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[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 2091 Introduced in Senate (IS)]

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.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``United States Job 
Creation and International Tax Reform Act of 2012''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents of 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.

 TITLE I--PARTICIPATION EXEMPTION SYSTEM FOR TAXATION OF FOREIGN INCOME

SEC. 101. DEDUCTION FOR DIVIDENDS RECEIVED BY DOMESTIC CORPORATIONS 
              FROM CERTAIN FOREIGN CORPORATIONS.

    (a) Allowance of Deduction.--Part VIII of subchapter B of chapter 1 
is amended by inserting after section 245 the following new section:

``SEC. 245A. DIVIDENDS RECEIVED BY DOMESTIC CORPORATIONS FROM CERTAIN 
              FOREIGN CORPORATIONS.

    ``(a) In General.--In the case of any dividend received from a 
controlled foreign corporation by a domestic corporation which is a 
United States shareholder with respect to such controlled foreign 
corporation, there shall be allowed as a deduction an amount equal to 
95 percent of the qualified foreign-source portion of the dividend.
    ``(b) Treatment of Electing Noncontrolled Section 902 Corporations 
as Controlled Foreign Corporations.--
            ``(1) In general.--If a domestic corporation elects the 
        application of this subsection for any noncontrolled section 
        902 corporation with respect to the domestic corporation, then, 
        for purposes of this title--
                    ``(A) the noncontrolled section 902 corporation 
                shall be treated as a controlled foreign corporation 
                with respect to the domestic corporation, and
                    ``(B) the domestic corporation shall be treated as 
                a United States shareholder with respect to the 
                noncontrolled section 902 corporation.
            ``(2) Election.--
                    ``(A) Time of election.--Any election under this 
                subsection with respect to any noncontrolled section 
                902 corporation shall be made not later than the due 
                date for filing the return of tax for the first taxable 
                year of the taxpayer with respect to which the foreign 
                corporation is a noncontrolled section 902 corporation 
                with respect to the taxpayer (or, if later, the first 
                taxable year of the taxpayer for which this section is 
                in effect).
                    ``(B) Revocation of election.--Any election under 
                this subsection, once made, may be revoked only with 
                the consent of the Secretary.
                    ``(C) Controlled groups.--If a domestic corporation 
                making an election under this subsection with respect 
                to any noncontrolled section 902 corporation is a 
                member of a controlled group of corporations (within 
                the meaning of section 1563(a), except that `more than 
                50 percent' shall be substituted for `at least 80 
                percent' each place it appears therein), then, except 
                as otherwise provided by the Secretary, such election 
                shall apply to all members of such group.
    ``(c) Qualified Foreign-Source Portion of Dividends.--For purposes 
of this section--
            ``(1) Qualified foreign-source portion.--
                    ``(A) In general.--The qualified foreign-source 
                portion of any dividend is an amount which bears the 
                same ratio to such dividend as--
                            ``(i) the post-2012 undistributed qualified 
                        foreign earnings, bears to
                            ``(ii) the total post-2012 undistributed 
                        earnings.
                    ``(B) Post-2012 undistributed earnings.--The term 
                `post-2012 undistributed earnings' means the amount of 
                the earnings and profits of a controlled foreign 
                corporation (computed in accordance with sections 
                964(a) and 986) accumulated in taxable years beginning 
                after December 31, 2012--
                            ``(i) as of the close of the taxable year 
                        of the controlled foreign corporation in which 
                        the dividend is distributed, and
                            ``(ii) without diminution by reason of 
                        dividends distributed during such taxable 
                        years.
                    ``(C) Post-2012 undistributed qualified foreign 
                earnings.--The term `post-2012 undistributed qualified 
                foreign earnings' means the portion of the post-2012 
                undistributed earnings which is attributable to income 
                other than--
                            ``(i) income described in section 
                        245(a)(5)(A), or
                            ``(ii) dividends described in section 
                        245(a)(5)(B).
            ``(2) Ordering rule for distributions of earnings and 
        profits.--Distributions shall be treated as first made out of 
        earnings and profits of a controlled foreign corporation which 
        are not post-2012 undistributed earnings and then out of post-
        2012 undistributed earnings.
    ``(d) Disallowance of Foreign Tax Credit, etc.--
            ``(1) In general.--No credit shall be allowed under section 
        901 for any taxes paid or accrued (or treated as paid or 
        accrued) with respect to the qualified foreign-source portion 
        of any dividend.
            ``(2) Denial of deduction.--No deduction shall be allowed 
        under this chapter for any tax for which credit is not 
        allowable under section 901 by reason of paragraph (1).
            ``(3) Coordination with section 78.--Section 78 shall not 
        apply to any tax for which credit is not allowable under 
        section 901 by reason of paragraph (1).
            ``(4) Treatment of nondeductible portion in applying 
        foreign tax credit limit.--For purposes of applying the 
        limitation under section 904(a), the remaining 5 percent of the 
        qualified foreign-source portion of any dividend with respect 
        to which a deduction is not allowable to the domestic 
        corporation under subsection (a) shall be treated as income 
        from sources within the United States.
    ``(e) Special Rules for Hybrid Dividends.--
            ``(1) In general.--Subsection (a) shall not apply to any 
        dividend received by a United States shareholder from a 
        controlled foreign corporation if the dividend is a hybrid 
        dividend.
