II 

110TH CONGRESS 

1ST SESSION S. 1006 

To amend the Internal Revenue Code of 1986 to deny qualified dividend 

income treatment to certain foreign dividends. 

IN THE SENATE OF THE UNITED STATES 

MARCH 28, 2007 

Mr. KERRY 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 deny qualified dividend income treatment to certain foreign dividends. 

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

3 SECTION 1. CERTAIN FOREIGN DIVIDENDS NOT TREATED 

4 AS QUALIFIED DIVIDEND INCOME. 

5 (a) IN GENERAL.—Clause (ii) of section 1(h)(11)(B) 

6 of the Internal Revenue Code of 1986 (relating to certain 

7 dividends excluded) is amended by striking ‘‘and’’ at the 

8 end of subclause (II), by striking the period at the end 

9 of subclause (III) and inserting ‘‘, and’’, and by adding 

10 at the end the following new subclause: 

mstockstill on PROD1PC66 with BILLS

2 

•S 1006 IS

1 ‘‘(IV) any nonqualified dividend 

2 from a foreign corporation.’’. 

3 (b) NONQUALIFIED DIVIDEND FROM A FOREIGN

4 CORPORATION.—Paragraph (11) of section 1(h) of such 

5 Code (relating to dividends taxed as net capital gain) is 

6 amended by redesignating subparagraph (D) as subpara7 graph (E) and by inserting after subparagraph (C) the 

8 following new subparagraph: 

9 ‘‘(D) NONQUALIFIED DIVIDEND FROM A

10 FOREIGN CORPORATION.—For purposes of sub11 paragraph (B)(ii)(IV), the term ‘nonqualified 

12 dividend from a foreign corporation’ means any 

13 dividend from a foreign corporation if— 

14 ‘‘(i) any amount is allowable as a de15 duction to any person at any time under 

16 the taxation law of any foreign country (or 

17 any amount is otherwise creditable against 

18 the tax imposed under such law) with re19 spect to such dividend, 

20 ‘‘(ii) for the taxable year of the cor21 poration in which the distribution is made, 

22 or the preceding taxable year— 

23 ‘‘(I) such corporation is not 

24 treated as a corporation for purposes 

25 of the taxation laws of any foreign 

mstockstill on PROD1PC66 with BILLS

3 

•S 1006 IS

1 country to which it would be subject 

2 to tax if it were treated as a corpora3 tion, 

4 ‘‘(II) such corporation is exempt 

5 from tax under the taxation laws of 

6 any foreign country to which (but for 

7 such exemption) it would otherwise be 

8 subject to tax (except for exemption 

9 on the basis of nonresidence, non10 domicile, or similar criteria), or 

11 ‘‘(III) such corporation is a pas12 sive foreign investment company (as 

13 defined in section 1297 (without re14 gard to subsection (e) thereof)), or 

15 ‘‘(iii) such dividend is paid with re16 spect to an instrument which is treated as 

17 other than stock (or a similar equity inter18 est) under the taxation laws of any foreign 

19 country with respect to which the payment 

20 is taken into account.’’. 

21 (c) CONFORMING AMENDMENT.—Subparagraph (C) 

22 of section 1(h)(11) of such Code is amended by striking 

23 clause (iii) and by redesignating clause (iv) as clause (iii). 

mstockstill on PROD1PC66 with BILLS

4 

•S 1006 IS

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

2 this section shall apply to dividends received after the date 

3 of the enactment of this Act. 

4 SEC. 2. MODIFICATION TO THE DEFINITION OF QUALIFIED 

5 FOREIGN CORPORATION. 

6 (a) IN GENERAL.—Clause (ii) of section 1(h)(11)(C) 

7 of the Internal Revenue Code of 1986 (relating to divi8 dends on stock readily tradable on United States securities 

9 market) is amended by striking ‘‘by such corporation if 

10 the stock’’ and all that follows and inserting ‘‘by such cor11 poration if— 

12 ‘‘(I) the stock with respect to 

13 which such dividend is paid is readily 

14 tradable on an established securities 

15 market in the United States, and 

16 ‘‘(II) such corporation is created 

17 or organized under the laws of a for18 eign country which has a comprehen19 sive income tax system which the Sec20 retary determines is satisfactory for 

21 the purposes of this paragraph.’’. 

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

23 this section shall apply to dividends received after the date 

24 of the enactment of this Act. 

Æ 

mstockstill on PROD1PC66 with BILLS