413 
† HR 1 EAS 
debtedness to the total equity of such domes-
tic corporations equaled the ratio which— 
‘‘(I) the total indebtedness of such 
group, bears to 
‘‘(II) the total equity of such 
group. 
‘‘(C) TOTAL EQUITY.—For purposes of sub-
paragraph (B), the term ‘total equity’ means, 
with respect to one or more corporations, an 
amount equal to— 
‘‘(i) the sum of the money and all other 
assets of such corporations, reduced (but not 
below one) by 
‘‘(ii) the total indebtedness of such cor-
porations. 
‘‘(D) SPECIAL
RULES
FOR
DETERMINING 
DEBT AND EQUITY.— 
‘‘(i) IN
GENERAL.—For purposes of 
this paragraph— 
‘‘(I) the amount taken into ac-
count with respect to any asset shall be 
the adjusted basis thereof for purposes 
of determining gain, 
‘‘(II) the amount taken into ac-
count with respect to any indebtedness
414 
† HR 1 EAS 
with original issue discount shall be its 
issue price plus the portion of the 
original issue discount previously ac-
crued as determined under the rules of 
section 1272 (determined without re-
gard to subsection (a)(7) or (b)(4) 
thereof), and 
‘‘(III) there shall be such other ad-
justments as the Secretary shall by reg-
ulations prescribe. 
‘‘(ii) INTRAGROUP DEBT AND EQUITY 
INTERESTS DISREGARDED.—For purposes of 
this paragraph, the total indebtedness, and 
the assets, of any group of corporations 
shall be determined by treating all members 
of such group as one corporation. 
‘‘(iii) DETERMINATION OF ASSETS OF 
DOMESTIC
GROUP.—For purposes of this 
paragraph, the assets of the domestic cor-
porations which are members of any world-
wide affiliated group shall be determined by 
disregarding any interest held by any such 
domestic corporation in any foreign cor-
poration which is a member of such group.
415 
† HR 1 EAS 
‘‘(E) PHASE IN OF PERCENTAGE USED IN 
DETERMINING
EXCESS
INDEBTEDNESS.—In the 
case of any taxable year beginning in a calendar 
year before 2022, the following percentages shall 
be substituted for ‘110 percent’ in applying sub-
paragraph (B)(ii): 
‘‘In the case of a taxable year begin-
ning in: 
The percentage is: 
2018 ...........................................................................
130 
2019 ...........................................................................
125 
2020 ...........................................................................
120 
2021 ...........................................................................
115 
‘‘(4) OTHER DEFINITIONS.—For purposes of this 
subsection— 
‘‘(A) WORLDWIDE
AFFILIATED
GROUP.— 
The term ‘worldwide affiliated group’ means a 
group consisting of the includible members of an 
affiliated group, as defined in section 1504(a), 
determined— 
‘‘(i) by substituting ‘more than 50 per-
cent’ for ‘at least 80 percent’ each place it 
appears in such section, and 
‘‘(ii) without regard to paragraphs (2), 
(3), and (4) of section 1504(b). 
‘‘(B) NET INTEREST EXPENSE.—The term 
‘net interest expense’ means the excess (if any) of 
‘‘(i) the interest paid or accrued by the 
taxpayer during the taxable year, over
416 
† HR 1 EAS 
‘‘(ii) the amount of interest includible 
in the gross income of such taxpayer for 
such taxable year. 
The Secretary shall by regulations provide for 
adjustments in determining the amount of net 
interest expense if necessary. 
‘‘(5) TREATMENT OF AFFILIATED GROUP.—For 
purposes of this subsection, all members of the same 
affiliated group (within the meaning of section 
1504(a) applied by substituting ‘more than 50 per-
cent’ for ‘at least 80 percent’ each place it appears) 
shall be treated as one taxpayer. 
‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations or other guidance as may be 
appropriate to carry out the purposes of this sub-
section, including regulations or other guidance— 
‘‘(A) to prevent the avoidance of the pur-
poses of this subsection, 
‘‘(B) providing such adjustments in the case 
of corporations which are members of an affili-
ated group as may be appropriate to carry out 
the purposes of this subsection, 
‘‘(C) providing for the coordination of this 
subsection with section 884,
417 
† HR 1 EAS 
‘‘(D) providing for the reallocation of shares 
of partnership indebtedness, or distributive 
shares of the partnership’s interest income or in-
terest expense, and 
‘‘(E) providing for the coordination with 
the limitation under subsection (j).’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2017. 
SEC. 14222. LIMITATIONS ON INCOME SHIFTING THROUGH 
INTANGIBLE PROPERTY TRANSFERS. 
