II 

112TH CONGRESS 

2D SESSION S. 2091 

To amend the Internal Revenue Code of 1986 to reform the international 

tax system of the United States, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 9, 2012 

Mr. ENZI introduced the following bill; which was read twice and referred to 

the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to reform 

the international tax system of the United States, and 

for other purposes. 

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; AMENDMENT OF 1986 CODE; 

4 TABLE OF CONTENTS. 

5 (a) SHORT TITLE.—This Act may be cited as the 

6 ‘‘United States Job Creation and International Tax Re7 form Act of 2012’’. 

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend10 ment or repeal is expressed in terms of an amendment 

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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents of 

5 this Act is as follows: 

Sec. 1. Short title; amendment of 1986 Code; table of contents. 

TITLE I—PARTICIPATION EXEMPTION SYSTEM FOR TAXATION OF 

FOREIGN INCOME 

Sec. 101. Deduction for dividends received by domestic corporations from certain foreign corporations. 

Sec. 102. Application of dividends received deduction to certain sales and exchanges of stock. 

Sec. 103. Deduction for foreign intangible income derived from trade or business within the United States. 

Sec. 104. Treatment of deferred foreign income upon transition to participation 

exemption system of taxation. 

TITLE II—OTHER INTERNATIONAL TAX REFORMS 

Subtitle A—Modifications of Subpart F 

Sec. 201. Treatment of low-taxed foreign income as subpart F income. 

Sec. 202. Permanent extension of look-thru rule for controlled foreign corporations. 

Sec. 203. Permanent extension of exceptions for active financing income. 

Sec. 204. Foreign base company income not to include sales or services income. 

Subtitle B—Modifications Related to Foreign Tax Credit 

Sec. 211. Modification of application of sections 902 and 960 with respect to 

post-2012 earnings. 

Sec. 212. Separate foreign tax credit basket for foreign intangible income. 

Sec. 213. Inventory property sales source rule exceptions not to apply for foreign tax credit limitation. 

Subtitle C—Allocation of Interest on Worldwide Basis 

Sec. 221. Acceleration of election to allocate interest on a worldwide basis. 

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1 TITLE I—PARTICIPATION EX2 EMPTION SYSTEM FOR TAX3 ATION OF FOREIGN INCOME 

4 SEC. 101. DEDUCTION FOR DIVIDENDS RECEIVED BY DO5 MESTIC CORPORATIONS FROM CERTAIN FOR6 EIGN CORPORATIONS. 

7 (a) ALLOWANCE OF DEDUCTION.—Part VIII of sub8 chapter B of chapter 1 is amended by inserting after sec9 tion 245 the following new section: 

10 ‘‘SEC. 245A. DIVIDENDS RECEIVED BY DOMESTIC CORPORA11 TIONS FROM CERTAIN FOREIGN CORPORA12 TIONS. 

13 ‘‘(a) IN GENERAL.—In the case of any dividend re14 ceived from a controlled foreign corporation by a domestic 

15 corporation which is a United States shareholder with re16 spect to such controlled foreign corporation, there shall be 

17 allowed as a deduction an amount equal to 95 percent of 

18 the qualified foreign-source portion of the dividend. 

19 ‘‘(b) TREATMENT OF ELECTING NONCONTROLLED

20 SECTION 902 CORPORATIONS AS CONTROLLED FOREIGN

21 CORPORATIONS.— 

22 ‘‘(1) IN GENERAL.—If a domestic corporation 

23 elects the application of this subsection for any non24 controlled section 902 corporation with respect to 

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1 the domestic corporation, then, for purposes of this 

2 title— 

3 ‘‘(A) the noncontrolled section 902 cor4 poration shall be treated as a controlled foreign 

5 corporation with respect to the domestic cor6 poration, and 

7 ‘‘(B) the domestic corporation shall be 

8 treated as a United States shareholder with re9 spect to the noncontrolled section 902 corpora10 tion. 

11 ‘‘(2) ELECTION.— 

12 ‘‘(A) TIME OF ELECTION.—Any election 

13 under this subsection with respect to any non14 controlled section 902 corporation shall be 

15 made not later than the due date for filing the 

16 return of tax for the first taxable year of the 

17 taxpayer with respect to which the foreign cor18 poration is a noncontrolled section 902 corpora19 tion with respect to the taxpayer (or, if later, 

20 the first taxable year of the taxpayer for which 

21 this section is in effect). 

22 ‘‘(B) REVOCATION OF ELECTION.—Any 

23 election under this subsection, once made, may 

24 be revoked only with the consent of the Sec25 retary. 

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1 ‘‘(C) CONTROLLED GROUPS.—If a domes2 tic corporation making an election under this 

3 subsection with respect to any noncontrolled 

4 section 902 corporation is a member of a con5 trolled group of corporations (within the mean6 ing of section 1563(a), except that ‘more than 

7 50 percent’ shall be substituted for ‘at least 80 

8 percent’ each place it appears therein), then, 

9 except as otherwise provided by the Secretary, 

10 such election shall apply to all members of such 

11 group. 

12 ‘‘(c) QUALIFIED FOREIGN-SOURCE PORTION OF

13 DIVIDENDS.—For purposes of this section— 

14 ‘‘(1) QUALIFIED FOREIGN-SOURCE PORTION.— 

15 ‘‘(A) IN GENERAL.—The qualified foreign16 source portion of any dividend is an amount 

17 which bears the same ratio to such dividend 

18 as— 

19 ‘‘(i) the post-2012 undistributed 

20 qualified foreign earnings, bears to 

21 ‘‘(ii) the total post-2012 undistributed 

22 earnings. 

23 ‘‘(B) POST-2012 UNDISTRIBUTED EARN24 INGS.—The term ‘post-2012 undistributed 

25 earnings’ means the amount of the earnings 

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1 and profits of a controlled foreign corporation 

2 (computed in accordance with sections 964(a) 

3 and 986) accumulated in taxable years begin4 ning after December 31, 2012— 

5 ‘‘(i) as of the close of the taxable year 

6 of the controlled foreign corporation in 

7 which the dividend is distributed, and 

8 ‘‘(ii) without diminution by reason of 

9 dividends distributed during such taxable 

10 years. 

