1)(C) in those cases where a taxpayer is seeking to establish
or maintain a market for qualifying foreign trade property.
``(5) <<NOTE: Regulations.>> Participation in international
boycotts, etc.--Under regulations prescribed by the Secretary,
the qualifying foreign trade income of a taxpayer for any
taxable year shall be reduced (but not below zero) by the sum
of--
[[Page 114 STAT. 2425]]
``(A) an amount equal to such income multiplied by
the international boycott factor determined under
section 999, and
``(B) any illegal bribe, kickback, or other payment
(within the meaning of section 162(c)) paid by or on
behalf of the taxpayer directly or indirectly to an
official, employee, or agent in fact of a government.
``(b) Foreign Trade Income.--For purposes of this subpart--
``(1) In general.--The term `foreign trade income' means the
taxable income of the taxpayer attributable to foreign trading
gross receipts of the taxpayer.
``(2) Special rule for cooperatives.--In any case in which
an organization to which part I of subchapter T applies which is
engaged in the marketing of agricultural or horticultural
products sells qualifying foreign trade property, in computing
the taxable income of such cooperative, there shall not be taken
into account any deduction allowable under subsection (b) or (c)
of section 1382 (relating to patronage dividends, per-unit
retain allocations, and nonpatronage distributions).
``(c) Foreign Sale and Leasing Income.--For purposes of this
section--
``(1) In general.--The term `foreign sale and leasing
income' means, with respect to any transaction--
``(A) foreign trade income properly allocable to
activities which--
``(i) are described in paragraph (2)(A)(i) or
(3) of section 942(b), and
``(ii) are performed by the taxpayer (or any
person acting under a contract with such taxpayer)
outside the United States, or
``(B) foreign trade income derived by the taxpayer
in connection with the lease or rental of qualifying
foreign trade property for use by the lessee outside the
United States.
``(2) Special rules for leased property.--
``(A) Sales income.--The term `foreign sale and
leasing income' includes any foreign trade income
derived by the taxpayer from the sale of property
described in paragraph (1)(B).
``(B) Limitation in certain cases.--Except as
provided in regulations, in the case of property which--
``(i) was manufactured, produced, grown, or
extracted by the taxpayer, or
``(ii) was acquired by the taxpayer from a
related person for a price which was not
determined in accordance with the rules of section
482,
the amount of foreign trade income which may be treated
as foreign sale and leasing income under paragraph
(1)(B) or subparagraph (A) of this paragraph with
respect to any transaction involving such property shall
not exceed the amount which would have been determined
if the taxpayer had acquired such property for the price
determined in accordance with the rules of section 482.
``(3) Special rules.--
``(A) Excluded property.--Foreign sale and leasing
income shall not include any income properly allocable
[[Page 114 STAT. 2426]]
to excluded property described in subparagraph (B) of
section 943(a)(3) (relating to intangibles).
``(B) Only direct expenses taken into account.--For
purposes of this subsection, any expense other than a
directly allocable expense shall not be taken into
account in computing foreign trade income.
``SEC. 942. FOREIGN TRADING GROSS RECEIPTS.
``(a) Foreign Trading Gross Receipts.--
``(1) In general.--Except as otherwise provided in this
section, for purposes of this subpart, the term `foreign trading
gross receipts' means the gross receipts of the taxpayer which
are--
``(A) from the sale, exchange, or other disposition
of qualifying foreign trade property,
``(B) from the lease or rental of qualifying foreign
trade property for use by the lessee outside the United
States,
``(C) for services which are related and subsidiary
to--
``(i) any sale, exchange, or other disposition
of qualifying foreign trade property by such
taxpayer, or
``(ii) any lease or rental of qualifying
foreign trade property described in subparagraph
(B) by such taxpayer,
``(D) for engineering or architectural services for
construction projects located (or proposed for location)
outside the United States, or
``(E) for the performance of managerial services for
a person other than a related person in furtherance of
the production of foreign trading gross receipts
described in subparagraph (A), (B), or (C).
Subparagraph (E) shall not apply to a taxpayer for any taxable
year unless at least 50 percent of its foreign trading gross
receipts (determined without regard to this sentence) for such
taxable year is derived from activities described in
subparagraph (A), (B), or (C).
