Foreign Tax Simplification Act of 1993

Summary: Foreign Tax Simplification Act of 1993 - Amends the Internal Revenue Code to exempt foreign persons (including corporations) from the uniform capitalization rules in determining earnings and profits for any business not conducted in the United States. 
Declares that a foreign corporation shall not be considered a passive foreign investment company for any day on which such corporation was a controlled foreign corporation. 
Revises the application of the separate foreign tax credit limitation for foreign corporations in which U.S. parent companies do not own a controlling interest. 
Requires that foreign tax credits claimed for foreign income be translated into dollars by using the average exchange rate for the taxable year to which such taxes relate.  Provides an exception for taxes not paid within the following two years and for inflationary currency.  Provides for translating taxes not subject to such requirement.  Sets forth special rules for making adjustments to accrued taxes not paid within two years.  Allows the use of the average exchange rate for the period during which the taxes or adjustment is paid instead of the exchange rate as of the time of such payment. 
Provides that the look-through rules for controlled foreign corporations do not apply to companies with less than $1 million in all of their separate categories.

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 TAX CODE.

    (a) Short Title.--This Act may be cited as the ``Foreign Tax 
Simplification Act of 1993''.
    (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. LIMITED APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN 
              PERSONS.

    (A) In General.--Section 263A(c) (relating to exceptions) is 
amended by adding at the end thereof the following new paragraph:
            ``(7) Foreign persons.--This section shall not apply to any 
        foreign person except to the extent necessary for the 
        computation of taxable income under sections 871(b)(2) and 
        882(a)(2) for purposes of the taxes imposed by sections 
        871(b)(1) and 882(a)(1).''
    (b) Effective Date.--The amendment made by this section shall apply 
to costs incurred after December 31, 1993, in taxable years ending 
after such date.

SEC. 3. DEFINITION OF PASSIVE FOREIGN INVESTMENT COMPANY.

    (a) Exclusion of Controlled Foreign Corporations.--Section 1296 
(defining passive foreign investment company) is amended by adding at 
the end thereof the following new subsection:
    ``(e) Section 957 Corporations.--For purposes of this part, a 
foreign corporation shall not be considered a passive foreign 
investment company for any day on which such corporation was a 
controlled foreign corporation to which section 957(a) applied.''
    (b) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        apply to taxable years of foreign corporations ending after 
        December 31, 1992.
            (2) Transition rule.--If, for the 1st taxable year to which 
        the amendment made by this section applies, a foreign 
        corporation which was a passive foreign investment corporation 
        for any preceding taxable year is not such a corporation for 
        such 1st taxable year by reason of such amendment, section 
        1297(b)(1) of the Internal Revenue Code of 1986 shall not apply 
        to such 1st taxable year and subsequent taxable years solely by 
        reason of such corporation being a passive foreign investment 
        corporation before such 1st taxable year.

SEC. 4. APPLICATION OF SEPARATE FOREIGN TAX CREDIT LIMITATION FOR 
              NONCONTROLLED SECTION 902 CORPORATIONS.

    (a) In General.--Subparagraph (E) of section 904(d)(1) (relating to 
separate application of section with respect to certain categories of 
income) is amended to read as follows:
                    ``(E) in the case of a corporation, dividends from 
                all noncontrolled section 902 corporations,''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1992.

SEC. 5. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

    (a) Accrued Taxes Translated by Using Average Rate for Year to 
Which Taxes Relate.--
            (1) In general.--Subsection (a) of section 986 (relating to 
        translation of foreign taxes) is amended to read as follows:
    ``(a) Foreign Income Taxes.--
            ``(1) Translation of accrued taxes.--
                    ``(A) In general.--For purposes of determining the 
                amount of the foreign tax credit, in the case of a 
                taxpayer who takes foreign income taxes into account 
                when accrued, the amount of any foreign income taxes 
                (and any adjustment thereto) shall be translated into 
                dollars by using the average exchange rate for the 
                taxable year to which such taxes relate.
                    ``(B) Exception for taxes not paid within following 
                2 years.--
                            ``(i) Subparagraph (A) shall not apply to 
                        any foreign income taxes paid after the date 2 
                        years after the close of the taxable year to 
                        which such taxes relate.
                            ``(ii) Subparagraph (A) shall not apply to 
                        taxes paid before the beginning of the taxable 
                        year to which such taxes relate.
                    ``(C) Exception for inflationary currencies.--To 
                the extent provided in regulations, subparagraph (A) 
                shall not apply to any foreign income taxes the 
                liability for which is denominated in any currency 
                determined to be an inflationary currency under such 
                regulations.
                    ``(D) Cross reference.--

