I
104TH CONGRESS
1ST SESSION
H. R. 1690
To amend the Internal Revenue Code of 1986 to simplify certain rules
relating to the taxation of United States business operating abroad,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 24, 1995
Mr. LEVIN (for himself and Mr. HOUGHTON) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to simplify
certain rules relating to the taxation of United States
business operating abroad, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘International Tax Simplification and Reform Act of
1995’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment 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 provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR
CERTAIN LOWER TIER COMPANIES.
(a) SECTION 902 CREDIT.—
(1) IN
GENERAL.—Subsection (b) of section
902 (relating to deemed taxes increased in case of
certain 2nd and 3rd tier foreign corporations) is
amended to read as follows:
‘‘(b) DEEMED TAXES INCREASED IN CASE OF CER-
TAIN LOWER TIER CORPORATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) any foreign corporation is a member
of a qualified group, and
‘‘(B) such foreign corporation owns 10 per-
cent or more of the voting stock of another
member of such group from which it receives
dividends in any taxable year,
such foreign corporation shall be deemed to have
paid the same proportion of such other member’s
post-1986 foreign income taxes as would be deter-
mined under subsection (a) if such foreign corpora-
tion were a domestic corporation.
‘‘(2) QUALIFIED
GROUP.—For purposes of
paragraph (1), the term ‘qualified group’ means—
‘‘(A) the foreign corporation described in
subsection (a), and
‘‘(B) any other foreign corporation if—
‘‘(i) the domestic corporation owns at
least 5 percent of the voting stock of such
other 
foreign 
corporation 
indirectly
through a chain of foreign corporations
connected through stock ownership of at
least 10 percent of their voting stock,
‘‘(ii) the foreign corporation described
in subsection (a) is the first tier corpora-
tion in such chain, and
‘‘(iii) such other corporation is not
below the sixth tier in such chain.
The term ‘qualified group’ shall not include any for-
eign corporation below the third tier in the chain re-
ferred to in clause (i) unless such foreign corpora-
tion is a controlled foreign corporation (as defined in
section 957) and the domestic corporation is a Unit-
ed States shareholder (as defined in section 951(b))
in such foreign corporation. Paragraph (1) shall
apply to those taxes paid by a member of the quali-
fied group below the third tier only with respect to
periods during which it was a controlled foreign cor-
poration.’’
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 902(c)(3)
is amended by adding ‘‘or’’ at the end of clause
(i) and by striking clauses (ii) and (iii) and in-
serting the following new clause:
‘‘(ii) the requirements of subsection
(b)(2) are met with respect to such foreign
corporation.’’
(B) Subparagraph (B) of section 902(c)(4)
is amended by striking ‘‘3rd foreign corpora-
tion’’ and inserting ‘‘sixth tier foreign corpora-
tion’’.
(C) The heading for paragraph (3) of sec-
tion 902(c) is amended by striking ‘‘WHERE DO-
MESTIC
CORPORATION
ACQUIRES
PERCENT
OF
FOREIGN
CORPORATION’’ and inserting
‘‘WHERE FOREIGN CORPORATION FIRST QUALI-
FIES’’.
(D) Paragraph (3) of section 902(c) is
amended by striking ‘‘ownership’’ each place it
appears.
(b) SECTION 960 CREDIT.—Paragraph (1) of section
960(a) (relating to special rules for foreign tax credits)
is amended to read as follows:
‘‘(1) DEEMED PAID CREDIT.—For purposes of
subpart A of this part, if there is included under
section 951(a) in the gross income of a domestic cor-
poration any amount attributable to earnings and
profits of a foreign corporation which is a member
of a qualified group (as defined in section 902(b))
with respect to the domestic corporation, then, ex-
cept to the extent provided in regulations, section
902 shall be applied as if the amount so included
were a dividend paid by such foreign corporation
(determined by applying section 902(c) in accord-
ance with section 904(d)(3)(B)).’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxes of foreign corpora-
tions for taxable years of such corporations begin-
ning after the date of enactment of this Act.
(2) SPECIAL RULE.—In the case of any chain
of foreign corporations described in clauses (i) and
(ii) of section 902(b)(2)(B) of the Internal Revenue
Code of 1986 (as amended by this section), no liq-
uidation, reorganization, or similar transaction in a
taxable year beginning after the date of the enact-
ment of this Act shall have the effect of permitting
taxes to be taken into account under section 902 of
the Internal Revenue Code of 1986 which could not
have been taken into account under such section but
for such transaction.
SEC. 3. EXCHANGE RATE USED IN TRANSLATING FOREIGN
TAXES.