``(2) Certain receipts excluded on basis of use; subsidized
receipts excluded.--The term `foreign trading gross receipts'
shall not include receipts of a taxpayer from a transaction if--
``(A) the qualifying foreign trade property or
services--
``(i) are for ultimate use in the United
States, or
``(ii) are for use by the United States or any
instrumentality thereof and such use of qualifying
foreign trade property or services is required by
law or regulation, or
``(B) such transaction is accomplished by a subsidy
granted by the government (or any instrumentality
thereof ) of the country or possession in which the
property is manufactured, produced, grown, or extracted.
``(3) Election to exclude certain receipts.--The term
`foreign trading gross receipts' shall not include gross
receipts of a taxpayer from a transaction if the taxpayer elects
not to have such receipts taken into account for purposes of
this subpart.
``(b) Foreign Economic Process Requirements.--
[[Page 114 STAT. 2427]]
``(1) In general.--Except as provided in subsection (c), a
taxpayer shall be treated as having foreign trading gross
receipts from any transaction only if economic processes with
respect to such transaction take place outside the United States
as required by paragraph (2).
``(2) Requirement.--
``(A) In general.--The requirements of this
paragraph are met with respect to the gross receipts of
a taxpayer derived from any transaction if--
``(i) such taxpayer (or any person acting
under a contract with such taxpayer) has
participated outside the United States in the
solicitation (other than advertising), the
negotiation, or the making of the contract
relating to such transaction, and
``(ii) the foreign direct costs incurred by
the taxpayer attributable to the transaction equal
or exceed 50 percent of the total direct costs
attributable to the transaction.
``(B) Alternative 85-percent test.--A taxpayer shall
be treated as satisfying the requirements of
subparagraph (A)(ii) with respect to any transaction if,
with respect to each of at least two subparagraphs of
paragraph (3), the foreign direct costs incurred by such
taxpayer attributable to activities described in such
subparagraph equal or exceed 85 percent of the total
direct costs attributable to activities described in
such subparagraph.
``(C) Definitions.--For purposes of this paragraph--
``(i) Total direct costs.--The term `total
direct costs' means, with respect to any
transaction, the total direct costs incurred by
the taxpayer attributable to activities described
in paragraph (3) performed at any location by the
taxpayer or any person acting under a contract
with such taxpayer.
``(ii) Foreign direct costs.--The term
`foreign direct costs' means, with respect to any
transaction, the portion of the total direct costs
which are attributable to activities performed
outside the United States.
``(3) Activities relating to qualifying foreign trade
property.--The activities described in this paragraph are any of
the following with respect to qualifying foreign trade
property--
``(A) advertising and sales promotion,
``(B) the processing of customer orders and the
arranging for delivery,
``(C) transportation outside the United States in
connection with delivery to the customer,
``(D) the determination and transmittal of a final
invoice or statement of account or the receipt of
payment, and
``(E) the assumption of credit risk.
``(4) Economic processes performed by related persons.--A
taxpayer shall be treated as meeting the requirements of this
subsection with respect to any sales transaction involving any
property if any related person has met such requirements in such
transaction or any other sales transaction involving such
property.
[[Page 114 STAT. 2428]]
``(c) Exception From Foreign Economic Process Requirement.--
``(1) In general.--The requirements of subsection (b) shall
be treated as met for any taxable year if the foreign trading
gross receipts of the taxpayer for such year do not exceed
$5,000,000.
``(2) <<NOTE: Regulations.>> Receipts of related persons
aggregated.--All related persons shall be treated as one person
for purposes of paragraph (1), and the limitation under
paragraph (1) shall be allocated among such persons in a manner
provided in regulations prescribed by the Secretary.
``(3) <<NOTE: Applicability.>> Special rule for pass-thru
entities.--In the case of a partnership, S corporation, or other
pass-thru entity, the limitation under paragraph (1) shall apply
with respect to the partnership, S corporation, or entity and
with respect to each partner, shareholder, or other owner.
``SEC. 943. OTHER DEFINITIONS AND SPECIAL RULES.