11 ‘‘(C) POST-2012 UNDISTRIBUTED QUALI12 FIED FOREIGN EARNINGS.—The term ‘post13 2012 undistributed qualified foreign earnings’ 

14 means the portion of the post-2012 undistrib15 uted earnings which is attributable to income 

16 other than— 

17 ‘‘(i) income described in section 

18 245(a)(5)(A), or 

19 ‘‘(ii) dividends described in section 

20 245(a)(5)(B). 

21 ‘‘(2) ORDERING RULE FOR DISTRIBUTIONS OF

22 EARNINGS AND PROFITS.—Distributions shall be 

23 treated as first made out of earnings and profits of 

24 a controlled foreign corporation which are not postmstockstill on DSK4VPTVN1PROD with BILLS

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1 2012 undistributed earnings and then out of post2 2012 undistributed earnings. 

3 ‘‘(d) DISALLOWANCE OF FOREIGN TAX CREDIT, 

4 ETC.— 

5 ‘‘(1) IN GENERAL.—No credit shall be allowed 

6 under section 901 for any taxes paid or accrued (or 

7 treated as paid or accrued) with respect to the quali8 fied foreign-source portion of any dividend. 

9 ‘‘(2) DENIAL OF DEDUCTION.—No deduction 

10 shall be allowed under this chapter for any tax for 

11 which credit is not allowable under section 901 by 

12 reason of paragraph (1). 

13 ‘‘(3) COORDINATION WITH SECTION 78.—Sec14 tion 78 shall not apply to any tax for which credit 

15 is not allowable under section 901 by reason of para16 graph (1). 

17 ‘‘(4) TREATMENT OF NONDEDUCTIBLE POR18 TION IN APPLYING FOREIGN TAX CREDIT LIMIT.— 

19 For purposes of applying the limitation under sec20 tion 904(a), the remaining 5 percent of the qualified 

21 foreign-source portion of any dividend with respect 

22 to which a deduction is not allowable to the domestic 

23 corporation under subsection (a) shall be treated as 

24 income from sources within the United States. 

25 ‘‘(e) SPECIAL RULES FOR HYBRID DIVIDENDS.— 

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

2 apply to any dividend received by a United States 

3 shareholder from a controlled foreign corporation if 

4 the dividend is a hybrid dividend. 

5 ‘‘(2) HYBRID DIVIDENDS OF TIERED CON6 TROLLED FOREIGN CORPORATIONS.—If a controlled 

7 foreign corporation with respect to which a domestic 

8 corporation is a United States shareholder receives 

9 a hybrid dividend from any other controlled foreign 

10 corporation with respect to which such domestic cor11 poration is also a United States shareholder, then, 

12 notwithstanding any other provision of this title— 

13 ‘‘(A) the hybrid dividend shall be treated 

14 for purposes of section 951(a)(1)(A) as subpart 

15 F income of the receiving controlled foreign cor16 poration for the taxable year of the controlled 

17 foreign corporation in which the dividend was 

18 received, and 

19 ‘‘(B) the United States shareholder shall 

20 include in gross income an amount equal to the 

21 shareholder’s pro rata share (determined in the 

22 same manner as under section 951(a)(2)) of the 

23 subpart F income described in subparagraph 

24 (A). 

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1 ‘‘(3) DENIAL OF FOREIGN TAX CREDIT, ETC.— 

2 The rules of subsection (d) shall apply to any hybrid 

3 dividend received by, or any amount included under 

4 paragraph (2) in the gross income of, a United 

5 States shareholder, except that, for purposes of ap6 plying subsection (d)(4), all of such dividend or 

7 amount shall be treated as income from sources 

8 within the United States. 

9 ‘‘(4) HYBRID DIVIDEND.—The term ‘hybrid 

10 dividend’ means an amount received from a con11 trolled foreign corporation— 

12 ‘‘(A) which is treated as a dividend for 

13 purposes of this title, and 

14 ‘‘(B) for which the controlled foreign cor15 poration received a deduction (or similar tax 

16 benefit) under the laws of the country in which 

17 the controlled foreign corporation was created 

18 or organized. 

19 ‘‘(f) DEFINITIONS.—For purposes of this section— 

20 ‘‘(1) UNITED STATES SHAREHOLDER.—The 

21 term ‘United States shareholder’ has the meaning 

22 given such term in section 951(b). 

23 ‘‘(2) CONTROLLED FOREIGN CORPORATION.— 

24 The term ‘controlled foreign corporation’ has the 

25 meaning given such term in section 957(a). 

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1 ‘‘(3) NONCONTROLLED SECTION 902 CORPORA2 TION.—The term ‘noncontrolled section 902 corpora3 tion’ has the meaning given such term in section 

4 904(d)(2)(E)(i). 

5 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

6 such regulations as may be necessary or appropriate to 

7 carry out the provisions of this section.’’. 

8 (b) APPLICATION OF HOLDING PERIOD REQUIRE9 MENT.—Subsection (c) of section 246 is amended— 

10 (1) by striking ‘‘or 245’’ in paragraph (1) and 

11 inserting ‘‘245, or 245A’’, and 

12 (2) by adding at the end the following new 

13 paragraph: 

14 ‘‘(5) SPECIAL RULES FOR QUALIFIED FOREIGN15 SOURCE PORTION OF DIVIDENDS RECEIVED FROM

16 CONTROLLED FOREIGN CORPORATIONS.— 

17 ‘‘(A) 1-YEAR HOLDING PERIOD REQUIRE18 MENT.—For purposes of section 245A— 

19 ‘‘(i) paragraph (1)(A) shall be ap20 plied— 

21 ‘‘(I) by substituting ‘365 days’ 

22 for ‘45 days’ each place it appears, 

23 and 

24 ‘‘(II) by substituting ‘731-day pe25 riod’ for ‘91-day period’, and 

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1 ‘‘(ii) paragraph (2) shall not apply. 

2 ‘‘(B) STATUS MUST BE MAINTAINED DUR3 ING HOLDING PERIOD.—For purposes of section 

4 245A, the holding period requirement of this 

5 subsection shall be treated as met only if— 

6 ‘‘(i) the controlled foreign corporation 

7 referred to in section 245A(a) is a con8 trolled foreign corporation at all times dur9 ing such period, and 

10 ‘‘(ii) the taxpayer is a United States 

11 shareholder (as defined in section 951) 

12 with respect to such controlled foreign cor13 poration at all times during such period. 