            ``(2) Hybrid dividends of tiered controlled foreign 
        corporations.--If a controlled foreign corporation with respect 
        to which a domestic corporation is a United States shareholder 
        receives a hybrid dividend from any other controlled foreign 
        corporation with respect to which such domestic corporation is 
        also a United States shareholder, then, notwithstanding any 
        other provision of this title--
                    ``(A) the hybrid dividend shall be treated for 
                purposes of section 951(a)(1)(A) as subpart F income of 
                the receiving controlled foreign corporation for the 
                taxable year of the controlled foreign corporation in 
                which the dividend was received, and
                    ``(B) the United States shareholder shall include 
                in gross income an amount equal to the shareholder's 
                pro rata share (determined in the same manner as under 
                section 951(a)(2)) of the subpart F income described in 
                subparagraph (A).
            ``(3) Denial of foreign tax credit, etc.--The rules of 
        subsection (d) shall apply to any hybrid dividend received by, 
        or any amount included under paragraph (2) in the gross income 
        of, a United States shareholder, except that, for purposes of 
        applying subsection (d)(4), all of such dividend or amount 
        shall be treated as income from sources within the United 
        States.
            ``(4) Hybrid dividend.--The term `hybrid dividend' means an 
        amount received from a controlled foreign corporation--
                    ``(A) which is treated as a dividend for purposes 
                of this title, and
                    ``(B) for which the controlled foreign corporation 
                received a deduction (or similar tax benefit) under the 
                laws of the country in which the controlled foreign 
                corporation was created or organized.
    ``(f) Definitions.--For purposes of this section--
            ``(1) United states shareholder.--The term `United States 
        shareholder' has the meaning given such term in section 951(b).
            ``(2) Controlled foreign corporation.--The term `controlled 
        foreign corporation' has the meaning given such term in section 
        957(a).
            ``(3) Noncontrolled section 902 corporation.--The term 
        `noncontrolled section 902 corporation' has the meaning given 
        such term in section 904(d)(2)(E)(i).
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the provisions of this 
section.''.
    (b) Application of Holding Period Requirement.--Subsection (c) of 
section 246 is amended--
            (1) by striking ``or 245'' in paragraph (1) and inserting 
        ``245, or 245A'', and
            (2) by adding at the end the following new paragraph:
            ``(5) Special rules for qualified foreign-source portion of 
        dividends received from controlled foreign corporations.--
                    ``(A) 1-year holding period requirement.--For 
                purposes of section 245A--
                            ``(i) paragraph (1)(A) shall be applied--
                                    ``(I) by substituting `365 days' 
                                for `45 days' each place it appears, 
                                and
                                    ``(II) by substituting `731-day 
                                period' for `91-day period', and
                            ``(ii) paragraph (2) shall not apply.
                    ``(B) Status must be maintained during holding 
                period.--For purposes of section 245A, the holding 
                period requirement of this subsection shall be treated 
                as met only if--
                            ``(i) the controlled foreign corporation 
                        referred to in section 245A(a) is a controlled 
                        foreign corporation at all times during such 
                        period, and
                            ``(ii) the taxpayer is a United States 
                        shareholder (as defined in section 951) with 
                        respect to such controlled foreign corporation 
                        at all times during such period.
                    ``(C) Special rules for electing noncontrolled 
                section 902 corporations.--In the case of an election 
                under section 245A(b) to treat a noncontrolled section 
                902 corporation as a controlled foreign corporation, 
                the requirements of subparagraph (B) shall be treated 
                as met for any continuous period ending on the day 
                before the effective date of the election for which the 
                taxpayer met the ownership requirements of section 
                904(d)(2)(E) with respect to such corporation.''.
    (c) Application of Rules Generally Applicable to Deductions for 
Dividends Received.--
            (1) Treatment of dividends from tax-exempt corporations.--
        Paragraph (1) of section 246(a) is amended by striking ``and 
        245'' and inserting ``245, and 245A''.
            (2) Assets generating tax-exempt portion of dividend not 
        taken into account in allocating and apportioning deductible 
        expenses.--Paragraph (3) of section 864(e) is amended by 
        striking ``or 245(a)'' and inserting ``, 245(a), or 245A''.
            (3) Coordination with section 1059.--Subparagraph (B) of 
        section 1059(b)(2) is amended by striking ``or 245'' and 
        inserting ``245, or 245A''.
    (d) Conforming Amendments.--
            (1) Clause (vi) of section 56(g)(4)(C) is amended by 
        inserting ``245A or'' before ``965''.
            (2) Subsection (b) of section 951 is amended--
                    (A) by striking ``subpart'' and inserting 
                ``title'', and
                    (B) by adding at the end the following: ``Such term 
                shall include, with respect to any entity treated as a 
                controlled foreign corporation under section 245A(b), 
                any domestic corporation treated as a United States 
                shareholder with respect to such entity under such 
                section.''.
            (3) Subsection (a) of section 957 is amended--
                    (A) by striking ``subpart'' in the matter preceding 
                paragraph (1) and inserting ``title'', and
                    (B) by adding at the end the following: ``Such term 
                shall include any entity treated as a controlled 
                foreign corporation under section 245A(b).''.
            (4) The table of sections for part VIII of subchapter B of 
        chapter 1 is amended by inserting after the item relating to 
        section 245 the following new item:

``Sec. 245A. Dividends received by domestic corporations from certain 
                            foreign corporations.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2012, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 102. APPLICATION OF DIVIDENDS RECEIVED DEDUCTION TO CERTAIN SALES 
              AND EXCHANGES OF STOCK.

    (a) Sales by United States Persons of Stock in CFC.--Section 1248 
is amended by redesignating subsection (j) as subsection (k) and by 
inserting after subsection (i) the following new subsection:
    ``(j) Coordination With Dividends Received Deduction.--
            ``(1) In general.--In the case of the sale or exchange by a 
        domestic corporation of stock in a foreign corporation held for 
        1 year or more, any amount received by the domestic corporation 
        which is treated as a dividend by reason of this section shall 
        be treated as a dividend for purposes of applying section 245A.
            ``(2) Losses disallowed.--If a domestic corporation--
                    ``(A) sells or exchanges stock in a foreign 
                corporation in a taxable year of the domestic 
                corporation with or within which a taxable year of the 
                foreign corporation beginning after December 31, 2012, 
                ends, and
                    ``(B) met the ownership requirements of subsection 
                (a)(2) with respect to such stock,
        no deduction shall be allowed to the domestic corporation with 
        respect to any loss from the sale or exchange.''.
    (b) Sale by a CFC of a Lower Tier CFC.--Section 964(e) is amended 
by adding at the end the following new paragraph:
            ``(4) Coordination with dividends received deduction.--
                    ``(A) In general.--If, for any taxable year of a 
                controlled foreign corporation beginning after December 
                31, 2012, any amount is treated as a dividend under 
                paragraph (1) by reason of a sale or exchange by the 
                controlled foreign corporation of stock in another 
                foreign corporation held for 1 year or more, then, 
                notwithstanding any other provision of this title--
                            ``(i) the qualified foreign-source portion 
                        of such dividend shall be treated for purposes 
                        of section 951(a)(1)(A) as subpart F income of 
                        the selling controlled foreign corporation for 
                        such taxable year,
                            ``(ii) a United States shareholder with 
                        respect to the selling controlled foreign 
                        corporation shall include in gross income for 
                        the taxable year of the shareholder with or 
                        within which such taxable year of the 
                        controlled foreign corporation ends an amount 
                        equal to the shareholder's pro rata share 
                        (determined in the same manner as under section 
                        951(a)(2)) of the amount treated as subpart F 
                        income under clause (i), and
                            ``(iii) the deduction under section 245A(a) 
                        shall be allowable to the United States 
                        shareholder with respect to the subpart F 
                        income included in gross income under clause 
                        (ii) in the same manner as if such subpart F 
                        income were a dividend received by the 
                        shareholder from the selling controlled foreign 
                        corporation.
                    ``(B) Effect of loss on earnings and profits.--For 
                purposes of this title, in the case of a sale or 
                exchange by a controlled foreign corporation of stock 
                in another foreign corporation in a taxable year of the 
                selling controlled foreign corporation beginning after 
                December 31, 2012, to which this paragraph would apply 
                if gain were recognized, the earnings and profits of 
                the selling controlled foreign corporation shall not be 
                reduced by reason of any loss from such sale or 
                exchange.
                    ``(C) Qualified foreign-source portion.--For 
                purposes of this paragraph, the qualified foreign-
                source portion of any amount treated as a dividend 
                under paragraph (1) shall be determined in the same 
                manner as under section 245A(c).''.

SEC. 103. DEDUCTION FOR FOREIGN INTANGIBLE INCOME DERIVED FROM TRADE OR 
              BUSINESS WITHIN THE UNITED STATES.