``(a) Qualifying Foreign Trade Property.--For purposes of this
subpart--
``(1) In general.--The term `qualifying foreign trade
property' means property--
``(A) manufactured, produced, grown, or extracted
within or outside the United States,
``(B) held primarily for sale, lease, or rental, in
the ordinary course of trade or business for direct use,
consumption, or disposition outside the United States,
and
``(C) not more than 50 percent of the fair market
value of which is attributable to--
``(i) articles manufactured, produced, grown,
or extracted outside the United States, and
``(ii) direct costs for labor (determined
under the principles of section 263A) performed
outside the United States.
For purposes of subparagraph (C), the fair market value of any
article imported into the United States shall be its appraised
value, as determined by the Secretary under section 402 of the
Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its
importation, and the direct costs for labor under clause (ii) do
not include costs that would be treated under the principles of
section 263A as direct labor costs attributable to articles
described in clause (i).
``(2) U.S. taxation to ensure consistent treatment.--
Property which (without regard to this paragraph) is qualifying
foreign trade property and which is manufactured, produced,
grown, or extracted outside the United States shall be treated
as qualifying foreign trade property only if it is manufactured,
produced, grown, or extracted by--
``(A) a domestic corporation,
``(B) an individual who is a citizen or resident of
the United States,
``(C) a foreign corporation with respect to which an
election under subsection (e) (relating to foreign
corporations electing to be subject to United States
taxation) is in effect, or
[[Page 114 STAT. 2429]]
``(D) a partnership or other pass-thru entity all of
the partners or owners of which are described in
subparagraph (A), (B), or (C).
Except as otherwise provided by the Secretary, tiered
partnerships or pass-thru entities shall be treated as described
in subparagraph (D) if each of the partnerships or entities is
directly or indirectly wholly owned by persons described in
subparagraph (A), (B), or (C).
``(3) Excluded property.--The term `qualifying foreign trade
property' shall not include--
``(A) property leased or rented by the taxpayer for
use by any related person,
``(B) patents, inventions, models, designs,
formulas, or processes whether or not patented,
copyrights (other than films, tapes, records, or similar
reproductions, and other than computer software (whether
or not patented), for commercial or home use), goodwill,
trademarks, trade brands, franchises, or other like
property,
``(C) oil or gas (or any primary product thereof ),
``(D) products the transfer of which is prohibited
or curtailed to effectuate the policy set forth in
paragraph (2)(C) of section 3 of Public Law 96-72, or
``(E) any unprocessed timber which is a softwood.
For purposes of subparagraph (E), the term `unprocessed timber'
means any log, cant, or similar form of timber.
``(4) Property in short supply.--If the President determines
that the supply of any property described in paragraph (1) is
insufficient to meet the requirements of the domestic economy,
the President may by Executive order designate the property as
in short supply. Any property so designated shall not be treated
as qualifying foreign trade property during the period beginning
with the date specified in the Executive order and ending with
the date specified in an Executive order setting forth the
President's determination that the property is no longer in
short supply.
``(b) Other Definitions and Rules.--For purposes of this subpart--
``(1) Transaction.--
``(A) In general.--The term `transaction' means--
``(i) any sale, exchange, or other
disposition,
``(ii) any lease or rental, and
``(iii) any furnishing of services.
``(B) Grouping of transactions.--To the extent
provided in regulations, any provision of this subpart
which, but for this subparagraph, would be applied on a
transaction-by-transaction basis may be applied by the
taxpayer on the basis of groups of transactions based on
product lines or recognized industry or trade usage.
Such regulations may permit different groupings for
different purposes.
``(2) United states defined.--The term `United States'
includes the Commonwealth of Puerto Rico. The preceding sentence
shall not apply for purposes of determining whether a
corporation is a domestic corporation.
``(3) Related person.--A person shall be related to another
person if such persons are treated as a single employer under
subsection (a) or (b) of section 52 or subsection (m) or (o) of
section 414, except that determinations under subsections
[[Page 114 STAT. 2430]]
(a) and (b) of section 52 shall be made without regard to
section 1563(b).