14 ‘‘(C) SPECIAL RULES FOR ELECTING NON15 CONTROLLED SECTION 902 CORPORATIONS.—In 

16 the case of an election under section 245A(b) to 

17 treat a noncontrolled section 902 corporation as 

18 a controlled foreign corporation, the require19 ments of subparagraph (B) shall be treated as 

20 met for any continuous period ending on the 

21 day before the effective date of the election for 

22 which the taxpayer met the ownership require23 ments of section 904(d)(2)(E) with respect to 

24 such corporation.’’. 

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1 (c) APPLICATION OF RULES GENERALLY APPLICA2 BLE TO DEDUCTIONS FOR DIVIDENDS RECEIVED.— 

3 (1) TREATMENT OF DIVIDENDS FROM TAX-EX4 EMPT CORPORATIONS.—Paragraph (1) of section 

5 246(a) is amended by striking ‘‘and 245’’ and in6 serting ‘‘245, and 245A’’. 

7 (2) ASSETS GENERATING TAX-EXEMPT PORTION

8 OF DIVIDEND NOT TAKEN INTO ACCOUNT IN ALLO9 CATING AND APPORTIONING DEDUCTIBLE EX10 PENSES.—Paragraph (3) of section 864(e) is amend11 ed by striking ‘‘or 245(a)’’ and inserting ‘‘, 245(a), 

12 or 245A’’. 

13 (3) COORDINATION WITH SECTION 1059.—Sub14 paragraph (B) of section 1059(b)(2) is amended by 

15 striking ‘‘or 245’’ and inserting ‘‘245, or 245A’’. 

16 (d) CONFORMING AMENDMENTS.— 

17 (1) Clause (vi) of section 56(g)(4)(C) is amend18 ed by inserting ‘‘245A or’’ before ‘‘965’’. 

19 (2) Subsection (b) of section 951 is amended— 

20 (A) by striking ‘‘subpart’’ and inserting 

21 ‘‘title’’, and 

22 (B) by adding at the end the following: 

23 ‘‘Such term shall include, with respect to any 

24 entity treated as a controlled foreign corpora25 tion under section 245A(b), any domestic cormstockstill on DSK4VPTVN1PROD with BILLS

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1 poration treated as a United States shareholder 

2 with respect to such entity under such sec3 tion.’’. 

4 (3) Subsection (a) of section 957 is amended— 

5 (A) by striking ‘‘subpart’’ in the matter 

6 preceding paragraph (1) and inserting ‘‘title’’, 

7 and 

8 (B) by adding at the end the following: 

9 ‘‘Such term shall include any entity treated as 

10 a controlled foreign corporation under section 

11 245A(b).’’. 

12 (4) The table of sections for part VIII of sub13 chapter B of chapter 1 is amended by inserting after 

14 the item relating to section 245 the following new 

15 item: 

‘‘Sec. 245A. Dividends received by domestic corporations from certain foreign 

corporations.’’. 

16 (e) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to taxable years of foreign corpora18 tions beginning after December 31, 2012, and to taxable 

19 years of United States shareholders with or within which 

20 such taxable years of foreign corporations end. 

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1 SEC. 102. APPLICATION OF DIVIDENDS RECEIVED DEDUC2 TION TO CERTAIN SALES AND EXCHANGES 

3 OF STOCK. 

4 (a) SALES BY UNITED STATES PERSONS OF STOCK

5 IN CFC.—Section 1248 is amended by redesignating sub6 section (j) as subsection (k) and by inserting after sub7 section (i) the following new subsection: 

8 ‘‘(j) COORDINATION WITH DIVIDENDS RECEIVED

9 DEDUCTION.— 

10 ‘‘(1) IN GENERAL.—In the case of the sale or 

11 exchange by a domestic corporation of stock in a for12 eign corporation held for 1 year or more, any 

13 amount received by the domestic corporation which 

14 is treated as a dividend by reason of this section 

15 shall be treated as a dividend for purposes of apply16 ing section 245A. 

17 ‘‘(2) LOSSES DISALLOWED.—If a domestic cor18 poration— 

19 ‘‘(A) sells or exchanges stock in a foreign 

20 corporation in a taxable year of the domestic 

21 corporation with or within which a taxable year 

22 of the foreign corporation beginning after De23 cember 31, 2012, ends, and 

24 ‘‘(B) met the ownership requirements of 

25 subsection (a)(2) with respect to such stock, 

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1 no deduction shall be allowed to the domestic cor2 poration with respect to any loss from the sale or ex3 change.’’. 

4 (b) SALE BY A CFC OF A LOWER TIER CFC.—Sec5 tion 964(e) is amended by adding at the end the following 

6 new paragraph: 

7 ‘‘(4) COORDINATION WITH DIVIDENDS RE8 CEIVED DEDUCTION.— 

9 ‘‘(A) IN GENERAL.—If, for any taxable 

10 year of a controlled foreign corporation begin11 ning after December 31, 2012, any amount is 

12 treated as a dividend under paragraph (1) by 

13 reason of a sale or exchange by the controlled 

14 foreign corporation of stock in another foreign 

15 corporation held for 1 year or more, then, not16 withstanding any other provision of this title— 

17 ‘‘(i) the qualified foreign-source por18 tion of such dividend shall be treated for 

19 purposes of section 951(a)(1)(A) as sub20 part F income of the selling controlled for21 eign corporation for such taxable year, 

22 ‘‘(ii) a United States shareholder with 

23 respect to the selling controlled foreign cor24 poration shall include in gross income for 

25 the taxable year of the shareholder with or 

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1 within which such taxable year of the con2 trolled foreign corporation ends an amount 

3 equal to the shareholder’s pro rata share 

4 (determined in the same manner as under 

5 section 951(a)(2)) of the amount treated 

6 as subpart F income under clause (i), and 

7 ‘‘(iii) the deduction under section 

8 245A(a) shall be allowable to the United 

9 States shareholder with respect to the sub10 part F income included in gross income 

11 under clause (ii) in the same manner as if 

12 such subpart F income were a dividend re13 ceived by the shareholder from the selling 

14 controlled foreign corporation. 