(a) DEFINITION
OF
INTANGIBLE
ASSET.—Section 
936(h)(3)(B) is amended— 
(1) by striking ‘‘or’’ at the end of clause (v), 
(2) by striking clause (vi) and inserting the fol-
lowing: 
‘‘(vi) any goodwill, going concern 
value, or workforce in place (including its 
composition and terms and conditions (con-
tractual or otherwise) of its employment); or 
‘‘(vii) any other item the value or po-
tential value of which is not attributable to 
tangible property or the services of any in-
dividual.’’, and
418 
† HR 1 EAS 
(3) by striking the flush language after clause 
(vii), as added by paragraph (2). 
(b) CLARIFICATION OF ALLOWABLE VALUATION METH-
ODS.— 
(1) FOREIGN CORPORATIONS.—Section 367(d)(2) 
is amended by adding at the end the following new 
subparagraph: 
‘‘(D) REGULATORY AUTHORITY.—For pur-
poses of the last sentence of subparagraph (A), 
the Secretary shall require— 
‘‘(i) the valuation of transfers of intan-
gible property, including intangible prop-
erty transferred with other property or serv-
ices, on an aggregate basis, or 
‘‘(ii) the valuation of such a transfer 
on the basis of the realistic alternatives to 
such a transfer, 
if the Secretary determines that such basis is the 
most reliable means of valuation of such trans-
fers.’’. 
(2) ALLOCATION
AMONG
TAXPAYERS.—Section 
482 is amended by adding at the end the following: 
‘‘For purposes of this section, the Secretary shall re-
quire the valuation of transfers of intangible property 
(including intangible property transferred with other
419 
† HR 1 EAS 
property or services) on an aggregate basis or the 
valuation of such a transfer on the basis of the real-
istic alternatives to such a transfer, if the Secretary 
determines that such basis is the most reliable means 
of valuation of such transfers.’’. 
(c) EFFECTIVE DATE.— 
(1) IN
GENERAL.—The amendments made by 
this section shall apply to transfers in taxable years 
beginning after December 31, 2017. 
(2) NO INFERENCE.—Nothing in the amendment 
made by subsection (a) shall be construed to create 
any inference with respect to the application of sec-
tion 936(h)(3) of the Internal Revenue Code of 1986, 
or the authority of the Secretary of the Treasury to 
provide regulations for such application, with respect 
to taxable years beginning before January 1, 2018. 
SEC. 14223. CERTAIN RELATED PARTY AMOUNTS PAID OR 
ACCRUED 
IN 
HYBRID 
TRANSACTIONS 
OR 
WITH HYBRID ENTITIES. 
(a) IN GENERAL.—Part IX of subchapter B of chapter 
1 is amended by inserting after section 267 the following:
420 
† HR 1 EAS 
‘‘SEC. 267A. CERTAIN RELATED PARTY AMOUNTS PAID OR 
ACCRUED 
IN 
HYBRID 
TRANSACTIONS 
OR 
WITH HYBRID ENTITIES. 
‘‘(a) IN GENERAL.—No deduction shall be allowed 
under this chapter for any disqualified related party 
amount paid or accrued pursuant to a hybrid transaction 
or by, or to, a hybrid entity. 
‘‘(b) DISQUALIFIED RELATED PARTY AMOUNT.—For 
purposes of this section— 
‘‘(1) DISQUALIFIED RELATED PARTY AMOUNT.— 
The term ‘disqualified related party amount’ means 
any interest or royalty paid or accrued to a related 
party to the extent that— 
‘‘(A) such amount is not included in the in-
come of such related party under the tax law of 
the country of which such related party is a resi-
dent for tax purposes or is subject to tax, or 
‘‘(B) such related party is allowed a deduc-
tion with respect to such amount under the tax 
law of such country. 
Such term shall not include any payment to the ex-
tent such payment is included in the gross income of 
a United States shareholder under section 951(a). 
‘‘(2) RELATED PARTY.—The term ‘related party’ 
means a related person as defined in section 
954(d)(3), except that such section shall be applied
421 
† HR 1 EAS 
with respect to the person making the payment de-
scribed in paragraph (1) in lieu of the controlled for-
eign corporation otherwise referred to in such section. 
‘‘(c) HYBRID TRANSACTION.—For purposes of this sec-
tion, the term ‘hybrid transaction’ means any transaction, 
series of transactions, agreement, or instrument one or more 
payments with respect to which are treated as interest or 
royalties for purposes of this chapter and which are not so 
treated for purposes the tax law of the foreign country of 
which the recipient of such payment is resident for tax pur-
poses or is subject to tax. 
‘‘(d) HYBRID ENTITY.—For purposes of this section, 
the term ‘hybrid entity’ means any entity which is either— 
‘‘(1) treated as fiscally transparent for purposes 
of this chapter but not so treated for purposes of the 
tax law of the foreign country of which the entity is 
resident for tax purposes or is subject to tax, or 
‘‘(2) treated as fiscally transparent for purposes 
of such tax law but not so treated for purposes of this 
chapter. 