    (a) In General.--Part VIII of subchapter B of chapter 1 is amended 
by adding at the end the following new section:

``SEC. 250. FOREIGN INTANGIBLE INCOME DERIVED FROM TRADE OR BUSINESS 
              WITHIN THE UNITED STATES.

    ``(a) In General.--In the case of a domestic corporation, there 
shall be allowed as a deduction an amount equal to 50 percent of the 
qualified foreign intangible income of such domestic corporation for 
the taxable year.
    ``(b) Qualified Foreign Intangible Income.--
            ``(1) In general.--The term `qualified foreign intangible 
        income' means, with respect to any domestic corporation, 
        foreign intangible income which is derived by the domestic 
        corporation from the active conduct of a trade or business 
        within the United States with respect to the intangible 
        property giving rise to the income.
            ``(2) Requirements relating to trade or business within the 
        united states.--For purposes of this section, foreign 
        intangible income shall be treated as derived by a domestic 
        corporation from the active conduct of a trade or business 
        within the United States only if--
                    ``(A) the domestic corporation developed, created, 
                or produced within the United States the intangible 
                property giving rise to the income, or
                    ``(B) in any case in which the domestic corporation 
                acquired such intangible property, the domestic 
                corporation added substantial value to the property 
                through the active conduct of such trade or business 
                within the United States.
    ``(c) Foreign Intangible Income.--For purposes of this section--
            ``(1) In general.--The term `foreign intangible income' 
        means any intangible income which is derived in connection 
        with--
                    ``(A) property which is sold, leased, licensed, or 
                otherwise disposed of for use, consumption, or 
                disposition outside the United States, or
                    ``(B) services provided with respect to persons or 
                property located outside the United States.
            ``(2) Exceptions for certain income.--The following amounts 
        shall not be taken into account in computing foreign intangible 
        income:
                    ``(A) Any amount treated as received by the 
                domestic corporation under section 367(d)(2) with 
                respect to any intangible property.
                    ``(B) Any payment under a cost-sharing arrangement 
                entered into under section 482.
                    ``(C) Any amount received from a controlled foreign 
                corporation with respect to which the domestic 
                corporation is a United States shareholder to the 
                extent such amount is attributable or properly 
                allocable to income which is--
                            ``(i) effectively connected with the 
                        conduct of a trade or business within the 
                        United States and subject to tax under this 
                        chapter, or
                            ``(ii) subpart F income.
                For purposes of clause (ii), amounts not otherwise 
                treated as subpart F income shall be so treated if the 
                amount creates (or increases) a deficit which under 
                section 952(c) may reduce the subpart F income of the 
                payor or any other controlled foreign corporation.
            ``(3) Intangible income.--The term `intangible income' 
        means gross income from--
                    ``(A) the sale, lease, license, or other 
                disposition of property in which intangible property is 
                used directly or indirectly, or
                    ``(B) the provision of services related to 
                intangible property or in connection with property in 
                which intangible property is used directly or 
                indirectly,
        to the extent that such gross income is properly attributable 
        to such intangible property.
            ``(4) Deductions to be taken into account.--The gross 
        income of a domestic corporation taken into account under this 
        subsection shall be reduced, under regulations prescribed by 
        the Secretary, so as to take into account deductions properly 
        allocable to such income.
            ``(5) Intangible property.--The term `intangible property' 
        has the meaning given such term by section 936(h)(3)(B).
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the provisions of this 
section.''.
    (b) Conforming Amendment.--The table of sections for part VIII of 
subchapter B of chapter 1 is amended by adding at the end the following 
new item:

``Sec. 250. Foreign intangible income derived from trade or business 
                            within the United States.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of domestic corporations beginning after 
December 31, 2012.

SEC. 104. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO 
              PARTICIPATION EXEMPTION SYSTEM OF TAXATION.

    (a) In General.--Section 965 is amended to read as follows:

``SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO 
              PARTICIPATION EXEMPTION SYSTEM OF TAXATION.