15 ‘‘(B) EFFECT OF LOSS ON EARNINGS AND

16 PROFITS.—For purposes of this title, in the 

17 case of a sale or exchange by a controlled for18 eign corporation of stock in another foreign cor19 poration in a taxable year of the selling con20 trolled foreign corporation beginning after De21 cember 31, 2012, to which this paragraph 

22 would apply if gain were recognized, the earn23 ings and profits of the selling controlled foreign 

24 corporation shall not be reduced by reason of 

25 any loss from such sale or exchange. 

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1 ‘‘(C) QUALIFIED FOREIGN-SOURCE POR2 TION.—For purposes of this paragraph, the 

3 qualified foreign-source portion of any amount 

4 treated as a dividend under paragraph (1) shall 

5 be determined in the same manner as under 

6 section 245A(c).’’. 

7 SEC. 103. DEDUCTION FOR FOREIGN INTANGIBLE INCOME 

8 DERIVED FROM TRADE OR BUSINESS WITHIN 

9 THE UNITED STATES. 

10 (a) IN GENERAL.—Part VIII of subchapter B of 

11 chapter 1 is amended by adding at the end the following 

12 new section: 

13 ‘‘SEC. 250. FOREIGN INTANGIBLE INCOME DERIVED FROM 

14 TRADE OR BUSINESS WITHIN THE UNITED 

15 STATES. 

16 ‘‘(a) IN GENERAL.—In the case of a domestic cor17 poration, there shall be allowed as a deduction an amount 

18 equal to 50 percent of the qualified foreign intangible in19 come of such domestic corporation for the taxable year. 

20 ‘‘(b) QUALIFIED FOREIGN INTANGIBLE INCOME.— 

21 ‘‘(1) IN GENERAL.—The term ‘qualified foreign 

22 intangible income’ means, with respect to any do23 mestic corporation, foreign intangible income which 

24 is derived by the domestic corporation from the ac25 tive conduct of a trade or business within the United 

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1 States with respect to the intangible property giving 

2 rise to the income. 

3 ‘‘(2) REQUIREMENTS RELATING TO TRADE OR

4 BUSINESS WITHIN THE UNITED STATES.—For pur5 poses of this section, foreign intangible income shall 

6 be treated as derived by a domestic corporation from 

7 the active conduct of a trade or business within the 

8 United States only if— 

9 ‘‘(A) the domestic corporation developed, 

10 created, or produced within the United States 

11 the intangible property giving rise to the in12 come, or 

13 ‘‘(B) in any case in which the domestic 

14 corporation acquired such intangible property, 

15 the domestic corporation added substantial 

16 value to the property through the active con17 duct of such trade or business within the 

18 United States. 

19 ‘‘(c) FOREIGN INTANGIBLE INCOME.—For purposes 

20 of this section— 

21 ‘‘(1) IN GENERAL.—The term ‘foreign intan22 gible income’ means any intangible income which is 

23 derived in connection with— 

24 ‘‘(A) property which is sold, leased, li25 censed, or otherwise disposed of for use, conmstockstill on DSK4VPTVN1PROD with BILLS

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1 sumption, or disposition outside the United 

2 States, or 

3 ‘‘(B) services provided with respect to per4 sons or property located outside the United 

5 States. 

6 ‘‘(2) EXCEPTIONS FOR CERTAIN INCOME.—The 

7 following amounts shall not be taken into account in 

8 computing foreign intangible income: 

9 ‘‘(A) Any amount treated as received by 

10 the domestic corporation under section 

11 367(d)(2) with respect to any intangible prop12 erty. 

13 ‘‘(B) Any payment under a cost-sharing 

14 arrangement entered into under section 482. 

15 ‘‘(C) Any amount received from a con16 trolled foreign corporation with respect to which 

17 the domestic corporation is a United States 

18 shareholder to the extent such amount is attrib19 utable or properly allocable to income which 

20 is— 

21 ‘‘(i) effectively connected with the con22 duct of a trade or business within the 

23 United States and subject to tax under 

24 this chapter, or 

25 ‘‘(ii) subpart F income. 

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1 For purposes of clause (ii), amounts not other2 wise treated as subpart F income shall be so 

3 treated if the amount creates (or increases) a 

4 deficit which under section 952(c) may reduce 

5 the subpart F income of the payor or any other 

6 controlled foreign corporation. 

7 ‘‘(3) INTANGIBLE INCOME.—The term ‘intan8 gible income’ means gross income from— 

9 ‘‘(A) the sale, lease, license, or other dis10 position of property in which intangible prop11 erty is used directly or indirectly, or 

12 ‘‘(B) the provision of services related to in13 tangible property or in connection with property 

14 in which intangible property is used directly or 

15 indirectly, 

16 to the extent that such gross income is properly at17 tributable to such intangible property. 

18 ‘‘(4) DEDUCTIONS TO BE TAKEN INTO AC19 COUNT.—The gross income of a domestic corpora20 tion taken into account under this subsection shall 

21 be reduced, under regulations prescribed by the Sec22 retary, so as to take into account deductions prop23 erly allocable to such income. 

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1 ‘‘(5) INTANGIBLE PROPERTY.—The term ‘in2 tangible property’ has the meaning given such term 

3 by section 936(h)(3)(B). 

4 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

5 such regulations as may be necessary or appropriate to 

6 carry out the provisions of this section.’’. 

7 (b) CONFORMING AMENDMENT.—The table of sec8 tions for part VIII of subchapter B of chapter 1 is amend9 ed by adding at the end the following new item: 

‘‘Sec. 250. Foreign intangible income derived from trade or business within the 

United States.’’. 

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

11 this section shall apply to taxable years of domestic cor12 porations beginning after December 31, 2012. 

