To amend the Internal Revenue Code of 1986 to eliminate foreign base company shipping income from foreign base company income.

Summary: Revises the definition of "shipping income" with respect to the application of the foreign tax credit.

SECTION 1. ELIMINATION OF FOREIGN BASE COMPANY SHIPPING INCOME AS 
              FOREIGN BASE COMPANY INCOME.

    (a) Elimination of Foreign Base Company Shipping Income.--Section 
954 of the Internal Revenue Code of 1986 (relating to foreign base 
company income) is amended--
            (1) by striking paragraph (4) of subsection (a) (relating 
        to foreign base company shipping income), and
            (2) by striking subsection (f) (relating to foreign base 
        company shipping income).
    (b) Conforming Amendments.--
            (1) Subparagraph (D) of section 904(d)(2) (relating to the 
        definition of shipping income for purposes of the foreign tax 
        credit) is amended to read as follows:
                    ``(D) Shipping income.--
                            ``(i) In general.--The term `shipping 
                        income' means income derived from, or in 
                        connection with, the use (or hiring or leasing 
                        for use) of any aircraft or vessel in foreign 
                        commerce, or from, or in connection with, the 
                        performance of services directly related to the 
                        use of any such aircraft, or vessel, or from 
                        the sale, exchange, or other disposition of any 
                        such aircraft or vessel.
                            ``(ii) Special rules.--
                                    ``(I) Such term includes dividends 
                                and interest received from a foreign 
                                corporation in respect of which taxes 
                                are deemed paid under section 902 
                                (other than dividends from a 
                                noncontrolled section 902 corporation 
                                out of earnings and profits accumulated 
                                in taxable years beginning before 
                                January 1, 2003) and gain from the 
                                sale, exchange, or other disposition of 
                                stock or obligations of such a foreign 
                                corporation to the extent that such 
                                dividends, interest, and gains are 
                                attributable to shipping income.
                                    ``(II) Such term includes that 
                                portion of the distributive share of 
                                the income of a partnership 
                                attributable to shipping income.
                                    ``(III) Such term includes any 
                                income derived from a space or ocean 
                                activity (as defined in section 
                                863(d)(2)).
                                    ``(IV) Such term does not include, 
                                except as provided in subclause (I), 
                                any dividend or interest income which 
                                is foreign personal holding company 
                                income as defined in section 954(c).
                                    ``(V) Such term does not include 
                                financial services income.''
            (2) Sections 952(c)(1)(B)(iii) of such Code is amended by 
        striking subclause (I) and redesignating subclauses (II) 
        through (VI) as subclauses (I) through (V), respectively.
            (3) Section 953 of such Code is amended--
                    (A) by striking ``954(i)'' and inserting ``954(h)'' 
                in subsections (b)(3) and (e) each place it appears, 
                and
                    (B) by striking ``954(h)(7)'' and inserting 
                ``954(g)(7)'' in subsection (e)(7)(A).
            (4) Section 954 of such Code is amended--
                    (A) in subsection (a) by inserting ``and'' at the 
                end of paragraph (3) and redesignating paragraph (5) as 
                paragraph (4),
                    (B) in subsection (b)--
                            (i) by striking ``the foreign base shipping 
                        income,'' in paragraph (5),
                            (ii) by striking paragraphs (6) and (7), 
                        and
                            (iii) by redesignating paragraph (8) as 
                        paragraph (6), and
                    (C) by redesignating subsections (g), (h), and (i) 
                as subsections (f), (g), and (h), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 1999, and to taxable years of United States shareholders (within 
the meaning of section 951(b) of the Internal Revenue Code of 1986) 
within which or with which such taxable years of such foreign 
corporations end.