    ``(a) Deduction Allowed.--In the case of a domestic corporation 
which elects the application of this section to any controlled foreign 
corporation with respect to which it is a United States shareholder, 
there shall be allowed as a deduction for the taxable year of the 
United States shareholder with or within which the first taxable year 
of the controlled foreign corporation beginning after December 31, 
2012, ends an amount equal to 70 percent of the amount determined under 
subsection (b) for the taxable year.
    ``(b) Eligible Amount.--For purposes of subsection (a)--
            ``(1) In general.--The amount determined under this 
        subsection for a United States shareholder with respect to any 
        controlled foreign corporation for the taxable year of the 
        shareholder described in subsection (a) is the lesser of--
                    ``(A) the shareholder's pro rata share of the 
                earnings and profits of the controlled foreign 
                corporation described in section 959(c)(3) as of the 
                close of the taxable year preceding the first taxable 
                year of the controlled foreign corporation beginning 
                after December 31, 2012, or
                    ``(B) an amount equal to the sum of--
                            ``(i) the dividends received by the 
                        shareholder during such taxable year from the 
                        controlled foreign corporation which are 
                        attributable to the earnings and profits 
                        described in subparagraph (A), plus
                            ``(ii) the increase in subpart F income 
                        required to be included in gross income of the 
                        shareholder for the taxable year by reason of 
                        the election under paragraph (2).
            ``(2) Election of deemed subpart f inclusion.--A United 
        States shareholder may elect for purposes of paragraph 
        (1)(B)(ii) to treat all (or any portion) of the shareholder's 
        pro rata share of the earnings and profits of a controlled 
        foreign corporation described in paragraph (1)(A) as subpart F 
        income includible in the gross income of the shareholder for 
        the taxable year of the shareholder described in subsection 
        (a).
            ``(3) Ordering rule.--For purposes of paragraph (1)(B)(i), 
        distributions shall be treated as first made out of earnings 
        and profits of a controlled foreign corporation described in 
        paragraph (1)(A).
            ``(4) Dividend.--The term `dividend' shall not include 
        amounts includible in gross income as a dividend under section 
        78.
    ``(c) Disallowance of Foreign Tax Credit, etc.--In the case of a 
domestic corporation making an election under subsection (a) with 
respect to any controlled foreign corporation--
            ``(1) In general.--No credit shall be allowed under section 
        901 for any taxes paid or accrued (or treated as paid or 
        accrued) with respect to the earnings and profits taken into 
        account in determining the amount under subsection (b).
            ``(2) Denial of deduction.--No deduction shall be allowed 
        under this chapter for any tax for which credit is not 
        allowable under section 901 by reason of paragraph (1).
            ``(3) Coordination with section 78.--Section 78 shall not 
        apply to any tax for which credit is not allowable under 
        section 901 by reason of paragraph (1).
            ``(4) Treatment of nondeductible portion in applying 
        foreign tax credit limit.--For purposes of applying the 
        limitation under section 904(a), the remaining 30 percent of 
        the amount determined under subsection (b) with respect to 
        which a deduction is not allowable under subsection (a) shall 
        be treated as income from sources within the United States.
    ``(d) Election To Pay Liability for Deemed Subpart F Income in 
Installments.--
            ``(1) In general.--In the case of a United States 
        shareholder with respect to 1 or more controlled foreign 
        corporations to which elections under subsections (a) and 
        (b)(2) apply, such United States shareholder may elect to pay 
        the net tax liability determined with respect to its deemed 
        subpart F inclusions with respect to such corporations under 
        subsection (b)(2) for the taxable year described in subsection 
        (a) in 2 or more (but not exceeding 8) equal installments.
            ``(2) Date for payment of installments.--If an election is 
        made under paragraph (1), the first installment shall be paid 
        on the due date (determined without regard to any extension of 
        time for filing the return) for the return of tax for the 
        taxable year for which the election was made and each 
        succeeding installment shall be paid on the due date (as so 
        determined) for the return of tax for the taxable year 
        following the taxable year with respect to which the preceding 