``(4) Gross and taxable income.--Section 114 shall not be
taken into account in determining the amount of gross income or
foreign trade income from any transaction.
``(c) Source Rule.--Under regulations, in the case of qualifying
foreign trade property manufactured, produced, grown, or extracted
within the United States, the amount of income of a taxpayer from any
sales transaction with respect to such property which is treated as from
sources without the United States shall not exceed--
``(1) in the case of a taxpayer computing its qualifying
foreign trade income under section 941(a)(1)(B), the amount of
the taxpayer's foreign trade income which would (but for this
subsection) be treated as from sources without the United States
if the foreign trade income were reduced by an amount equal to 4
percent of the foreign trading gross receipts with respect to
the transaction, and
``(2) in the case of a taxpayer computing its qualifying
foreign trade income under section 941(a)(1)(C), 50 percent of
the amount of the taxpayer's foreign trade income which would
(but for this subsection) be treated as from sources without the
United States.
``(d) Treatment of Withholding Taxes.--
``(1) In general.--For purposes of section 114(d), any
withholding tax shall not be treated as paid or accrued with
respect to extraterritorial income which is excluded from gross
income under section 114(a). For purposes of this paragraph, the
term `withholding tax' means any tax which is imposed on a basis
other than residence and for which credit is allowable under
section 901 or 903.
``(2) Exception.--Paragraph (1) shall not apply to any
taxpayer with respect to extraterritorial income from any
transaction if the taxpayer computes its qualifying foreign
trade income with respect to the transaction under section
941(a)(1)(A).
``(e) Election To Be Treated as Domestic Corporation.--
``(1) In general.--An applicable foreign corporation may
elect to be treated as a domestic corporation for all purposes
of this title if such corporation waives all benefits to such
corporation granted by the United States under any treaty. No
election under section 1362(a) may be made with respect to such
corporation.
``(2) Applicable foreign corporation.--For purposes of
paragraph (1), the term `applicable foreign corporation' means
any foreign corporation if--
``(A) such corporation manufactures, produces,
grows, or extracts property in the ordinary course of
such corporation's trade or business, or
``(B) substantially all of the gross receipts of
such corporation are foreign trading gross receipts.
``(3) Period of election.--
``(A) <<NOTE: Applicability.>> In general.--Except
as otherwise provided in this paragraph, an election
under paragraph (1) shall apply to the taxable year for
which made and all subsequent
[[Page 114 STAT. 2431]]
taxable years unless revoked by the taxpayer. Any
revocation of such election shall apply to taxable years
beginning after such revocation.
``(B) Termination.--If a corporation which made an
election under paragraph (1) for any taxable year fails
to meet the requirements of subparagraph (A) or (B) of
paragraph (2) for any subsequent taxable year, such
election shall not apply to any taxable year beginning
after such subsequent taxable year.
``(C) Effect of revocation or termination.--If a
corporation which made an election under paragraph (1)
revokes such election or such election is terminated
under subparagraph (B), such corporation (and any
successor corporation) may not make such election for
any of the 5 taxable years beginning with the first
taxable year for which such election is not in effect as
a result of such revocation or termination.
``(4) Special rules.--
``(A) Requirements.--This subsection shall not apply
to an applicable foreign corporation if such corporation
fails to meet the requirements (if any) which the
Secretary may prescribe to ensure that the taxes imposed
by this chapter on such corporation are paid.
``(B) Effect of election, revocation, and
termination.--
``(i) Election.--For purposes of section 367,
a foreign corporation making an election under
this subsection shall be treated as transferring
(as of the first day of the first taxable year to
which the election applies) all of its assets to a
domestic corporation in connection with an
exchange to which section 354 applies.
``(ii) Revocation and termination.--For
purposes of section 367, if--
``(I) an election is made by a
corporation under paragraph (1) for any
taxable year, and
``(II) such election ceases to apply
for any subsequent taxable year,
such corporation shall be treated as a domestic
corporation transferring (as of the 1st day of the first
such subsequent taxable year to which such election
ceases to apply) all of its property to a foreign
corporation in connection with an exchange to which
section 354 applies.
