A BILL
To amend the Internal Revenue Code of 1986 to modify certain provisions relating to the taxation of international entities.
“(a) Allowance of deduction—In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of—
“(1) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus
“(2) 50 percent of—
“(A) the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year, and
“(B) the amount treated as a dividend received by such corporation under section 78 which is attributable to the amount described in subparagraph (A).”
“(B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year.”
“(i) Certain payment not treated as base erosion payments
“(1) Exception for payments on which tax is imposed
“(A) In general—An amount shall not be treated as a base erosion payment if tax is (or was at the time of payment or accrual) imposed by this chapter with respect to such amount (other than by this section).
“(B) Treatment of certain deductions—For purposes of subparagraph (A), tax shall be treated as imposed by this chapter without regard to any deduction allowed under part VIII of subchapter B.
“(C) Application of certain rules—The amount not treated as a base erosion payment by reason of this paragraph shall be determined under rules similar to the rules of section 163(j)(5) (as in effect before the date of the enactment of Public Law 115–97).
“(2) Exception for certain payments subject to sufficient foreign tax
“(A) In general—An amount shall not be treated as a base erosion payment if the taxpayer establishes to the satisfaction of the Secretary that such amount was made to a foreign person which is a related party of the taxpayer that is subject to an effective rate of foreign income tax (as defined in section 904(d)(2)(F)) which is not less than 18.9 percent.
“(B) Certain payments to related parties—To the extent provided by the Secretary in regulations, an amount paid to a foreign person which is a related party of the taxpayer shall be treated as paid to another foreign person which is a related party of the taxpayer if such second foreign person is subject to an effective rate of foreign income tax (as defined in section 904(d)(2)(F)) which is less than 18.9 percent, to the extent the amount so paid directly or indirectly funds a payment to such second foreign person.
“(C) Determination on basis of applicable financial statements—Except as otherwise provided by the Secretary under subparagraph (D), the effective rate of foreign income tax with respect to any amount may be established on the basis of applicable financial statements (as defined in section 451(b)(3)).
“(D) Regulations—The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance providing procedures for determining the effective rate of foreign income tax to which any amount is subject. Such procedures may require that any transaction or series of transactions among multiple parties be recharacterized as one or more transactions directly among any 2 or more of such parties where the Secretary determines that such recharacterization is appropriate to carry out, or prevent avoidance of, the purposes of this section.
“(3) Exception for certain amounts with respect to services—Subsections (d)(1) and (d)(2) shall not apply to so much of any amount paid or accrued by a taxpayer for services as does not exceed the total services cost of such services. The preceding sentence shall not apply unless such services meet the requirements for eligibility for use of the services cost method under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure).”
“(5) Deductions treated as allocable to foreign source global intangible low-taxed income—In the case of a domestic corporation and solely for purposes of the application of subsection (a) with respect to amounts described in subsection (d)(1)(A), the taxpayer’s taxable income from sources without the United States shall be determined—
“(A) by allocating and apportioning any deduction allowed under section 250(a)(2) (and any deduction allowed under section 164(a)(3) for taxes imposed on amounts described in section 250(a)(2)) to such income, and
“(B) by allocating and apportioning any other deduction to such income only if the Secretary determines that such deduction is directly allocable to such income.”
“(B) Allocation of losses—Except as otherwise provided in this subparagraph, the separate limitation losses for any taxable year (to the extent such losses do not exceed the separate limitation incomes for such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis. In the case of a separate limitation loss for any taxable year in any category other than subparagraph (d)(1)(A), the amount of such separate limitation loss shall be allocated among (and operate to reduce) separate limitation income in any category other than income described in subparagraph (d)(1)(A) on a proportionate basis (without regard to income described in subparagraph (d)(1)(A)). The remaining separate limitation losses may reduce separate limitation income described in subparagraph (d)(1)(A) only to the extent that the aggregate amount of such losses exceeds the aggregate amount of separate limitation incomes (other than income described in subparagraph (d)(1)(A)) for such taxable year.”
“(i) Income category—The term income category means each category of income with respect to which this section is required to be applied separately by reason of any provision of this title.”
“(iii) Separate limitation loss—The term separate limitation loss means, with respect to any income category, the amount by which the gross income from sources outside the United States is exceeded by the sum of the deductions properly allocated and apportioned thereto.”
“(4) Subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person.”
“951B. Amounts included in gross income of foreign controlled United States shareholders
“(a) In general—In the case of any foreign controlled United States shareholder of a foreign controlled foreign corporation—
“(1) this subpart (other than sections 951A, 951(b), and 957) shall be applied with respect to such shareholder (separately from, and in addition to, the application of this subpart without regard to this section)—
“(A) by substituting “foreign controlled United States shareholder” for “United States shareholder” each place it appears therein, and
“(B) by substituting “foreign controlled foreign corporation” for “controlled foreign corporation” each place it appears therein, and
“(2) section 951A shall be applied with respect to such shareholder—
“(A) by treating each reference to “United States shareholder” in such section as including a reference to such shareholder, and
“(B) by treating each reference to “controlled foreign corporation” in such section as including a reference to such foreign controlled foreign corporation.
“(b) Foreign controlled United States shareholder—For purposes of this section, the term “foreign controlled United States shareholder” means, with respect to any foreign corporation, any United States person which would be a United States shareholder with respect to such foreign corporation if—
“(1) section 951(b) were applied by substituting “more than 50 percent” for “10 percent or more”, and
“(2) section 958(b) were applied without regard to paragraph (4) thereof.
“(c) Foreign controlled foreign corporation—For purposes of this section, the term “foreign controlled foreign corporation” means a foreign corporation, other than a controlled foreign corporation, which would be a controlled foreign corporation if section 957(a) were applied—
“(1) by substituting “foreign controlled United States shareholders” for “United States shareholders”, and
“(2) by substituting “section 958(b) (other than paragraph (4) thereof)” for “section 958(b)”.
“(d) Regulations—The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—
“(1) to treat a foreign controlled United States shareholder or a foreign controlled foreign corporation as a United States shareholder or as a controlled foreign corporation, respectively, for purposes of provisions of this title other than this subpart, and
“(2) to prevent the avoidance of the purposes of this section.”
“(3) Carryover of net CFC tested loss
“(A) In general—If the amount described in paragraph (1)(B) with respect to any United States shareholder for any taxable year of such United States shareholder (determined after the application of this paragraph with respect to amounts arising in preceding taxable years) exceeds the amount described in paragraph (1)(A) with respect to such shareholder of such taxable year, the amount otherwise described in paragraph (1)(B) with respect to such shareholder for the succeeding taxable year shall be increased by the amount of such excess.
“(B) Proper adjustment in allocations of global intangible low-taxed income to controlled foreign corporations—Proper adjustments shall be made in the application of subsection (f)(2)(B) to take into account any decrease in global intangible low-taxed income by reason of the application of subparagraph (A).”
“(4) Application to carryover of net CFC tested loss—The term “pre-change loss” shall include any excess carried over under section 951A(c)(3) under rules similar to the rules of paragraph (1).”
“(D) the taxpayer makes a timely change in its choice to claim a credit or deduction for taxes paid or accrued, or
“(E) there is any other change in the amount, or treatment, of taxes, which affects the taxpayer’s tax liability under this chapter,”