(a) ACCRUED TAXES TRANSLATED BY USING AVER-
AGE RATE FOR YEAR TO WHICH TAXES RELATE.—
(1) IN
GENERAL.—Subsection (a) of section
986 (relating to translation of foreign taxes) is
amended to read as follows:
‘‘(a) FOREIGN INCOME TAXES.—
‘‘(1) TRANSLATION OF ACCRUED TAXES.—
‘‘(A) IN GENERAL.—For purposes of deter-
mining the amount of the foreign tax credit, in
the case of a taxpayer who takes foreign income
taxes into account when accrued, the amount of
any foreign income taxes (and any adjustment
thereto) shall be translated into dollars by using
the average exchange rate for the taxable year
to which such taxes relate.
‘‘(B) EXCEPTION
FOR
TAXES
NOT
PAID
WITHIN FOLLOWING 2 YEARS.—
‘‘(i) Subparagraph (A) shall not apply
to any foreign income taxes paid after the
date 2 years after the close of the taxable
year to which such taxes relate.
‘‘(ii) Subparagraph (A) shall not
apply to taxes paid before the beginning of
the taxable year to which such taxes relate.
‘‘(C) EXCEPTION FOR INFLATIONARY CUR-
RENCIES.—To the extent provided in regula-
tions, subparagraph (A) shall not apply to any
foreign income taxes the liability for which is
denominated in any currency determined to be
an inflationary currency under such regulations.
‘‘(D) CROSS REFERENCE.—
‘‘For adjustments where tax is not paid within 2
years, see section 905(c).
‘‘(2) TRANSLATION OF TAXES TO WHICH PARA-
GRAPH (1) DOES NOT APPLY.—For purposes of de-
termining the amount of the foreign tax credit, in
the case of any foreign income taxes to which sub-
paragraph (A) of paragraph (1) does not apply—
‘‘(A) such taxes shall be translated into
dollars using the exchange rates as of the time
such taxes were paid to the foreign country or
possession of the United States, and
‘‘(B) any adjustment to the amount of
such taxes shall be translated into dollars
using—
‘‘(i) except as provided in clause (ii),
the exchange rate as of the time when such
adjustment is paid to the foreign country
or possession, or
‘‘(ii) in the case of any refund or cred-
it of foreign income taxes, using the ex-
change rate as of the time of the original
payment of such foreign income taxes.
‘‘(3) 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 to any foreign country or to
any possession of the United States.’’
(2) ADJUSTMENT WHEN NOT PAID WITHIN 2
YEARS AFTER YEAR TO WHICH TAXES RELATE.—
Subsection (c) of section 905 is amended to read as
follows:
‘‘(c) ADJUSTMENTS TO ACCRUED TAXES.—
‘‘(1) IN GENERAL.—If—
‘‘(A) accrued taxes when paid differ from
the amounts claimed as credits by the taxpayer,
‘‘(B) accrued taxes are not paid before the
date 2 years after the close of the taxable year
to which such taxes relate, or
‘‘(C) any tax paid is refunded in whole or
in part,
the taxpayer shall notify the Secretary, who shall re-
determine the amount of the tax for the year or
years affected.
‘‘(2) SPECIAL
RULE
FOR
TAXES
NOT
PAID
WITHIN 2 YEARS.—In making the redetermination
under paragraph (1), no credit shall be allowed for
accrued taxes not paid before the date referred to in
subparagraph (B) of paragraph (1). Any such taxes
if subsequently paid shall be taken into account for
the taxable year in which paid and no redetermina-
tion under this section shall be made on account of
such payment.
‘‘(3) ADJUSTMENTS.—The amount of tax due
on any redetermination under paragraph (1) (if any)
shall be paid by the taxpayer on notice and demand
by the Secretary, and the amount of tax overpaid (if
any) shall be credited or refunded to the taxpayer in
accordance with subchapter B of chapter 66 (section
6511 et seq.).
‘‘(4) BOND
REQUIREMENTS.—In the case of
any tax accrued but not paid, the Secretary, as a
condition precedent to the allowance of the credit
provided in this subpart, may require the taxpayer
to give a bond, with sureties satisfactory to and ap-
proved by the Secretary, in such sum as the Sec-
retary may require, conditioned on the payment by
the taxpayer of any amount of tax found due on any
such redetermination. Any such bond shall contain
such further conditions as the Secretary may re-
quire.
‘‘(5) OTHER SPECIAL RULES.—In any redeter-
mination under paragraph (1) by the Secretary of
the amount of tax due from the taxpayer for the
year or years affected by a refund, the amount of
the taxes refunded for which credit has been allowed
under this section shall be reduced by the amount of
any tax described in section 901 imposed by the for-
eign country or possession of the United States with
respect to such refund; but no credit under this sub-
part, or deduction under section 164, shall be al-
lowed for any taxable year with respect to any such
tax imposed on the refund. No interest shall be as-
sessed or collected on any amount of tax due on any
redetermination by the Secretary, resulting from a
refund to the taxpayer, for any period before the re-
ceipt of such refund, except to the extent interest
was paid by the foreign country or possession of the
United States on such refund for such period.’’
