Foreign Subsidiary Tax Equity Act

Summary: Foreign Subsidiary Tax Equity Act - Amends the Internal Revenue Code to include as taxable income of U.S. shareholders in controlled foreign corporations the foreign base company manufacturing related income attributable to manufacturing operations in a tax holiday (tax haven) plant or in a runaway plant.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Foreign Subsidiary Tax Equity Act''.

SEC. 2. INCOME FROM RUNAWAY PLANTS OR FROM MANUFACTURING OPERATIONS 
              LOCATED IN A COUNTRY WHICH PROVIDES A TAX HOLIDAY 
              INCLUDED IN SUBPART F INCOME.

    (a) Foreign Base Company Manufacturing Related Income Added to 
Currently Taxed Amounts.--Subsection (a) of section 954 of the Internal 
Revenue Code of 1986 (defining foreign base company income) 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) the foreign base company manufacturing related income 
        for the taxable year (determined under subsection (h) and 
        reduced as provided in subsection (b)(5)).''
    (b) Definition of Foreign Base Company Manufacturing Related 
Income.--Section 954 of such Code is amended by adding at the end 
thereof the following new subsection:
    ``(h) Foreign Base Company Manufacturing Related Income.--
            ``(1) In general.--For purposes of this section, the term 
        `foreign base company manufacturing related income' means 
        income (whether in the form of profits, commissions, fees, or 
        otherwise) derived in connection with the manufacture for or 
        sale to any person of personal property by the controlled 
        foreign corporation where the property sold was manufactured by 
        the controlled foreign corporation in any country other than 
        the United States if such property or any component of such 
        property was manufactured--
                    ``(A) in a tax holiday plant, or
                    ``(B) in a runaway plant.
            ``(2) Other definitions; special rules.--For purposes of 
        this subsection--
                    ``(A) Tax holiday plant defined.--The term `tax 
                holiday plant' means any facility--
                            ``(i) operated by the controlled foreign 
                        corporation in connection with the manufacture 
                        of personal property, and
                            ``(ii) with respect to which any economic 
                        benefit under any tax law of the country in 
                        which such facility is located accrued--
                                    ``(I) to such corporation,
                                    ``(II) for the purpose of providing 
                                an incentive to such corporation to 
                                establish, maintain, or expand such 
                                facility, and
                                    ``(III) for the taxable year of 
                                such corporation during which the 
                                personal property referred to in 
                                paragraph (1) was manufactured.
                    ``(B) Runaway plant defined.--The term `runaway 
                plant' means any facility--
                            ``(i) for the manufacture of personal 
                        property of which not less than 10 percent is 
                        used, consumed, or otherwise disposed of in the 
                        United States, and
                            ``(ii) which is established or maintained 
                        by the controlled foreign corporation in a 
                        country in which the effective tax rate imposed 
                        by such country on the corporation is less than 
                        90 percent of the effective tax rate which 
                        would be imposed on such corporation under this 
                        title.
                    ``(C) Economic benefit under any tax law defined.--
                The term `economic benefit under any tax law' 
                includes--
                            ``(i) any exclusion or deduction of any 
                        amount from gross income derived in connection 
                        with--
                                    ``(I) the operation of any 
                                manufacturing facility, or
                                    ``(II) the manufacture or sale of 
                                any personal property,
                        which would otherwise be subject to tax under 
                        the law of such country;
                            ``(ii) any reduction in the rate of any tax 
                        which would otherwise be imposed under the laws 
                        of such country with respect to any facility or 
                        property referred to in clause (i) (including 
                        any ad valorem tax or excise tax with respect 
                        to such property);
                            ``(iii) any credit against any tax which 
                        would otherwise be assessed against any such 
                        facility or property or any income derived in 
                        connection with the operation of any such 
                        facility or the manufacture or sale of any such 
                        property; and
                            ``(iv) any abatement of any amount of tax 
                        otherwise due and any other reduction in the 
                        actual amount of tax paid to such country.
                    ``(D) Manufacture defined.--The term `manufacture' 
                or `manufacturing' includes any production, processing, 
                assembling, or finishing of any personal property or 
                any component of property not yet assembled and any 
packaging, handling, or other activity incidental to the shipment or 
delivery of such property to any buyer.
                    ``(E) Corporation includes any related person.--The 
                term `controlled foreign corporation' includes any 