        installment was made.
            ``(3) Acceleration of payment.--If there is an addition to 
        tax for failure to pay timely assessed with respect to any 
        installment required under this subsection, a liquidation or 
        sale of substantially all the assets of the taxpayer (including 
        in a title 11 or similar case), a cessation of business by the 
        taxpayer, or any similar circumstance, then the unpaid portion 
        of all remaining installments shall be due on the date of such 
        event (or in the case of a title 11 or similar case, the day 
        before the petition is filed).
            ``(4) Proration of deficiency to installments.--If an 
        election is made under paragraph (1) to pay the net tax 
        liability described in paragraph (1) in installments and a 
        deficiency has been assessed which increases such net tax 
        liability, the increase shall be prorated to the installments 
        payable under paragraph (1). The part of the increase so 
        prorated to any installment the date for payment of which has 
        not arrived shall be collected at the same time as, and as a 
        part of, such installment. The part of the increase so prorated 
        to any installment the date for payment of which has arrived 
        shall be paid upon notice and demand from the Secretary. This 
        subsection shall not apply if the deficiency is due to 
        negligence, to intentional disregard of rules and regulations, 
        or to fraud with intent to evade tax.
            ``(5) Time for payment of interest.--Interest payable under 
        section 6601 on the unpaid portion of any amount of tax the 
        time for payment of which as been extended under this 
        subsection shall be paid annually at the same time as, and as 
        part of, each installment payment of such tax. In the case of a 
        deficiency to which paragraph (4) applies, interest with 
        respect to such deficiency which is assigned under the 
        preceding sentence to any installment the date for payment of 
        which has arrived on or before the date of the assessment of 
        the deficiency, shall be paid upon notice and demand from the 
        Secretary.
            ``(6) Net tax liability for deemed subpart f inclusions.--
        For purposes of this subsection--
                    ``(A) In general.--The net tax liability described 
                in paragraph (1) with respect to any United States 
                shareholder for any taxable year is the excess (if any) 
                of--
                            ``(i) such taxpayer's net income tax for 
                        the taxable year, over
                            ``(ii) such taxpayer's net income tax for 
                        such taxable year determined as if the 
                        elections under subsection (b)(2) with respect 
                        to 1 or more controlled foreign corporations 
                        had not been made.
                    ``(B) Net income tax.--The term `net income tax' 
                means the net income tax (as defined in section 
                38(c)(1)) reduced by the credit allowed under section 
                38.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Elections.--Any election under subsection (a), 
        (b)(2), or (d)(1) shall be made not later than the due date 
        (including extensions) for the return of tax for the taxable 
        year for which made and shall be made in such manner as the 
        Secretary may provide.
            ``(2) Section not to apply to noncontrolled section 902 
        corporations treated as cfcs.--No election may be made under 
        subsection (a) with respect to a controlled foreign corporation 
        which was a noncontrolled section 902 corporation which a 
        United States shareholder elected under section 245A(b) to 
        treat as a controlled foreign corporation.
            ``(3) Pro rata share.--A shareholder's pro rata share of 
        any earnings and profits shall be determined in the same manner 
        as under section 951(a)(2).''
    (b) Conforming Amendments.--
            (1) Clause (vi) of section 56(g)(4)(C), as amended by this 
        Act, is amended--
                    (A) by striking ``965'' and inserting ``965(b)'', 
                and
                    (B) by inserting ``and inclusions'' after ``certain 
                distributions'' in the heading thereof.
            (2) Paragraph (2) of section 6601(b) is amended--
                    (A) by striking ``section 6156(a)'' in the matter 
                preceding subparagraph (A) and inserting ``section 
                965(d)(1) or 6156(a)'', and
                    (B) by striking ``section 6156(b)'' in subparagraph 
                (A) and inserting ``section 965(d)(2) or 6156(b), as 
                the case may be''.
            (3) The table of section for subpart F of part III of 
        subchapter N of chapter 1 is amended by striking the item 
        relating to section 965 and inserting the following:

``Sec. 965. Treatment of deferred foreign income upon transition to 
                            participation exemption system of 
                            taxation.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2012, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

               TITLE II--OTHER INTERNATIONAL TAX REFORMS

                 Subtitle A--Modifications of Subpart F

SEC. 201. TREATMENT OF LOW-TAXED FOREIGN INCOME AS SUBPART F INCOME.

    (a) In General.--Subsection (a) of section 952 is amended by 
redesignating paragraphs (3), (4), and (5) as paragraphs (4), (5), and 
(6), respectively, and by inserting after paragraph (2) the following 
new paragraph:
            ``(3) low-taxed income (as defined under subsection 
        (e)),''.
    (b) Low-Taxed Income.--Section 952 is amended by adding at the end 
the following new subsection:
    ``(e) Low-Taxed Income.--
            ``(1) In general.--For purposes of subsection (a), except 
        as provided in paragraph (2), the term `low-taxed income' 
        means, with respect to any taxable year of a controlled foreign 
        corporation, the entire gross income of the controlled foreign 
        corporation unless the taxpayer establishes to the satisfaction 
        of the Secretary that such income was subject to an effective 
        rate of income tax (determined under rules similar to the rules 
        of section 954(b)(4)) imposed by a foreign country in excess of 
        one-half of the highest rate of tax under section 11(b) for 
        taxable years of United States corporations beginning in the 
        same calendar year as the taxable year of the controlled 
        foreign corporation begins.
            ``(2) Exception for qualified business income.--For 
        purposes of paragraph (1), qualified business income--
                    ``(A) shall be taken into account in determining 
                the effective rate of income tax at which the entire 
                gross income of the controlled foreign corporation is 
                taxed, but
                    ``(B) the amount of gross income treated as low-
                taxed income under paragraph (1) shall be reduced by 
                the amount of the qualified business income.
            ``(3) Qualified business income.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified business 
                income' means, with respect to any controlled foreign 
                corporation, income derived by the controlled foreign 
                corporation in a foreign country but only if--
                            ``(i) such income is attributable to the 
                        active conduct of a trade or business of such 
                        corporation in such foreign country,
                            ``(ii) the corporation maintains an office 
                        or fixed place of business in such foreign 
                        country, and
                            ``(iii) officers and employees of the 
                        corporation physically located at such office 
                        or place of business in such foreign country 
                        conducted (or significantly contributed to the 
                        conduct of) activities within the foreign 
                        country which are substantial in relation to 
                        the activities necessary for the active conduct 
                        of the trade or business to which such income 
                        is attributable.
                    ``(B) Exception for intangible income.--For 
                purposes of subparagraph (A), qualified business income 
                of a controlled foreign corporation shall not include 
                intangible income (as defined in section 250(c)(3)).
            ``(4) Determination of effective rate of foreign income tax 
        and qualified business income.--
                    ``(A) Country-by-country determination.--For 
                purposes of determining the effective rate of income 
                tax imposed by any foreign country under paragraph (1) 
                and qualified business income under paragraph (3), each 
                such paragraph shall be applied separately with respect 
                to--
                            ``(i) each foreign country in which a 
                        controlled foreign corporation conducts any 
                        trade or business, and
                            ``(ii) the entire gross income and 
                        qualified business income derived with respect 
                        to such foreign country.
                    ``(B) Treatment of losses.--For purposes of 
                determining the effective rate of income tax imposed by 
                any foreign country under paragraph (1)--
                            ``(i) such effective rate shall be 
                        determined without regard to any losses carried 
                        to the relevant taxable year, and
                            ``(ii) to the extent the income of the 
                        controlled foreign corporation reduces losses 
                        in the relevant taxable year, such effective 
                        rate shall be treated as being the effective 
                        rate which would have been imposed on such 
                        income without regard to such losses.
            ``(5) Deductions to be taken into account.--The gross 
        income of a controlled foreign corporation taken into account 
        under this subsection shall be reduced, under regulations 
        prescribed by the Secretary, so as to take into account 
        deductions (including taxes) properly allocable to such 
        income.''.
    (c) Conforming Amendments.--
            (1) Subsection (a) of section 952 is amended--
                    (A) by striking ``paragraph (4)'' in the next to 
                last sentence and inserting ``paragraph (5)'', and
                    (B) by striking ``paragraph (5)'' in the last 
                sentence and inserting ``paragraph (6)''.
            (2) Subsection (d) of section 952 is amended by striking 
        ``subsection (a)(5)'' and inserting ``subsection (a)(6)''.
            (3) Paragraphs (1) and (2) of section 999(c) are each 
        amended by striking ``section 952(a)(3)'' and inserting 
        ``section 952(a)(4)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2012, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 202. PERMANENT EXTENSION OF LOOK-THRU RULE FOR CONTROLLED FOREIGN 
              CORPORATIONS.

    (a) In General.--Section 954(c)(6)(C) is amended by striking ``and 
before January 1, 2012,''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2011, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 203. PERMANENT EXTENSION OF EXCEPTIONS FOR ACTIVE FINANCING 
              INCOME.

    (a) Exception From Insurance Income.--Section 953(e)(10) is 
amended--
            (1) by striking ``and before January 1, 2012,'', and
            (2) by striking the last sentence.
    (b) Exception From Foreign Personal Holding Company Income.--
Section 954(h)(9) is amended by striking ``and before January 1, 
2012,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2011, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 204. FOREIGN BASE COMPANY INCOME NOT TO INCLUDE SALES OR SERVICES 
              INCOME.

    (a) Repeal.--Paragraphs (2) and (3) of section 954(a) are repealed.
    (b) Conforming Amendments.--
            (1) Section 954(d) is amended by adding at the end the 
        following new paragraph:
            ``(5) Termination.--This subsection shall not apply to 
        taxable years of foreign corporations beginning after December 
        31, 2012, and to taxable years of United States shareholders 
        with or within which such taxable years of foreign corporations 
        end.''.
            (2) Section 954(e) is amended by adding at the end the 
        following new paragraph:
            ``(3) Termination.--This subsection shall not apply to 
        taxable years of foreign corporations beginning after December 
        31, 2012, and to taxable years of United States shareholders 
        with or within which such taxable years of foreign corporations 
        end.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2012, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

        Subtitle B--Modifications Related to Foreign Tax Credit

SEC. 211. MODIFICATION OF APPLICATION OF SECTIONS 902 AND 960 WITH 
              RESPECT TO POST-2012 EARNINGS.

