I

104TH CONGRESS

1ST SESSION H. R. 2166

To amend the Internal Revenue Code of 1986 to impose a minimum tax

on certain foreign and foreign-controlled corporations.

IN THE HOUSE OF REPRESENTATIVES

AUGUST 2, 1995

Mr. HUNTER introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to impose

a minimum tax on certain foreign and foreign-controlled

corporations.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Fairness and Equity

5 Tax Act of 1995’’.

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

7 CORPORATIONS.

8 (a) IN GENERAL.—Subchapter A of chapter 1 of the

9 Internal Revenue Code of 1986 (relating to determination
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1 of tax liability) is amended by adding at the end the fol2 lowing new part:

3 ‘‘PART VIII—MINIMUM TAX ON CERTAIN FOREIGN

4 AND FOREIGN-OWNED CORPORATIONS

‘‘Sec. 59B. Minimum tax on certain foreign and foreign-owned

corporations.

5 ‘‘SEC. 59B. MINIMUM TAX ON CERTAIN FOREIGN AND FOR6 EIGN-OWNED CORPORATIONS.

7 ‘‘(a) IMPOSITION OF TAX.—In the case of a corpora8 tion to which this section applies, the taxable income of

9 such corporation for the taxable year from each category

10 of its business activities shall not be less than 90 percent

11 of the amount determined by applying the applicable profit

12 percentage to the gross receipts of such corporation for

13 the taxable year from such category of business activities.

14 ‘‘(b) CORPORATIONS TO WHICH SECTION APPLIES.—

15 This section shall apply to a corporation for the taxable

16 year if—

17 ‘‘(1) such corporation is—

18 ‘‘(A) a domestic corporation which is 25-

19 percent foreign-owned, or

20 ‘‘(B) a foreign corporation which has gross

21 income which is effectively connected with the

22 conduct of a trade or business within the Unit23 ed States, and
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1 ‘‘(2) has substantial foreign-related person

2 transactions during the taxable year.

3 ‘‘(c) EXCEPTION WHERE ALTERNATIVE METHOD

4 APPROVED BY THE SECRETARY.—

5 ‘‘(1) IN GENERAL.—Subsection (a) shall not

6 apply for purposes of determining the taxable in7 come of any corporation to which this section applies

8 from any category of business activities if, when

9 such corporation files its return for the taxable year,

10 a qualified section 482 agreement is in effect with

11 such corporation for such year with respect to such

12 category.

13 ‘‘(2) QUALIFIED SECTION 482 AGREEMENT.—

14 For purposes of this subsection, the term ‘qualified

15 section 482 agreement’ means any agreement be16 tween the Secretary and a corporation to which this

17 section applies with respect to the application of this

18 section with respect to all transactions with related

19 parties in any category of business activities of such

20 corporation. The Secretary may enter into such an

21 agreement if, in the Secretary’s sole discretion, the

22 Secretary determines that such an agreement will re23 sult in a clear reflection of the taxable income of the

24 corporation from the category of activities to which

25 such agreement relates.
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1 ‘‘(3) AGREEMENT MAY BE GIVEN RETROACTIVE

2 EFFECT.—If, when entering into a qualified section

3 482 agreement, the Secretary determines, in the

4 Secretary’s sole discretion, that such agreement

5 should also apply to prior taxable years, the require6 ment of paragraph (1) that the agreement be in ef7 fect when the corporation files its return shall not

8 apply for purposes of applying such agreement to

9 such prior taxable years as may be specified in such

10 agreement.

11 ‘‘(d) EXCEPTION WHERE SECRETARY CANNOT CAT12 EGORIZE ACTIVITIES.—In the case of a corporation whose

13 activities cannot be categorized by the Secretary on the

14 basis of 1 or more 3-digit classifications of the Standard

15 Industrial Classification Code as described in subsection

16 (h)(3), in lieu of subsection (a), there is hereby imposed

17 a minimum tax equal to 35 percent of the product of—

18 ‘‘(1) 9 percent, and

19 ‘‘(2) the gross receipts of the taxpayer from the

20 sale or leasing of property manufactured by the tax21 payer or by any foreign person that is a related

22 party of the taxpayer.

23 ‘‘(e) WAIVER IN CASE OF CASUALTY OR DISASTER.—

24 This section shall not apply to the extent that the Sec25 retary determines, in the Secretary’s sole discretion, that
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1 by reason of any casualty or disaster the application of

2 this section would be inequitable.

3 ‘‘(f) TREATMENT OF FOREIGN TAXES.—For pur4 poses of this section, taxable income shall be determined

5 without regard to any income, war profits, or excess prof6 its taxes paid to any foreign country or to any possession

7 of the United States.

8 ‘‘(g) APPLICABLE PROFIT PERCENTAGE.—

9 ‘‘(1) IN GENERAL.—For each calendar year

10 after 1995, the Secretary shall prescribe an applica11 ble profit percentage for each category of business

12 activities. Such percentage shall apply to taxable

13 years beginning in the calendar year for which pre14 scribed.

15 ‘‘(2) BASED ON AVERAGE EARNINGS RATES.—

16 The applicable profit percentage prescribed under

17 paragraph (1) for any category of business activities

18 shall be based on the average earnings rates of do19 mestic corporations which had taxable income from

20 such category of business activities.

21 ‘‘(3) EARNINGS RATE.—The earnings rate of

22 any domestic corporation for any category of busi23 ness activities shall be based on the ratio of—

24 ‘‘(A) the adjusted book income of the do25 mestic corporation from such activity, to
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1 ‘‘(B) the gross receipts of such domestic

2 corporations from such activities.

3 For purposes of the preceding sentence, the term

4 ‘adjusted book income’ means income as reported for

5 financial purposes but disregarding any reduction

6 for any income, war profits, or excess profits taxes

7 imposed by the United States, any possession of the

8 United States, or any foreign country.

9 ‘‘(h) DEFINITIONS AND SPECIAL RULES.—For pur10 poses of this section:

11 ‘‘(1) 25-PERCENT FOREIGN OWNED.—The term

12 ‘25-percent foreign-owned’, ‘foreign person’, and ‘re13 lated party’ have the respective meanings given such

14 terms by section 6038A(c).

15 ‘‘(2) SUBSTANTIAL FOREIGN-RELATED PERSON

16 TRANSACTIONS.—A corporation has substantial for17 eign-related person transactions for a taxable year if

18 the aggregate amount involved in transactions with

19 related parties who are foreign persons during such

20 taxable year exceeds the lesser of $2,000,000 or 10

21 percent of the gross income of the corporation for

22 such taxable year. Only amounts which are taken

23 into account in the determination of taxable income

24 of the corporation shall be taken into account under

25 the preceding sentence.
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1 ‘‘(3) CATEGORY OF BUSINESS ACTIVITIES.—

2 Business activities shall be categorized by reference

3 to the 3-digit classification of the Standard Indus4 trial Classification Code. The Secretary may provide

5 for the aggregation of 2 or more 3-digit classifica6 tions where appropriate and for a classification sys7 tem other than the Standard Industrial Classifica8 tion Code in appropriate cases.’’

9 (b) CLERICAL AMENDMENT.—The table of parts for

10 subchapter A of chapter 1 of such Code is amended by

11 adding at the end the following new item:

‘‘Part VIII. Minimum tax on certain foreign and foreign-owned

corporations.’’

12 (c) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to taxable years beginning after

14 December 31, 1995.

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