                related person with respect to such corporation.
                    ``(F) Special rule for determining which taxable 
                year an economic benefit was obtained.--An economic 
                benefit under any tax law shall be treated as having 
                accrued in the taxable year of the controlled foreign 
                corporation in which such corporation actually obtained 
                the benefit, notwithstanding the fact that such benefit 
                may have been allowable for any preceding or succeeding 
                taxable year and was carried forward or back, for any 
                reason, to the taxable year.
            ``(3) Limitation on application of paragraph (1) in certain 
        cases.--For purposes of this section--
                    ``(A) In general.--The term `foreign base company 
                manufacturing related income' shall not include any 
                income of a controlled foreign corporation from the 
                manufacture or sale of personal property if--
                            ``(i) such corporation is not a corporation 
                        significantly engaged in manufacturing,
                            ``(ii) the investment in the expansion of 
                        an existing facility which gave rise to a tax 
                        holiday for such facility was not a substantial 
                        investment, or
                            ``(iii) the personal property was used, 
                        consumed, or otherwise disposed of in the 
                        country in which such property was 
                        manufactured.
                    ``(B) Corporation significantly engaged in 
                manufacturing defined.--
                            ``(i) General rule.--A corporation shall be 
                        deemed to be significantly engaged in 
                        manufacturing if the value of real property and 
                        other capital assets owned or controlled by the 
                        corporation and dedicated to manufacturing 
                        operations is more than 10 percent of the total 
                        value of all real property and other capital 
                        assets owned or controlled by such corporation.
                            ``(ii) Special rule for assessing property 
                        value.--The value of any property owned by the 
                        corporation is the basis of such corporation in 
                        such property. The basis of the corporation in 
                        any property which was acquired other than by 
                        purchase shall be the fair market value of such 
                        property at the time of such acquisition. Any 
                        property controlled but not owned by such 
                        corporation under any lease (or any other 
                        instrument which gives such corporation any 
                        right of use or occupancy with respect to such 
                        property) shall be treated as property acquired 
                        other than by purchase in the manner provided 
                        in the preceding sentence.
                    ``(C) Substantial investment defined.--The term 
                `substantial investment' means any amount which--
                            ``(i) was added to the capital account for 
                        an existing facility during the 3-year period 
                        ending on the last day of any taxable year with 
                        respect to which such facility is a tax holiday 
                        plant, and
                            ``(ii) caused the sum of all amounts added 
                        to such account during such period to exceed 20 
                        percent of the total value of such facility 
                        (determined in the manner provided in 
                        subparagraph (B)(ii)) on the first day of such 
                        period.''
    (c) Technical and Conforming Amendments.--
            (1) The last sentence of subsection (b)(4) of such section 
        954 is amended by striking out ``subsection (a)(5).'' and by 
        inserting in lieu thereof ``subsection (a)(5) or foreign base 
        company manufacturing related income described in subsection 
        (a)(6).''
            (2) Subsection (b)(5) of such section 954 is amended by 
        striking out ``and the foreign base company oil related 
        income'' and by inserting in lieu thereof ``the foreign base 
        company oil related income, and the foreign base company 
        manufacturing related income''.
            (3) Subsection (b) of such section 954 is amended by 
        inserting at the end thereof the following new paragraph:
            ``(9) Foreign base company manufacturing related income not 
        treated as another kind of base company income.--Income of a 
        corporation which is foreign base company manufacturing related 
        income shall not be treated as foreign base company income of 
        such corporation under any paragraph of subsection (a) other 
        than paragraph (6).''
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years of foreign corporations beginning after 
        December 31, 1988, and to taxable years of United States 
        shareholders in which, or with which, such taxable years of 
        foreign corporations end.
            (2) Investments before the date of enactment not taken into 
        account.--No facility of a foreign controlled corporation shall 
        be treated as a tax holiday plant (within the meaning of 
        section 954(h)(2)(A) of such Code, as amended by this section) 
        or as a runaway plant (within the meaning of section 
        954(h)(2)(B) of such Code, as amended by this section) on the 
        basis of any amount paid or incurred with respect to such 
        facility and added to the capital account for such facility 
        before the date of the enactment of this Act.