                                ``For adjustments where tax is not paid 
within 2 years, see section 905(c).
            ``(2) Translation of taxes to which paragraph (1) does not 
        apply.--For purposes of determining the amount of the foreign 
        tax credit, in the case of any foreign income taxes to which 
        subparagraph (A) of paragraph (1) does not apply--
                    ``(A) such taxes shall be translated into dollars 
                using the exchange rates as of the time such taxes were 
                paid to the foreign country or possession of the United 
                States, and
                    ``(B) any adjustment to the amount of such taxes 
                shall be translated into dollars using--
                            ``(i) except as provided in clause (ii), 
                        the exchange rate as of the time when such 
                        adjustment is paid to the foreign country or 
                        possession, or
                            ``(ii) in the case of any refund or credit 
                        of foreign income taxes, using the exchange 
                        rate as of the time of the original payment of 
                        such foreign income taxes.
            ``(3) 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 to any 
        foreign country or to any possession of the United States.''
            (2) Adjustment when not paid within 2 years after year to 
        which taxes relate.--Subsection (c) of section 905 is amended 
        to read as follows:
    ``(c) Adjustments to Accrued Taxes.--
            ``(1) In general.--If--
                    ``(A) accrued taxes when paid differ from the 
                amounts claimed as credits by the taxpayer,
                    ``(B) accrued taxes are not paid before the date 2 
                years after the close of the taxable year to which such 
                taxes relate, or
                    ``(C) any tax paid is refunded in whole or in part,
        the taxpayer shall notify the Secretary, who shall redetermine 
        the amount of the tax for the year or years affected.
            ``(2) Special rule for taxes not paid within 2 years.--In 
        making the redetermination under paragraph (1), no credit shall 
        be allowed for accrued taxes not paid before the date referred 
        to in subparagraph (B) of paragraph (1). Any such taxes if 
        subsequently paid shall be taken into account for the taxable 
        year in which paid and no redetermination under this section 
        shall be made on account of such payment.
            ``(3) Adjustments.--The amount of tax due on any 
        redetermination under paragraph (1) (if any) shall be paid by 
        the taxpayer on notice and demand by the Secretary, and the 
        amount of tax overpaid (if any) shall be credited or refunded 
        to the taxpayer in accordance with subchapter B of chapter 66 
        (section 6511 et seq.).
            ``(4) Bond requirements.--In the case of any tax accrued 
        but not paid, the Secretary, as a condition precedent to the 
        allowance of the credit provided in this subpart, may require 
        the taxpayer to give a bond, with sureties satisfactory to and 
        approved by the Secretary, in such sum as the Secretary may 
        require, conditioned on the payment by the taxpayer of any 
        amount of tax found due on any such redetermination. Any such 
        bond shall contain such further conditions as the Secretary may 
        require.
            ``(5) Other special rules.--In any redetermination under 
        paragraph (1) by the Secretary of the amount of tax due from 
        the taxpayer for the year or years affected by a refund, the 
        amount of the taxes refunded for which credit has been allowed 
        under this section shall be reduced by the amount of any tax 
        described in section 901 imposed by the foreign country or 
        possession of the United States with respect to such refund; 
        but no credit under this subpart, or deduction under section 
        164, shall be allowed for any taxable year with respect to any 
        such tax imposed on the refund. No interest shall be assessed 
        or collected on any amount of tax due on any redetermination by 
        the Secretary, resulting from a refund to the taxpayer, for any 
        period before the receipt of such refund, except to the extent 
        interest was paid by the foreign country or possession of the 
        United States on such refund for such period.''
    (b) Authority To Use Average Rates.--
            (1) In general.--Subsection (a) of section 986 (relating to 
        foreign taxes) is amended by adding at the end thereof the 
        following new paragraph:
            ``(3) Authority to permit use of average rates.--To the 
        extent prescribed in regulations, the average exchange rate for 
        the period (specified in such regulations) during which the 
        taxes or adjustment is paid may be used instead of the exchange 
        rate as of the time of such payment.''
            (2) Determination of average rates.--Subsection (c) of 
        section 989 is amended by striking ``and'' at the end of 
        paragraph (4), by striking the period at the end of paragraph 
        (5) and inserting ``, and'', and by adding at the end thereof 
        the following new paragraph:
            ``(6) setting forth procedures for determining the average 
        exchange rate for any period.''
            (3) Conforming amendments.--Subsection (b) of section 989 
        is amended by striking ``weighted'' each place it appears.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxes paid or accrued in taxable years beginning after 
December 31, 1992.

SEC. 6. LOOK-THRU RULES FOR CONTROLLED FOREIGN CORPORATIONS NOT TO 
              APPLY TO SEPARATE CATEGORIES WITH DE MINIMIS AMOUNTS.

    (a) In General.--Section 904(d)(3)(E) (relating to look-thru 
applies only where subpart F applies) is amended to read as follows:
            ``(E) Look-through applies only where separate category 
        income not de minimis.--
                    ``(i) In general.--If the aggregate gross income in 
                all separate categories of a foreign corporation for 
                the taxable year is less than the lesser of--
                            ``(I) 5 percent of gross income, or
                            ``(II) $1,000,000,
                no part of its gross income for such taxable year shall 
                be treated as income in a separate category, except 
                that this sentence shall not apply to any income which 
                (without regard to this sentence) would be treated as 
                financial services income.
                    ``(ii) Passive income.--Solely for purposes of 
                applying subparagraph (D), passive income of a foreign 
                corporation shall not be treated as income in a 
                separate category if the requirements of section 
                954(b)(4) are met with respect to such income.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1992.