13 SEC. 104. TREATMENT OF DEFERRED FOREIGN INCOME 

14 UPON TRANSITION TO PARTICIPATION EX15 EMPTION SYSTEM OF TAXATION. 

16 (a) IN GENERAL.—Section 965 is amended to read 

17 as follows: 

18 ‘‘SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME 

19 UPON TRANSITION TO PARTICIPATION EX20 EMPTION SYSTEM OF TAXATION. 

21 ‘‘(a) DEDUCTION ALLOWED.—In the case of a do22 mestic corporation which elects the application of this sec23 tion to any controlled foreign corporation with respect to 

24 which it is a United States shareholder, there shall be almstockstill on DSK4VPTVN1PROD with BILLS

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1 lowed as a deduction for the taxable year of the United 

2 States shareholder with or within which the first taxable 

3 year of the controlled foreign corporation beginning after 

4 December 31, 2012, ends an amount equal to 70 percent 

5 of the amount determined under subsection (b) for the 

6 taxable year. 

7 ‘‘(b) ELIGIBLE AMOUNT.—For purposes of sub8 section (a)— 

9 ‘‘(1) IN GENERAL.—The amount determined 

10 under this subsection for a United States share11 holder with respect to any controlled foreign cor12 poration for the taxable year of the shareholder de13 scribed in subsection (a) is the lesser of— 

14 ‘‘(A) the shareholder’s pro rata share of 

15 the earnings and profits of the controlled for16 eign corporation described in section 959(c)(3) 

17 as of the close of the taxable year preceding the 

18 first taxable year of the controlled foreign cor19 poration beginning after December 31, 2012, or 

20 ‘‘(B) an amount equal to the sum of— 

21 ‘‘(i) the dividends received by the 

22 shareholder during such taxable year from 

23 the controlled foreign corporation which 

24 are attributable to the earnings and profits 

25 described in subparagraph (A), plus 

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1 ‘‘(ii) the increase in subpart F income 

2 required to be included in gross income of 

3 the shareholder for the taxable year by 

4 reason of the election under paragraph (2). 

5 ‘‘(2) ELECTION OF DEEMED SUBPART F INCLU6 SION.—A United States shareholder may elect for 

7 purposes of paragraph (1)(B)(ii) to treat all (or any 

8 portion) of the shareholder’s pro rata share of the 

9 earnings and profits of a controlled foreign corpora10 tion described in paragraph (1)(A) as subpart F in11 come includible in the gross income of the share12 holder for the taxable year of the shareholder de13 scribed in subsection (a). 

14 ‘‘(3) ORDERING RULE.—For purposes of para15 graph (1)(B)(i), distributions shall be treated as 

16 first made out of earnings and profits of a controlled 

17 foreign corporation described in paragraph (1)(A). 

18 ‘‘(4) DIVIDEND.—The term ‘dividend’ shall not 

19 include amounts includible in gross income as a divi20 dend under section 78. 

21 ‘‘(c) DISALLOWANCE OF FOREIGN TAX CREDIT, 

22 ETC.—In the case of a domestic corporation making an 

23 election under subsection (a) with respect to any con24 trolled foreign corporation— 

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1 ‘‘(1) IN GENERAL.—No credit shall be allowed 

2 under section 901 for any taxes paid or accrued (or 

3 treated as paid or accrued) with respect to the earn4 ings and profits taken into account in determining 

5 the amount under subsection (b). 

6 ‘‘(2) DENIAL OF DEDUCTION.—No deduction 

7 shall be allowed under this chapter for any tax for 

8 which credit is not allowable under section 901 by 

9 reason of paragraph (1). 

10 ‘‘(3) COORDINATION WITH SECTION 78.—Sec11 tion 78 shall not apply to any tax for which credit 

12 is not allowable under section 901 by reason of para13 graph (1). 

14 ‘‘(4) TREATMENT OF NONDEDUCTIBLE POR15 TION IN APPLYING FOREIGN TAX CREDIT LIMIT.— 

16 For purposes of applying the limitation under sec17 tion 904(a), the remaining 30 percent of the amount 

18 determined under subsection (b) with respect to 

19 which a deduction is not allowable under subsection 

20 (a) shall be treated as income from sources within 

21 the United States. 

22 ‘‘(d) ELECTION TO PAY LIABILITY FOR DEEMED

23 SUBPART F INCOME IN INSTALLMENTS.— 

24 ‘‘(1) IN GENERAL.—In the case of a United 

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1 trolled foreign corporations to which elections under 

2 subsections (a) and (b)(2) apply, such United States 

3 shareholder may elect to pay the net tax liability de4 termined with respect to its deemed subpart F inclu5 sions with respect to such corporations under sub6 section (b)(2) for the taxable year described in sub7 section (a) in 2 or more (but not exceeding 8) equal 

8 installments. 

9 ‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.— 

10 If an election is made under paragraph (1), the first 

11 installment shall be paid on the due date (deter12 mined without regard to any extension of time for 

13 filing the return) for the return of tax for the tax14 able year for which the election was made and each 

15 succeeding installment shall be paid on the due date 

16 (as so determined) for the return of tax for the tax17 able year following the taxable year with respect to 

18 which the preceding installment was made. 

19 ‘‘(3) ACCELERATION OF PAYMENT.—If there is 

20 an addition to tax for failure to pay timely assessed 

21 with respect to any installment required under this 

22 subsection, a liquidation or sale of substantially all 

23 the assets of the taxpayer (including in a title 11 or 

24 similar case), a cessation of business by the tax25 payer, or any similar circumstance, then the unpaid 

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1 portion of all remaining installments shall be due on 

2 the date of such event (or in the case of a title 11 

3 or similar case, the day before the petition is filed). 

4 ‘‘(4) PRORATION OF DEFICIENCY TO INSTALL5 MENTS.—If an election is made under paragraph (1) 

6 to pay the net tax liability described in paragraph 

7 (1) in installments and a deficiency has been as8 sessed which increases such net tax liability, the in9 crease shall be prorated to the installments payable 

10 under paragraph (1). The part of the increase so 

11 prorated to any installment the date for payment of 

12 which has not arrived shall be collected at the same 

13 time as, and as a part of, such installment. The part 

14 of the increase so prorated to any installment the 

15 date for payment of which has arrived shall be paid 

16 upon notice and demand from the Secretary. This 

17 subsection shall not apply if the deficiency is due to 

18 negligence, to intentional disregard of rules and reg19 ulations, or to fraud with intent to evade tax. 

