Preventing Investment in Terrorist Regimes Act

Summary: Preventing Investment in Terrorist Regimes Act  This bill amends the Internal Revenue Code to modify the rules that apply to income derived from foreign countries designated as sponsors of international terrorism or with whom the United States does not have diplomatic relations.  The bill: (1) disallows a foreign tax credit for taxes paid to any country on income derived from one of the countries subject to the rules, (2) denies a deduction for the disallowed foreign tax credits, (3) doubles the tax rate on income derived from the countries subject to the rules, (4) and expands the definition of income derived from the countries. The bill also eliminates the authority of the President to waive the denial of foreign tax credits with respect to taxes paid or accrued to a country that the Department of State has designated as a foreign country that repeatedly provides support for international terrorism. (Under current law, a waiver is permitted if the President determines that it is in the national interest of the United States and will expand trade and investment opportunities for U.S. companies in the country.) 

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Preventing Investment in Terrorist 
Regimes Act''.

SEC. 2. MODIFICATION OF APPLICATION OF CERTAIN RULES WITH RESPECT TO 
              CERTAIN FOREIGN COUNTRIES.

    (a) Limitation on Waiver Authority.--Section 901(j)(5)(A) of the 
Internal Revenue Code of 1986 is amended by inserting ``(other than a 
country described in paragraph (2)(A)(iv))'' after ``a country''.
    (b) Denial of Foreign Tax Credit With Respect to Income Derived 
From Certain Foreign Countries Without Regard to Which Country Tax Is 
Paid.--Subparagraph (A) of section 901(j)(1) of such Code is amended by 
striking ``to any country'' and all that follows and inserting ``to--
                            ``(i) any foreign country to which this 
                        subsection applies if such taxes are with 
                        respect to income attributable to a period 
                        during which this subsection applies to such 
                        foreign country, and
                            ``(ii) any foreign country (without regard 
                        to whether this subsection applies to such 
                        foreign country) if such taxes are with respect 
                        to income derived from any foreign country to 
                        which this subsection applies during a period 
                        for which this subsection so applies 
                        (determined under rules similar to the rules of 
                        section 952(d)), and''.
    (c) Denial of Deduction for Taxes for Which Foreign Tax Credit Is 
Denied, etc.--Section 901(j)(3) of such Code is amended to read as 
follows:
            ``(3) Denial of deduction for taxes for which foreign tax 
        credit is denied, etc.--
                    ``(A) In general.--No deduction shall be allowed 
                under this chapter for any tax for which credit is not 
                allowable under this section by reason of paragraph 
                (1)(A).
                    ``(B) Denial of deduction parity.--Solely for 
                purposes of section 78, the taxes deemed to be paid 
                under section 902(a) and 960(a)(1) shall be determined 
                without regard to this subsection.''.
    (d) Application of Denial of Deduction for Taxes Paid by Controlled 
Foreign Corporations.--
            (1) Determination of subpart f income.--Section 952(a) of 
        such Code is amended by striking ``(including taxes)'' in the 
        last sentence and inserting ``(including taxes other than taxes 
        for which credit is not allowed under section 901 by reason of 
        section 901(j)(1)(A))''.
            (2) Determination of earnings and profits.--Section 964(a) 
        of such Code is amended by inserting ``, or any taxes for which 
        credit is not allowed under section 901 by reason of section 
        901(j)(1)(A),'' after ``other payment (within the meaning of 
        section 162(c))''.
    (e) Clarification Regarding Country From Which Income Is Derived.--
Section 952(d) of such Code is amended by striking ``The Secretary'' 
and inserting the following:
            ``(1) In general.--For purposes of subsection (a)(5), 
        income shall be treated as derived from a foreign country if 
        such income is derived in connection with--
                    ``(A) property which is sold--
                            ``(i) for use, consumption, or disposition 
                        in such foreign country, or
                            ``(ii) to any foreign person which is 
                        created, organized, or controlled in such 
                        foreign country or to a citizen or resident of 
                        such foreign country, or
                    ``(B) services provided with respect to persons or 
                property located in such foreign country or with 
                respect to persons described in subparagraph (A)(ii).
            ``(2) Special rules.--For purposes of this subsection--
                    ``(A) Ultimate disposition.--Property shall not 
                fail to be treated as described in paragraph (1)(A) if 
                the controlled foreign corporation or any related 
                person knew, or had reason to know, that such property 
                would be ultimately sold--
                            ``(i) for use, consumption, or disposition 
                        in such foreign country, or
                            ``(ii) to any person described in paragraph 
                        (1)(A)(ii).
                    ``(B) Sales to related parties.--If property is 
                sold to a related person, such sale shall not fail to 
                be treated as described in paragraph (1)(A) unless--
                            ``(i) such property is ultimately sold--
                                    ``(I) for use, consumption or 
                                disposition outside such foreign 
                                country, or
                                    ``(II) to a person not described in 
                                paragraph (1)(A)(ii), or
                            ``(ii) such property is resold to an 
                        unrelated person not described in paragraph 
                        (1)(A)(ii) and neither the controlled foreign 
                        corporation nor any related person knew or had 
                        reason to know that such property would be 
                        ultimately sold in a sale described in 
                        paragraph (1)(A).
                    ``(C) Application to services.--Rules similar to 
                the rules of subparagraphs (A) and (B) shall apply with 
                respect to services described in paragraph (1)(B).
                    ``(D) Related person.--The term `related person' 
                has the meaning given such term by section 954(d)(3).
            ``(3) Regulations.--The Secretary''.
    (f) Doubling of Rates of Tax With Respect to Certain Foreign 
Countries.--
            (1) Doubling of rates of tax on citizens and corporations 
        of certain foreign countries.--Section 891 of such Code is 
        amended--
                    (A) by striking ``Whenever the President'' and 
                inserting the following:
    ``(a) Doubling of Rates of Tax on Citizens and Corporations of 
Certain Foreign Countries.--
            ``(1) Presidential proclamation.--Whenever the President'', 
        and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Statutory application.--In the case of any foreign 
        country to which section 901(j) applies for any period, 
        paragraph (1) shall apply with respect to such country in the 
        same manner as if the President had made a proclamation 
        described in the first sentence of paragraph (1) with respect 
        to such country at the beginning of such period and a 
        proclamation described in the last sentence of paragraph (1) 
        with respect to such country at the end of such period.''.
            (2) Doubling of rates of tax on income derived from certain 
        foreign countries.--Section 891 of such Code, as amended by 
        paragraph (1), is amended by adding at the end the following 
        new subsection:
    ``(b) Doubling of Rates of Tax on Income Derived From Certain 
Foreign Countries.--
            ``(1) In general.--In the case of any foreign country to 
        which section 901(j) applies for any period, the rates of tax 
        imposed by sections 1, 11, 801, 831, 852, 871, and 881 with 
        respect to any taxpayer shall be doubled in the case of income 
        derived from such foreign country during such period 
        (determined under rules similar to the rules of section 
        952(d)). In any case in which the manner in which income is 
        stacked would change the rate of tax which is treated as 
        applying to income described in the preceding sentence, such 
        income shall be stacked in the manner which results in the 
        highest rate of tax applying to the income so described.
            ``(2) Coordination with doubling of rates of tax on 
        citizens and corporations of certain foreign countries.--
        Paragraph (1) shall not apply to any taxpayer for any period 
        for which subsection (a) applies to such taxpayer.''.
            (3) Conforming amendments.--
                    (A) The heading of section 891 of such Code is 
                amended by striking ``on citizens and corporations of'' 
                and inserting ``with respect to''.
                    (B) The item relating to section 891 in the table 
                of sections for subpart D of part II of subchapter N of 
                chapter 1 of such Code is amended to read as follows:

``Sec. 891. Doubling of rates of tax with respect to certain foreign 
                            countries.''.
    (g) Prohibition on Agreements To Delegate Certain Reporting to 
Certain Foreign Countries.--Section 1474(f) of such Code is amended--
            (1) by striking ``The Secretary'' and inserting the 
        following:
            ``(1) In general.--The Secretary'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Prohibition on intergovernmental agreements with 
        certain foreign countries.--The Secretary may not enter into 
        any intergovernmental agreement to carry out section 1471(b) 
        with any country to which section 901(j) applies.''.
    (h) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by subsections (a), (b), and 
        (c) shall apply to taxes paid or incurred in taxable years 
        ending after the date of the introduction of this Act.
            (2) Amendments related to controlled foreign 
        corporations.--The amendments made by--
                    (A) subsections (a), (b), and (c) to the extent 
                such amendments relate to section 952(a)(5) of the 
                Internal Revenue Code of 1986 or to taxes deemed to 
                have been paid under section 902 or 960 of such Code, 
                and
                    (B) subsections (d) and (e),
        shall apply to taxable years of foreign corporations ending 
        after the date of the introduction of this Act and to taxable 
        years of United States shareholders with or within which such 
        taxable years of foreign corporations end.
            (3) Amendments related to doubling of tax on citizens and 
        corporations of certain foreign countries.--The amendments made 
        by subsection (g) shall apply to taxable years ending after the 
        date of the introduction of this Act (without regard to whether 
        the period described in subsection (a)(2) or (b)(1) of section 
        891 of the Internal Revenue Code of 1986, as added by 
        subsection (f), begins before such date).
            (4) Amendments related to prohibition on agreements to 
        delegate certain reporting to certain foreign countries.--The 
        amendments made by subsection (g) shall take effect on the date 
        of the enactment of this Act.