‘‘(e) REGULATIONS.—The Secretary shall issue such 
regulations or other guidance as may be necessary or appro-
priate to carry out the purposes of this section, including 
regulations or other guidance providing for—
422 
† HR 1 EAS 
‘‘(1) rules for treating certain conduit arrange-
ments which involve a hybrid transaction or a hybrid 
entity as subject to subsection (a), 
‘‘(2) rules for the application of this section to 
foreign branches, 
‘‘(3) rules for treating certain structured trans-
actions as subject to subsection (a), 
‘‘(4) rules for treating a tax preference as an ex-
clusion from income for purposes of applying sub-
section (b)(1) if such tax preference has the effect of 
reducing the generally applicable statutory rate by 25 
percent or more, 
‘‘(5) rules for treating the entire amount of in-
terest or royalty paid or accrued to a related party 
as a disqualified related party amount if such 
amount is subject to a participation exemption sys-
tem or other system which provides for the exclusion 
or deduction of a substantial portion of such amount, 
‘‘(6) rules for determining the tax residence of a 
foreign entity if the entity is otherwise considered a 
resident of more than one country or of no country, 
‘‘(7) exceptions from subsection (a) with respect 
to— 
‘‘(A) cases in which the disqualified related 
party amount is taxed under the laws of a for-
423 
† HR 1 EAS 
eign country other than the country of which the 
related party is a resident for tax purposes, and 
‘‘(B) other cases which the Secretary deter-
mines do not present a risk of eroding the Fed-
eral tax base, 
‘‘(8) requirements for record keeping and infor-
mation reporting in addition to any requirements 
imposed by section 6038A.’’. 
(b) CONFORMING AMENDMENT.—The table of sections 
for part IX of subchapter B of chapter 1 is amended by 
inserting after the item relating to section 267 the following 
new item: 
‘‘Sec. 267A. Certain related party amounts paid or accrued in hybrid trans-
actions or with hybrid entities.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2017. 
SEC. 14224. SHAREHOLDERS OF SURROGATE FOREIGN COR-
PORATIONS NOT ELIGIBLE FOR REDUCED 
RATE ON DIVIDENDS. 
(a) IN GENERAL.—Section 1(h)(11)(C)(iii) is amend-
ed— 
(1) by striking ‘‘shall not include any foreign 
corporation’’ and inserting ‘‘shall not include— 
‘‘(I) any foreign corporation’’,
424 
† HR 1 EAS 
(2) by striking the period at the end and insert-
ing ‘‘, and’’, and 
(3) by adding at the end the following new sub-
clause: 
‘‘(II) any corporation which is a 
surrogate foreign corporation (as de-
fined in section 7874(a)(2)(B)) other 
than a foreign corporation which is 
treated as a domestic corporation 
under section 7874(b).’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to dividends paid in taxable years begin-
ning after December 31, 2017. 
Subpart C—Modifications Related to Foreign Tax 
Credit System 
SEC. 14301. REPEAL OF SECTION 902 INDIRECT FOREIGN 
TAX CREDITS; DETERMINATION OF SECTION 
960 CREDIT ON CURRENT YEAR BASIS. 
(a) REPEAL OF SECTION 902 INDIRECT FOREIGN TAX 
CREDITS.—Subpart A of part III of subchapter N of chap-
ter 1 is amended by striking section 902. 
(b) DETERMINATION OF SECTION 960 CREDIT ON CUR-
RENT YEAR BASIS.—Section 960, as amended by section 
14201, is amended—
426 
† HR 1 EAS 
‘‘(A) are properly attributable to such por-
tion, and 
‘‘(B) have not been deemed to have to been 
paid by such domestic corporation under this 
section for the taxable year or any prior taxable 
year. 
‘‘(2) TIERED CONTROLLED FOREIGN CORPORA-
TIONS.—If section 959(b) applies to any portion of a 
distribution from a controlled foreign corporation to 
another controlled foreign corporation, such controlled 
foreign corporation shall be deemed to have paid so 
much of such other controlled foreign corporation’s 
foreign income taxes as— 
‘‘(A) are properly attributable to such por-
tion, and 
‘‘(B) have not been deemed to have been 
paid by a domestic corporation under this sec-
tion for any prior taxable year.’’, 
(2) and by adding after subsection (d) (as added 
by section 14201) the following new subsections: 
‘‘(e) FOREIGN INCOME TAXES.—The term ‘foreign in-
come taxes’ means any income, war profits, or excess profits 
taxes paid or accrued to any foreign country or possession 
of the United States.