20 ‘‘(5) TIME FOR PAYMENT OF INTEREST.—Inter21 est payable under section 6601 on the unpaid por22 tion of any amount of tax the time for payment of 

23 which as been extended under this subsection shall 

24 be paid annually at the same time as, and as part 

25 of, each installment payment of such tax. In the case 

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1 of a deficiency to which paragraph (4) applies, inter2 est with respect to such deficiency which is assigned 

3 under the preceding sentence to any installment the 

4 date for payment of which has arrived on or before 

5 the date of the assessment of the deficiency, shall be 

6 paid upon notice and demand from the Secretary. 

7 ‘‘(6) NET TAX LIABILITY FOR DEEMED SUB8 PART F INCLUSIONS.—For purposes of this sub9 section— 

10 ‘‘(A) IN GENERAL.—The net tax liability 

11 described in paragraph (1) with respect to any 

12 United States shareholder for any taxable year 

13 is the excess (if any) of— 

14 ‘‘(i) such taxpayer’s net income tax 

15 for the taxable year, over 

16 ‘‘(ii) such taxpayer’s net income tax 

17 for such taxable year determined as if the 

18 elections under subsection (b)(2) with re19 spect to 1 or more controlled foreign cor20 porations had not been made. 

21 ‘‘(B) NET INCOME TAX.—The term ‘net 

22 income tax’ means the net income tax (as de23 fined in section 38(c)(1)) reduced by the credit 

24 allowed under section 38. 

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1 ‘‘(e) SPECIAL RULES.—For purposes of this sec2 tion— 

3 ‘‘(1) ELECTIONS.—Any election under sub4 section (a), (b)(2), or (d)(1) shall be made not later 

5 than the due date (including extensions) for the re6 turn of tax for the taxable year for which made and 

7 shall be made in such manner as the Secretary may 

8 provide. 

9 ‘‘(2) SECTION NOT TO APPLY TO NONCON10 TROLLED SECTION 902 CORPORATIONS TREATED AS

11 CFCS.—No election may be made under subsection 

12 (a) with respect to a controlled foreign corporation 

13 which was a noncontrolled section 902 corporation 

14 which a United States shareholder elected under sec15 tion 245A(b) to treat as a controlled foreign cor16 poration. 

17 ‘‘(3) PRO RATA SHARE.—A shareholder’s pro 

18 rata share of any earnings and profits shall be deter19 mined in the same manner as under section 

20 951(a)(2).’’ 

21 (b) CONFORMING AMENDMENTS.— 

22 (1) Clause (vi) of section 56(g)(4)(C), as 

23 amended by this Act, is amended— 

24 (A) by striking ‘‘965’’ and inserting 

25 ‘‘965(b)’’, and 

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1 (B) by inserting ‘‘AND INCLUSIONS’’ after 

2 ‘‘CERTAIN DISTRIBUTIONS’’ in the heading 

3 thereof. 

4 (2) Paragraph (2) of section 6601(b) is amend5 ed— 

6 (A) by striking ‘‘section 6156(a)’’ in the 

7 matter preceding subparagraph (A) and insert8 ing ‘‘section 965(d)(1) or 6156(a)’’, and 

9 (B) by striking ‘‘section 6156(b)’’ in sub10 paragraph (A) and inserting ‘‘section 965(d)(2) 

11 or 6156(b), as the case may be’’. 

12 (3) The table of section for subpart F of part 

13 III of subchapter N of chapter 1 is amended by 

14 striking the item relating to section 965 and insert15 ing the following: 

‘‘Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation.’’. 

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

17 this section shall apply to taxable years of foreign corpora18 tions beginning after December 31, 2012, and to taxable 

19 years of United States shareholders with or within which 

20 such taxable years of foreign corporations end. 

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1 TITLE II—OTHER 

2 INTERNATIONAL TAX REFORMS 

3 Subtitle A—Modifications of 

4 Subpart F 

5 SEC. 201. TREATMENT OF LOW-TAXED FOREIGN INCOME AS 

6 SUBPART F INCOME. 

7 (a) IN GENERAL.—Subsection (a) of section 952 is 

8 amended by redesignating paragraphs (3), (4), and (5) as 

9 paragraphs (4), (5), and (6), respectively, and by inserting 

10 after paragraph (2) the following new paragraph: 

11 ‘‘(3) low-taxed income (as defined under sub12 section (e)),’’. 

13 (b) LOW-TAXED INCOME.—Section 952 is amended 

14 by adding at the end the following new subsection: 

15 ‘‘(e) LOW-TAXED INCOME.— 

16 ‘‘(1) IN GENERAL.—For purposes of subsection 

17 (a), except as provided in paragraph (2), the term 

18 ‘low-taxed income’ means, with respect to any tax19 able year of a controlled foreign corporation, the en20 tire gross income of the controlled foreign corpora21 tion unless the taxpayer establishes to the satisfac22 tion of the Secretary that such income was subject 

23 to an effective rate of income tax (determined under 

24 rules similar to the rules of section 954(b)(4)) im25 posed by a foreign country in excess of one-half of 

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1 the highest rate of tax under section 11(b) for tax2 able years of United States corporations beginning 

3 in the same calendar year as the taxable year of the 

4 controlled foreign corporation begins. 

5 ‘‘(2) EXCEPTION FOR QUALIFIED BUSINESS IN6 COME.—For purposes of paragraph (1), qualified 

7 business income— 

8 ‘‘(A) shall be taken into account in deter9 mining the effective rate of income tax at which 

10 the entire gross income of the controlled foreign 

11 corporation is taxed, but 

12 ‘‘(B) the amount of gross income treated 

13 as low-taxed income under paragraph (1) shall 

14 be reduced by the amount of the qualified busi15 ness income. 

16 ‘‘(3) QUALIFIED BUSINESS INCOME.—For pur17 poses of this subsection— 

18 ‘‘(A) IN GENERAL.—The term ‘qualified 

19 business income’ means, with respect to any 

20 controlled foreign corporation, income derived 

21 by the controlled foreign corporation in a for22 eign country but only if— 

23 ‘‘(i) such income is attributable to the 

24 active conduct of a trade or business of 

25 such corporation in such foreign country, 

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1 ‘‘(ii) the corporation maintains an of2 fice or fixed place of business in such for3 eign country, and 

4 ‘‘(iii) officers and employees of the 

5 corporation physically located at such of6 fice or place of business in such foreign 

7 country conducted (or significantly contrib8 uted to the conduct of) activities within the 

9 foreign country which are substantial in re10 lation to the activities necessary for the ac11 tive conduct of the trade or business to 

12 which such income is attributable. 

