Fairness and Equity Tax Act of 1995

Summary: Fairness and Equity Tax Act of 199 5 - Amends the Internal Revenue Code to impose, with specified exceptions, a  minimum tax on:  (1) a domestic corporation  which  is  25 percent foreign-owned; or (2) a foreign corporation which has gross income which is effectively connected with the conduct of  a  trade or business within the United States and has substantial foreign-related person transactions during the taxable year.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Fairness and Equity Tax Act of 
1995''.

SEC. 2. MINIMUM TAX ON FOREIGN AND FOREIGN-OWNED CORPORATIONS.

    (a) In General.--Subchapter A of chapter 1 of the Internal Revenue 
Code of 1986 (relating to determination of tax liability) is amended by 
adding at the end the following new part:

     ``PART VIII--MINIMUM TAX ON CERTAIN FOREIGN AND FOREIGN-OWNED 
                              CORPORATIONS

                              ``Sec. 59B. Minimum tax on certain 
                                        foreign and foreign-owned 
                                        corporations.
``SEC. 59B. MINIMUM TAX ON CERTAIN FOREIGN AND FOREIGN-OWNED 
              CORPORATIONS.

    ``(a) Imposition of Tax.--In the case of a corporation to which 
this section applies, the taxable income of such corporation for the 
taxable year from each category of its business activities shall not be 
less than 90 percent of the amount determined by applying the 
applicable profit percentage to the gross receipts of such corporation 
for the taxable year from such category of business activities.
    ``(b) Corporations to Which Section Applies.--This section shall 
apply to a corporation for the taxable year if--
            ``(1) such corporation is--
                    ``(A) a domestic corporation which is 25-percent 
                foreign-owned, or
                    ``(B) a foreign corporation which has gross income 
                which is effectively connected with the conduct of a 
                trade or business within the United States, and
            ``(2) has substantial foreign-related person transactions 
        during the taxable year.
    ``(c) Exception Where Alternative Method Approved by the 
Secretary.--
            ``(1) In general.--Subsection (a) shall not apply for 
        purposes of determining the taxable income of any corporation 
        to which this section applies from any category of business 
        activities if, when such corporation files its return for the 
        taxable year, a qualified section 482 agreement is in effect 
        with such corporation for such year with respect to such 
        category.
            ``(2) Qualified section 482 agreement.--For purposes of 
        this subsection, the term `qualified section 482 agreement' 
        means any agreement between the Secretary and a corporation to 
        which this section applies with respect to the application of 
        this section with respect to all transactions with related 
        parties in any category of business activities of such 
        corporation. The Secretary may enter into such an agreement if, 
        in the Secretary's sole discretion, the Secretary determines 
        that such an agreement will result in a clear reflection of the 
        taxable income of the corporation from the category of 
        activities to which such agreement relates.
            ``(3) Agreement may be given retroactive effect.--If, when 
        entering into a qualified section 482 agreement, the Secretary 
        determines, in the Secretary's sole discretion, that such 
        agreement should also apply to prior taxable years, the 
        requirement of paragraph (1) that the agreement be in effect 
        when the corporation files its return shall not apply for 
        purposes of applying such agreement to such prior taxable years 
        as may be specified in such agreement.
    ``(d) Exception Where Secretary Cannot Categorize Activities.--In 
the case of a corporation whose activities cannot be categorized by the 
Secretary on the basis of 1 or more 3-digit classifications of the 
Standard Industrial Classification Code as described in subsection 
(h)(3), in lieu of subsection (a), there is hereby imposed a minimum 
tax equal to 35 percent of the product of--
            ``(1) 9 percent, and
            ``(2) the gross receipts of the taxpayer from the sale or 
        leasing of property manufactured by the taxpayer or by any 
        foreign person that is a related party of the taxpayer.
    ``(e) Waiver in Case of Casualty or Disaster.--This section shall 
not apply to the extent that the Secretary determines, in the 
Secretary's sole discretion, that by reason of any casualty or disaster 
the application of this section would be inequitable.
    ``(f) Treatment of Foreign Taxes.--For purposes of this section, 
taxable income shall be determined without regard to any income, war 
profits, or excess profits taxes paid to any foreign country or to any 
possession of the United States.
    ``(g) Applicable Profit Percentage.--
            ``(1) In general.--For each calendar year after 1995, the 
        Secretary shall prescribe an applicable profit percentage for 
        each category of business activities. Such percentage shall 
        apply to taxable years beginning in the calendar year for which 
        prescribed.
            ``(2) Based on average earnings rates.--The applicable 
        profit percentage prescribed under paragraph (1) for any 
        category of business activities shall be based on the average 
        earnings rates of domestic corporations which had taxable 
        income from such category of business activities.
            ``(3) Earnings rate.--The earnings rate of any domestic 
        corporation for any category of business activities shall be 
        based on the ratio of--
                    ``(A) the adjusted book income of the domestic 
                corporation from such activity, to
                    ``(B) the gross receipts of such domestic 
                corporations from such activities.
        For purposes of the preceding sentence, the term `adjusted book 
        income' means income as reported for financial purposes but 
        disregarding any reduction for any income, war profits, or 
        excess profits taxes imposed by the United States, any 
        possession of the United States, or any foreign country.
    ``(h) Definitions and Special Rules.--For purposes of this section:
            ``(1) 25-percent foreign owned.--The term `25-percent 
        foreign-owned', `foreign person', and `related party' have the 
        respective meanings given such terms by section 6038A(c).
            ``(2) Substantial foreign-related person transactions.--A 
        corporation has substantial foreign-related person transactions 
        for a taxable year if the aggregate amount involved in 
        transactions with related parties who are foreign persons 
        during such taxable year exceeds the lesser of $2,000,000 or 10 
        percent of the gross income of the corporation for such taxable 
        year. Only amounts which are taken into account in the 
        determination of taxable income of the corporation shall be 
        taken into account under the preceding sentence.
            ``(3) Category of business activities.--Business activities 
        shall be categorized by reference to the 3-digit classification 
        of the Standard Industrial Classification Code. The Secretary 
        may provide for the aggregation of 2 or more 3-digit 
        classifications where appropriate and for a classification 
        system other than the Standard Industrial Classification Code 
        in appropriate cases.''
    (b) Clerical Amendment.--The table of parts for subchapter A of 
chapter 1 of such Code is amended by adding at the end the following 
new item:

                              ``Part VIII. Minimum tax on certain 
                                        foreign and foreign-owned 
                                        corporations.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.