    (a) Section 902 Not To Apply to Dividends From Post-2012 
Earnings.--Section 902 is amended by redesignating subsection (d) as 
subsection (e) and by inserting after subsection (c) the following new 
subsection:
    ``(d) Section Not To Apply to Dividends From Post-2012 Earnings.--
            ``(1) In general.--This section shall not apply to the 
        portion of any dividend paid by a foreign corporation to the 
        extent such portion is made out of earnings and profits of the 
        foreign corporation (computed in accordance with sections 
        964(a) and 986) accumulated in taxable years beginning after 
        December 31, 2012.
            ``(2) Coordination with distributions from pre-2013 
        earnings and profits.--For purposes of this section--
                    ``(A) Ordering rule.--Any distribution in a taxable 
                year beginning after December 31, 2012, shall be 
                treated as first made out of earnings and profits of 
                the foreign corporation (computed in accordance with 
                sections 964(a) and 986) accumulated in taxable years 
                beginning before January 1, 2013.
                    ``(B) Post-1986 undistributed earnings.--Post-1986 
                undistributed earnings shall not include earnings and 
                profits described in paragraph (1).''
    (b) Determination of Section 960 Credit on Current Year Basis.--
Section 960 is amended by adding at the end the following new 
subsection:
    ``(d) Deemed Paid Credit for Subpart F Inclusions Attributable to 
Post-2012 Earnings.--
            ``(1) In general.--For purposes of this subpart, if there 
        is included in the gross income of a domestic corporation any 
        amount under section 951(a)--
                    ``(A) with respect to any controlled foreign 
                corporation with respect to which such domestic 
                corporation is a United States shareholder, and
                    ``(B) which is attributable to the earnings and 
                profits of the controlled foreign corporation (computed 
                in accordance with sections 964(a) and 986) accumulated 
                in taxable years beginning after December 31, 2012,
        then subsections (a), (b), and (c) shall not apply and such 
        domestic corporation shall be deemed to have paid so much of 
        such foreign corporation's foreign income taxes as are properly 
        attributable to the amount so included.
            ``(2) Foreign income taxes.--For purposes of this 
        subsection, the term `foreign income taxes' means any income, 
        war profits, or excess profits taxes paid or accrued by the 
        controlled foreign corporation to any foreign country or 
        possession of the United States.
            ``(3) Regulations.--The Secretary shall provide such 
        regulations as may be necessary or appropriate to carry out the 
        provisions of this subsection.''.

SEC. 212. SEPARATE FOREIGN TAX CREDIT BASKET FOR FOREIGN INTANGIBLE 
              INCOME.

    (a) In General.--Paragraph (1) of section 904(d) is amended by 
striking ``and'' at the end of subparagraph (A), by striking the period 
at the end of subparagraph (B) and inserting ``, and'', and by adding 
at the end the following:
                    ``(C) foreign intangible income (as defined in 
                paragraph (2)(J)).''.
    (b) Foreign Intangible Income.--
            (1) In general.--Section 904(d)(2) is amended by 
        redesignating subparagraphs (J) and (K) as subparagraphs (K) 
        and (L) and by inserting after subparagraph (I) the following:
                    ``(J) Foreign intangible income.--For purposes of 
                this section--
                            ``(i) In general.--The term `foreign 
                        intangible income' has the meaning given such 
                        term by section 250(c).
                            ``(ii) Coordination.--Passive category 
                        income and general category income shall not 
                        include foreign intangible income.''
            (2) General category income.--Section 904(d)(2)(A)(ii) is 
        amended by inserting ``or foreign intangible income'' after 
        ``passive category income''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2012.
            (2) Transitional rule.--For purposes of section 904(d)(1) 
        of the Internal Revenue Code of 1986 (as amended by this Act)--
                    (A) taxes carried from any taxable year beginning 
                before January 1, 2013, to any taxable year beginning 
                on or after such date, with respect to any item of 
                income, shall be treated as described in the 
                subparagraph of such section 904(d)(1) in which such 
                income would be described without regard to the 
                amendments made by this section, and
                    (B) any carryback of taxes with respect to foreign 
                intangible income from a taxable year beginning on or 
                after January 1, 2013, to a taxable year beginning 
                before such date shall be allocated to the general 
                income category.

SEC. 213. INVENTORY PROPERTY SALES SOURCE RULE EXCEPTIONS NOT TO APPLY 
              FOR FOREIGN TAX CREDIT LIMITATION.

    (a) In General.--Section 904 is amended by redesignating subsection 
(l) as subsection (m) and by inserting after subsection (k) the 
following new subsection:
    ``(l) Inventory Property Sales Source Rule Exceptions Not To 
Apply.--Any amount which would be treated as derived from sources 
without the United States by reason of the application of section 
862(a)(6) or 863(b)(2) for any taxable year shall be treated as derived 
from sources within the United States for purposes of this section.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2012.

         Subtitle C--Allocation of Interest on Worldwide Basis

SEC. 221. ACCELERATION OF ELECTION TO ALLOCATE INTEREST ON A WORLDWIDE 
              BASIS.

    Section 864(f)(6) is amended by striking ``December 31, 2020'' and 
inserting ``December 31, 2012''.
                                 <all>
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