13 ‘‘(B) EXCEPTION FOR INTANGIBLE IN14 COME.—For purposes of subparagraph (A), 

15 qualified business income of a controlled foreign 

16 corporation shall not include intangible income 

17 (as defined in section 250(c)(3)). 

18 ‘‘(4) DETERMINATION OF EFFECTIVE RATE OF

19 FOREIGN INCOME TAX AND QUALIFIED BUSINESS IN20 COME.— 

21 ‘‘(A) COUNTRY-BY-COUNTRY DETERMINA22 TION.—For purposes of determining the effec23 tive rate of income tax imposed by any foreign 

24 country under paragraph (1) and qualified busi25 ness income under paragraph (3), each such 

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1 paragraph shall be applied separately with re2 spect to— 

3 ‘‘(i) each foreign country in which a 

4 controlled foreign corporation conducts any 

5 trade or business, and 

6 ‘‘(ii) the entire gross income and 

7 qualified business income derived with re8 spect to such foreign country. 

9 ‘‘(B) TREATMENT OF LOSSES.—For pur10 poses of determining the effective rate of in11 come tax imposed by any foreign country under 

12 paragraph (1)— 

13 ‘‘(i) such effective rate shall be deter14 mined without regard to any losses carried 

15 to the relevant taxable year, and 

16 ‘‘(ii) to the extent the income of the 

17 controlled foreign corporation reduces 

18 losses in the relevant taxable year, such ef19 fective rate shall be treated as being the 

20 effective rate which would have been im21 posed on such income without regard to 

22 such losses. 

23 ‘‘(5) DEDUCTIONS TO BE TAKEN INTO AC24 COUNT.—The gross income of a controlled foreign 

25 corporation taken into account under this subsection 

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1 shall be reduced, under regulations prescribed by the 

2 Secretary, so as to take into account deductions (in3 cluding taxes) properly allocable to such income.’’. 

4 (c) CONFORMING AMENDMENTS.— 

5 (1) Subsection (a) of section 952 is amended— 

6 (A) by striking ‘‘paragraph (4)’’ in the 

7 next to last sentence and inserting ‘‘paragraph 

8 (5)’’, and 

9 (B) by striking ‘‘paragraph (5)’’ in the last 

10 sentence and inserting ‘‘paragraph (6)’’. 

11 (2) Subsection (d) of section 952 is amended by 

12 striking ‘‘subsection (a)(5)’’ and inserting ‘‘sub13 section (a)(6)’’. 

14 (3) Paragraphs (1) and (2) of section 999(c) 

15 are each amended by striking ‘‘section 952(a)(3)’’ 

16 and inserting ‘‘section 952(a)(4)’’. 

17 (d) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years of foreign corpora19 tions beginning after December 31, 2012, and to taxable 

20 years of United States shareholders with or within which 

21 such taxable years of foreign corporations end. 

22 SEC. 202. PERMANENT EXTENSION OF LOOK-THRU RULE 

23 FOR CONTROLLED FOREIGN CORPORATIONS. 

24 (a) IN GENERAL.—Section 954(c)(6)(C) is amended 

25 by striking ‘‘and before January 1, 2012,’’. 

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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years of foreign corpora3 tions beginning after December 31, 2011, and to taxable 

4 years of United States shareholders with or within which 

5 such taxable years of foreign corporations end. 

6 SEC. 203. PERMANENT EXTENSION OF EXCEPTIONS FOR 

7 ACTIVE FINANCING INCOME. 

8 (a) EXCEPTION FROM INSURANCE INCOME.—Section 

9 953(e)(10) is amended— 

10 (1) by striking ‘‘and before January 1, 2012,’’, 

11 and 

12 (2) by striking the last sentence. 

13 (b) EXCEPTION FROM FOREIGN PERSONAL HOLD14 ING COMPANY INCOME.—Section 954(h)(9) is amended by 

15 striking ‘‘and before January 1, 2012,’’. 

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

17 this section shall apply to taxable years of foreign corpora18 tions beginning after December 31, 2011, and to taxable 

19 years of United States shareholders with or within which 

20 such taxable years of foreign corporations end. 

21 SEC. 204. FOREIGN BASE COMPANY INCOME NOT TO IN22 CLUDE SALES OR SERVICES INCOME. 

23 (a) REPEAL.—Paragraphs (2) and (3) of section 

24 954(a) are repealed. 

25 (b) CONFORMING AMENDMENTS.— 

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1 (1) Section 954(d) is amended by adding at the 

2 end the following new paragraph: 

3 ‘‘(5) TERMINATION.—This subsection shall not 

4 apply to taxable years of foreign corporations begin5 ning after December 31, 2012, and to taxable years 

6 of United States shareholders with or within which 

7 such taxable years of foreign corporations end.’’. 

8 (2) Section 954(e) is amended by adding at the 

9 end the following new paragraph: 

10 ‘‘(3) TERMINATION.—This subsection shall not 

11 apply to taxable years of foreign corporations begin12 ning after December 31, 2012, and to taxable years 

13 of United States shareholders with or within which 

14 such taxable years of foreign corporations end.’’. 

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

16 this section shall apply to taxable years of foreign corpora17 tions beginning after December 31, 2012, and to taxable 

18 years of United States shareholders with or within which 

19 such taxable years of foreign corporations end. 

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1 Subtitle B—Modifications Related 

2 to Foreign Tax Credit 

3 SEC. 211. MODIFICATION OF APPLICATION OF SECTIONS 

4 902 AND 960 WITH RESPECT TO POST-2012 

5 EARNINGS. 

6 (a) SECTION 902 NOT TO APPLY TO DIVIDENDS

7 FROM POST-2012 EARNINGS.—Section 902 is amended 

8 by redesignating subsection (d) as subsection (e) and by 

9 inserting after subsection (c) the following new subsection: 

10 ‘‘(d) SECTION NOT TO APPLY TO DIVIDENDS FROM

11 POST-2012 EARNINGS.— 

12 ‘‘(1) IN GENERAL.—This section shall not apply 

13 to the portion of any dividend paid by a foreign cor14 poration to the extent such portion is made out of 

15 earnings and profits of the foreign corporation (com16 puted in accordance with sections 964(a) and 986) 

17 accumulated in taxable years beginning after Decem18 ber 31, 2012. 