``(C) Eligibility for election.--The Secretary may
by regulation designate one or more classes of
corporations which may not make the election under this
subsection.
``(f ) Rules Relating to Allocations of Qualifying Foreign Trade
Income From Shared Partnerships.--
``(1) In general.--If--
``(A) a partnership maintains a separate account for
transactions (to which this subpart applies) with each
partner,
``(B) distributions to each partner with respect to
such transactions are based on the amounts in the
separate account maintained with respect to such
partner, and
``(C) such partnership meets such other requirements
as the Secretary may by regulations prescribe,
[[Page 114 STAT. 2432]]
then such partnership shall allocate to each partner items of
income, gain, loss, and deduction (including qualifying foreign
trade income) from any transaction to which this subpart applies
on the basis of such separate account.
``(2) Special rules.--For purposes of this subpart, in the
case of a partnership to which paragraph (1) applies--
``(A) any partner's interest in the partnership
shall not be taken into account in determining whether
such partner is a related person with respect to any
other partner, and
``(B) the election under section 942(a)(3) shall be
made separately by each partner with respect to any
transaction for which the partnership maintains separate
accounts for each partner.
``(g) Exclusion for Patrons of Agricultural and Horticultural
Cooperatives.--Any amount described in paragraph (1) or (3) of section
1385(a)--
``(1) which is received by a person from an organization to
which part I of subchapter T applies which is engaged in the
marketing of agricultural or horticultural products, and
``(2) which is allocable to qualifying foreign trade income
and designated as such by the organization in a written notice
mailed to its patrons during the payment period described in
section 1382(d),
shall be treated as qualifying foreign trade income of such person for
purposes of section 114. The taxable income of the organization shall
not be reduced under section 1382 by reason of any amount to which the
preceding sentence applies.
``(h) Special Rule for DISCs.--Section 114 shall not apply to any
taxpayer for any taxable year if, at any time during the taxable year,
the taxpayer is a member of any controlled group of corporations (as
defined in section 927(d)(4), as in effect before the date of the
enactment of this subsection) of which a DISC is a member.''.
SEC. 4. TECHNICAL AND CONFORMING AMENDMENTS.
(1) The second sentence of section 56(g)(4)(B)(i) <<NOTE: 26
USC 56.>> is amended by inserting before the period ``or under
section 114''.
(2) Section 275(a) <<NOTE: 26 USC 275.>> is amended--
(A) by striking ``or'' at the end of paragraph
(4)(A), by striking the period at the end of paragraph
(4)(B) and inserting ``, or'', and by adding at the end
of paragraph (4) the following new subparagraph:
``(C) such taxes are paid or accrued with respect to
qualifying foreign trade income (as defined in section
941).''; and
(B) by adding at the end the following the following
new sentence: ``A rule similar to the rule of section
943(d) shall apply for purposes of paragraph (4)(C).''.
(3) Paragraph (3) of section 864(e) <<NOTE: 26 USC 864.>>
is amended--
(A) by striking ``For purposes of'' and inserting:
``(A) In general.--For purposes of''; and
(B) by adding at the end the following new
subparagraph:
``(B) Assets producing exempt extraterritorial
income.--For purposes of allocating and apportioning any
interest expense, there shall not be taken into account
[[Page 114 STAT. 2433]]
any qualifying foreign trade property (as defined in
section 943(a)) which is held by the taxpayer for lease
or rental in the ordinary course of trade or business
for use by the lessee outside the United States (as
defined in section 943(b)(2)).''.
(4) Section 903 <<NOTE: 26 USC 903.>> is amended by
striking ``164(a)'' and inserting ``114, 164(a),''.
(5) Section 999(c)(1) <<NOTE: 26 USC 999.>> is amended by
inserting ``941(a)(5),'' after ``908(a),''.
(6) The table of sections for part III of subchapter B of
chapter 1 is amended by inserting before the item relating to
section 115 the following new item:
``Sec. 114. Extraterritorial income.''.
(7) The table of subparts for part III of subchapter N of
chapter 1 is amended by striking the item relating to subpart E
and inserting the following new item:
``Subpart E. Qualifying foreign trade income.''.