427 
† HR 1 EAS 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be necessary or 
appropriate to carry out the provisions of this section.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 78 is amended to read as follows: 
‘‘SEC. 78. GROSS UP FOR DEEMED PAID FOREIGN TAX CRED-
IT. 
‘‘If a domestic corporation chooses to have the benefits 
of subpart A of part III of subchapter N (relating to foreign 
tax credit) for any taxable year— 
‘‘(1) an amount equal to the taxes deemed to be 
paid by such corporation under subsections (a) and 
(b) of section 960 for such taxable year shall be treat-
ed for purposes of this title (other than section 960) 
as an item of income required to be included in the 
gross income of such domestic corporation under sec-
tion 951(a), and 
‘‘(2) an amount equal to the aggregate tested for-
eign income taxes deemed paid by such corporation 
under section 960(d) (determined without regard to 
the phrase ‘80 percent of’ in paragraph (1) thereof) 
shall be treated for purposes of this title (other than 
section 960) as an addition to the global intangible 
low-taxed income of such domestic corporation under 
section 951A(a) for such taxable year.’’.
428 
† HR 1 EAS 
(2) Paragraph (4) of section 245(a) is amended 
to read as follows: 
‘‘(4) POST-1986 UNDISTRIBUTED EARNINGS.—The 
term ‘post-1986 undistributed earnings’ means the 
amount of the earnings and profits of the foreign cor-
poration (computed in accordance with sections 
964(a) and 986) accumulated in taxable years begin-
ning after December 31, 1986— 
‘‘(A) as of the close of the taxable year of the 
foreign corporation in which the dividend is dis-
tributed, and 
‘‘(B) without diminution by reason of divi-
dends distributed during such taxable year.’’. 
(3) Section 245(a)(10)(C) is amended by striking 
‘‘902, 907, and 960’’ and inserting ‘‘907 and 960’’. 
(4) Sections 535(b)(1) and 545(b)(1) are each 
amended by striking ‘‘section 902(a) or 960(a)(1)’’ 
and inserting ‘‘section 960’’. 
(5) Section 814(f)(1) is amended— 
(A) by striking subparagraph (B), and 
(B) by striking all that precedes ‘‘No in-
come’’ and inserting the following: 
‘‘(1) TREATMENT OF FOREIGN TAXES.—’’. 
(6) Section 865(h)(1)(B) is amended by striking 
‘‘902, 907,’’ and inserting ‘‘907’’.
429 
† HR 1 EAS 
(7) Section 901(a) is amended by striking ‘‘sec-
tions 902 and 960’’ and inserting ‘‘section 960’’. 
(8) Section 901(e)(2) is amended by striking 
‘‘but is not limited to—’’ and all that follows through 
‘‘that portion’’ and inserting ‘‘but is not limited to 
that portion’’. 
(9) Section 901(f) is amended by striking ‘‘sec-
tions 902 and 960’’ and inserting ‘‘section 960’’. 
(10) Section 901(j)(1)(A) is amended by striking 
‘‘902 or’’. 
(11) Section 901(j)(1)(B) is amended by striking 
‘‘sections 902 and 960’’ and inserting ‘‘section 960’’. 
(12) Section 901(k)(2) is amended by striking ‘‘, 
902,’’. 
(13) Section 901(k)(6) is amended by striking 
‘‘902 or’’. 
(14) Section 901(m)(1) is amended by striking 
‘‘relevant foreign assets—’’ and all that follows and 
inserting ‘‘relevant foreign assets shall not be taken 
into account in determining the credit allowed under 
subsection (a).’’. 
(15) Section 904(d)(6)(A) is amended by striking 
‘‘902, 907,’’ and inserting ‘‘907’’.
430 
† HR 1 EAS 
(16) Section 904(h)(10)(A) is amended by strik-
ing ‘‘sections 902, 907, and 960’’ and inserting ‘‘sec-
tions 907 and 960’’. 
(17) Section 904(k) is amended to read as fol-
lows: 
‘‘(k) CROSS REFERENCES.—For increase of limitation 
under subsection (a) for taxes paid with respect to amounts 
received which were included in the gross income of the tax-
payer for a prior taxable year as a United States share-
holder with respect to a controlled foreign corporation, see 
section 960(c).’’. 
(18) Section 905(c)(1) is amended by striking 
the last sentence. 
(19) Section 905(c)(2)(B)(i) is amended to read 
as follows: 
‘‘(i) shall be taken into account for the 
taxable year to which such taxes relate, 
and’’. 
(20) Section 906(a) is amended by striking ‘‘(or 
deemed, under section 902, paid or accrued during 
the taxable year)’’. 
(21) Section 906(b) is amended by striking para-
graphs (4) and (5). 
(22) Section 907(b)(2)(B) is amended by striking 
‘‘902 or’’.