19 ‘‘(2) COORDINATION WITH DISTRIBUTIONS

20 FROM PRE-2013 EARNINGS AND PROFITS.—For pur21 poses of this section— 

22 ‘‘(A) ORDERING RULE.—Any distribution 

23 in a taxable year beginning after December 31, 

24 2012, shall be treated as first made out of 

25 earnings and profits of the foreign corporation 

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1 (computed in accordance with sections 964(a) 

2 and 986) accumulated in taxable years begin3 ning before January 1, 2013. 

4 ‘‘(B) POST-1986 UNDISTRIBUTED EARN5 INGS.—Post-1986 undistributed earnings shall 

6 not include earnings and profits described in 

7 paragraph (1).’’ 

8 (b) DETERMINATION OF SECTION 960 CREDIT ON

9 CURRENT YEAR BASIS.—Section 960 is amended by add10 ing at the end the following new subsection: 

11 ‘‘(d) DEEMED PAID CREDIT FOR SUBPART F INCLU12 SIONS ATTRIBUTABLE TO POST-2012 EARNINGS.— 

13 ‘‘(1) IN GENERAL.—For purposes of this sub14 part, if there is included in the gross income of a do15 mestic corporation any amount under section 

16 951(a)— 

17 ‘‘(A) with respect to any controlled foreign 

18 corporation with respect to which such domestic 

19 corporation is a United States shareholder, and 

20 ‘‘(B) which is attributable to the earnings 

21 and profits of the controlled foreign corporation 

22 (computed in accordance with sections 964(a) 

23 and 986) accumulated in taxable years begin24 ning after December 31, 2012, 

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1 then subsections (a), (b), and (c) shall not apply and 

2 such domestic corporation shall be deemed to have 

3 paid so much of such foreign corporation’s foreign 

4 income taxes as are properly attributable to the 

5 amount so included. 

6 ‘‘(2) FOREIGN INCOME TAXES.—For purposes 

7 of this subsection, the term ‘foreign income taxes’ 

8 means any income, war profits, or excess profits 

9 taxes paid or accrued by the controlled foreign cor10 poration to any foreign country or possession of the 

11 United States. 

12 ‘‘(3) REGULATIONS.—The Secretary shall pro13 vide such regulations as may be necessary or appro14 priate to carry out the provisions of this sub15 section.’’. 

16 SEC. 212. SEPARATE FOREIGN TAX CREDIT BASKET FOR 

17 FOREIGN INTANGIBLE INCOME. 

18 (a) IN GENERAL.—Paragraph (1) of section 904(d) 

19 is amended by striking ‘‘and’’ at the end of subparagraph 

20 (A), by striking the period at the end of subparagraph 

21 (B) and inserting ‘‘, and’’, and by adding at the end the 

22 following: 

23 ‘‘(C) foreign intangible income (as defined 

24 in paragraph (2)(J)).’’. 

25 (b) FOREIGN INTANGIBLE INCOME.— 

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1 (1) IN GENERAL.—Section 904(d)(2) is amend2 ed by redesignating subparagraphs (J) and (K) as 

3 subparagraphs (K) and (L) and by inserting after 

4 subparagraph (I) the following: 

5 ‘‘(J) FOREIGN INTANGIBLE INCOME.—For 

6 purposes of this section— 

7 ‘‘(i) IN GENERAL.—The term ‘foreign 

8 intangible income’ has the meaning given 

9 such term by section 250(c). 

10 ‘‘(ii) COORDINATION.—Passive cat11 egory income and general category income 

12 shall not include foreign intangible in13 come.’’ 

14 (2) GENERAL CATEGORY INCOME.—Section 

15 904(d)(2)(A)(ii) is amended by inserting ‘‘or foreign 

16 intangible income’’ after ‘‘passive category income’’. 

17 (c) EFFECTIVE DATES.— 

18 (1) IN GENERAL.—The amendments made by 

19 this section shall apply to taxable years beginning 

20 after December 31, 2012. 

21 (2) TRANSITIONAL RULE.—For purposes of sec22 tion 904(d)(1) of the Internal Revenue Code of 1986 

23 (as amended by this Act)— 

24 (A) taxes carried from any taxable year be25 ginning before January 1, 2013, to any taxable 

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1 year beginning on or after such date, with re2 spect to any item of income, shall be treated as 

3 described in the subparagraph of such section 

4 904(d)(1) in which such income would be de5 scribed without regard to the amendments 

6 made by this section, and 

7 (B) any carryback of taxes with respect to 

8 foreign intangible income from a taxable year 

9 beginning on or after January 1, 2013, to a 

10 taxable year beginning before such date shall be 

11 allocated to the general income category. 

12 SEC. 213. INVENTORY PROPERTY SALES SOURCE RULE EX13 CEPTIONS NOT TO APPLY FOR FOREIGN TAX 

14 CREDIT LIMITATION. 

15 (a) IN GENERAL.—Section 904 is amended by redes16 ignating subsection (l) as subsection (m) and by inserting 

17 after subsection (k) the following new subsection: 

18 ‘‘(l) INVENTORY PROPERTY SALES SOURCE RULE

19 EXCEPTIONS NOT TO APPLY.—Any amount which would 

20 be treated as derived from sources without the United 

21 States by reason of the application of section 862(a)(6) 

22 or 863(b)(2) for any taxable year shall be treated as de23 rived from sources within the United States for purposes 

24 of this section.’’. 

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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2012. 

4 Subtitle C—Allocation of Interest 

5 on Worldwide Basis 

6 SEC. 221. ACCELERATION OF ELECTION TO ALLOCATE IN7 TEREST ON A WORLDWIDE BASIS. 

8 Section 864(f)(6) is amended by striking ‘‘December 

9 31, 2020’’ and inserting ‘‘December 31, 2012’’. 

Æ 

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