(8) The table of subparts for part III of subchapter N of
chapter 1 is amended by striking the item relating to subpart C.
SEC. 5. EFFECTIVE DATE. <<NOTE: 26 USC 941 note.>>
(a) <<NOTE: Applicability.>> In General.--The amendments made by
this Act shall apply to transactions after September 30, 2000.
(b) No New FSCs; Termination of Inactive FSCs.--
(1) No new fscs.--No corporation may elect after September
30, 2000, to be a FSC (as defined in section 922 of the Internal
Revenue Code of 1986, as in effect before the amendments made by
this Act).
(2) Termination of inactive fscs.--If a FSC has no foreign
trade income (as defined in section 923(b) of such Code, as so
in effect) for any period of 5 consecutive taxable years
beginning after December 31, 2001, such FSC shall cease to be
treated as a FSC for purposes of such Code for any taxable year
beginning after such period.
(c) Transition Period for Existing Foreign Sales Corporations.--
(1) In general.--In the case of a FSC (as so defined) in
existence on September 30, 2000, and at all times thereafter,
the amendments made by this Act shall not apply to any
transaction in the ordinary course of trade or business
involving a FSC which occurs--
(A) before January 1, 2002; or
(B) after December 31, 2001, pursuant to a binding
contract--
(i) which is between the FSC (or any related
person) and any person which is not a related
person; and
(ii) which is in effect on September 30, 2000,
and at all times thereafter.
For purposes of this paragraph, a binding contract shall include
a purchase option, renewal option, or replacement option which
is included in such contract and which is enforceable against
the seller or lessor.
(2) Election to have amendments apply earlier.--A taxpayer
may elect to have the amendments made by this Act apply to any
transaction by a FSC or any related person
[[Page 114 STAT. 2434]]
to which such amendments would apply but for the application of
paragraph (1). Such election shall be effective for the taxable
year for which made and all subsequent taxable years, and, once
made, may be revoked only with the consent of the Secretary of
the Treasury.
(3) Exception for old earnings and profits of certain
corporations.--
(A) In general.--In the case of a foreign
corporation to which this paragraph applies--
(i) earnings and profits of such corporation
accumulated in taxable years ending before October
1, 2000, shall not be included in the gross income
of the persons holding stock in such corporation
by reason of section 943(e)(4)(B)(i); and
(ii) rules similar to the rules of clauses
(ii), (iii), and (iv) of section 953(d)(4)(B)
shall apply with respect to such earnings and
profits.
The preceding sentence shall not apply to earnings and
profits acquired in a transaction after September 30,
2000, to which section 381 applies unless the
distributor or transferor corporation was immediately
before the transaction a foreign corporation to which
this paragraph applies.
(B) <<NOTE: Applicability.>> Existing fscs.--This
paragraph shall apply to any controlled foreign
corporation (as defined in section 957) if--
(i) such corporation is a FSC (as so defined)
in existence on September 30, 2000;
(ii) such corporation is eligible to make the
election under section 943(e) by reason of being
described in paragraph (2)(B) of such section; and
(iii) such corporation makes such election not
later than for its first taxable year beginning
after December 31, 2001.
(C) <<NOTE: Applicability.>> Other corporations.--
This paragraph shall apply to any controlled foreign
corporation (as defined in section 957), and such
corporation shall (notwithstanding any provision of
section 943(e)) be treated as an applicable foreign
corporation for purposes of section 943(e), if--
(i) such corporation is in existence on
September 30, 2000;
(ii) as of such date, such corporation is
wholly owned (directly or indirectly) by a
domestic corporation (determined without regard to
any election under section 943(e));
(iii) for each of the 3 taxable years
preceding the first taxable year to which the
election under section 943(e) by such controlled
foreign corporation applies--
(I) all of the gross income of such
corporation is subpart F income (as
defined in section 952), including by
reason of section 954(b)(3)(B); and
(II) in the ordinary course of such
corporation's trade or business, such
corporation regularly sold (or paid
commissions) to a FSC which on September
30, 2000, was a related person to such
corporation;
(iv) such corporation has never made an
election under section 922(a)(2) (as in effect
before the date
[[Page 114 STAT. 2435]]
of the enactment of this paragraph) to be treated
as a FSC; and
(v) such corporation makes the election under
section 943(e) not later than for its first
taxable year beginning after December 31, 2001.
The preceding sentence shall cease to apply as of the
date that the domestic corporation referred to in clause
(ii) ceases to wholly own (directly or indirectly) such
controlled foreign corporation.
(4) Related person.--For purposes of this subsection, the
term ``related person'' has the meaning given to such term by
section 943(b)(3).
(5) Section references.--Except as otherwise expressly
provided, any reference in this subsection to a section or other
provision shall be considered to be a reference to a section or
other provision of the Internal Revenue Code of 1986, as amended
by this Act.
(d) Special Rules Relating to Leasing Transactions.--
(1) Sales income.--If foreign trade income in connection
with the lease or rental of property described in section
927(a)(1)(B) of such Code (as in effect before the amendments
made by this Act) is treated as exempt foreign trade income for
purposes of section 921(a) of such Code (as so in effect), such
property shall be treated as property described in section
941(c)(1)(B) of such Code (as added by this Act) for purposes of
applying section 941(c)(2) of such Code (as so added) to any
subsequent transaction involving such property to which the
amendments made by this Act apply.
(2) Limitation on use of gross receipts method.--If any
person computed its foreign trade income from any transaction
with respect to any property on the basis of a transfer price
determined under the method described in section 925(a)(1) of
such Code (as in effect before the amendments made by this Act),
then the qualifying foreign trade income (as defined in section
941(a) of such Code, as in effect after such amendment) of such
person (or any related person) with respect to any other
transaction involving such property (and to which the amendments
made by this Act apply) shall be zero.
Approved November 15, 2000.
LEGISLATIVE HISTORY--H.R. 4986:
---------------------------------------------------------------------------
HOUSE REPORTS: No. 106-845 (Comm. on Ways and Means).
SENATE REPORTS: No. 106-416 (Comm. on Finance).
CONGRESSIONAL RECORD, Vol. 146 (2000):
Sept. 12, 13, considered and passed House.
Nov. 1, considered and passed Senate, amended.
Nov. 14, House concurred in Senate amendment.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 36 (2000):
Nov. 15, Presidential statement.
<all>
Committee on Finance. Reported by Senator Roth with amendments. With written report No. 106-416.
Committee on Finance. Reported by Senator Roth with amendments. With written report No. 106-416.
Placed on Senate Legislative Calendar under General Orders. Calendar No. 817.
Measure laid before Senate by unanimous consent. (consideration: CR S11450-11457; text of measure as reported in Senate: CR S11451-11454)
Committee amendments withdrawn by Unanimous Consent.
Passed/agreed to in Senate: Passed Senate with an amendment by Unanimous Consent.
Passed Senate with an amendment by Unanimous Consent.
Message on Senate action sent to the House.
Mr. Archer moved that the House suspend the rules and agree to the Senate amendment. (consideration: CR H11881-11899)
DEBATE - The House proceeded with forty minutes of debate on the motion.
At the conclusion of debate, the Yeas and Nays were demanded and ordered. Pursuant to the provisions of clause 5, rule I, the chair announced that further proceedings on the motion would be postponed.
Enacted as Public Law 106-519
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Resolving differences -- House actions: On motion that the House suspend the rules and agree to the Senate amendment Agreed to by the Yeas and Nays: (2/3 required): 316 - 72, 1 Present (Roll no. 597).(consideration: CR H11900-11901; text as House agreed to Senate amendment: CR H11881-11884)
Roll Call #597 (House)On motion that the House suspend the rules and agree to the Senate amendment Agreed to by the Yeas and Nays: (2/3 required): 316 - 72, 1 Present (Roll no. 597). (consideration: CR H11900-11901; text as House agreed to Senate amendment: CR H11881-11884)
Roll Call #597 (House)Motion to reconsider laid on the table Agreed to without objection.
Presented to President.
Presented to President.
Signed by President.
Signed by President.
Became Public Law No: 106-519.
Became Public Law No: 106-519.