(b) AUTHORITY TO USE AVERAGE RATES.—
(1) IN
GENERAL.—Subsection (a) of section
986 (as amended by subsection (a)) is amended by
redesignating paragraph (3) as paragraph (4) and
inserting after paragraph (2) the following new
paragraph:
‘‘(3) AUTHORITY TO PERMIT USE OF AVERAGE
RATES.—To the extent prescribed in regulations, the
average exchange rate for the period (specified in
such regulations) during which the taxes or adjust-
ment is paid may be used instead of the exchange
rate as of the time of such payment.’’
(2) DETERMINATION
OF
AVERAGE
RATES.—
Subsection (c) of section 989 is amended by striking
‘‘and’’ at the end of paragraph (4), by striking the
period at the end of paragraph (5) and inserting ‘‘,
and’’, and by adding at the end thereof the following
new paragraph:
‘‘(6) setting forth procedures for determining
the average exchange rate for any period.’’
(3) CONFORMING
AMENDMENTS.—Subsection
(b) of section 989 is amended by striking ‘‘weight-
ed’’ each place it appears.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
subsections (a)(1) and (b) shall apply to taxes paid
or accrued in taxable years beginning after Decem-
ber 31, 1995.
(2) SUBSECTION (a)(2).—The amendment made
by subsection (a)(2) shall apply to taxes which relate
to taxable years beginning after December 31, 1995.
SEC. 4. LIMITED APPLICATION OF UNIFORM CAPITALIZA-
TION RULES TO FOREIGN PERSONS.
(a) IN GENERAL.—Section 263A(c) (relating to ex-
ceptions) is amended by adding at the end thereof the fol-
lowing new paragraph:
‘‘(7) FOREIGN
PERSONS.—This section shall
apply to any taxpayer who is not a United States
person only for purposes of applying sections
871(b)(1) and 882(a)(1) and subpart F of part III
of subchapter N.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1995.
SEC. 5. EXEMPTION FOR ACTIVE FINANCING INCOME.
(a) EXEMPTION FROM FOREIGN PERSONAL HOLD-
ING COMPANY INCOME.—Subsection (c) of section 954 is
amended by adding at the end the following new para-
graph:
‘‘(4) CERTAIN
INCOME
DERIVED
IN
ACTIVE
CONDUCT OF TRADE OR BUSINESS.—For purposes
of paragraph (1), foreign personal holding company
income does not include income which is derived
from sources within the country under the laws of
which the controlled foreign corporation is created or
organized and which is—
‘‘(A) income derived in the active conduct
of a banking, financing or similar business, but
only if such corporation is predominantly en-
gaged in such active conduct;
‘‘(B) dividends, interest, and gains from
the sale or exchange of stock or securities de-
rived from the investments made by a qualify-
ing insurance company of its unearned pre-
miums or reserves ordinary and necessary for
the proper conduct of its insurance business,
and which are received from a person other
than a related person (within the meaning of
subsection (d)(3)); or
‘‘(C) dividends, interest, and gains from
the sale or exchange of stock or securities re-
ceived from a person other than a related per-
son (within the meaning of subsection (d)(3))
derived from investments made by a qualifying
insurance company of an amount of its assets
equal to 1⁄3 of its premiums earned on insur-
ance contracts during the taxable year (as de-
fined in section 832(b)(4)) which are not di-
rectly or indirectly attributable to the insurance
or reinsurance of risks of persons who are relat-
ed persons (within the meaning of subsection
(d)(3)).
Dividends, interest, income equivalent to interest,
rent, and royalties received or accrued from a relat-
ed person (within the meaning of subsection (d)(3)),
shall be subject to look-thru treatment for purposes
of subparagraph (A) under regulations prescribed by
the Secretary which are consistent with the prin-
ciples of section 904(d)(2). The Secretary shall pre-
scribe regulations which interpret subparagraph (A)
in accordance with the applicable principles of sec-
tion 904(d)(2)(C). For purposes of subparagraph
(C), the term ‘qualifying insurance company’ means
an insurance company which is subject to regulation
as an insurance company under the laws of its coun-
try of incorporation and which realizes at least 50
percent of its gross income (other than gross income
derived from investments) from premiums written on
risks situated within its country of incorporation.’’
(b) EXEMPTION FROM FOREIGN BASE COMPANY
SERVICES INCOME.—Paragraph (2) of section 954(e) is
amended by striking ‘‘or’’ at the end of subparagraph (A),
by striking the period at the end of subparagraph (B) and
inserting ‘‘, or’’, and by adding at the end the following:
‘‘(C) the active conduct of a banking, fi-
nancing or similar business, but only if—
‘‘(i) the controlled foreign corporation
is predominantly engaged in such active
conduct, and
‘‘(ii) the income so derived is from
sources within the country under the laws
of which the controlled foreign corporation
is created or organized.
The Secretary shall prescribe regulations which
interpret subparagraph (C) in accordance with
the 
applicable 
principles 
of 
section
904(d)(2)(C).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 1995, and to taxable
years of United States shareholders in which or with which
such taxable years of foreign corporations end.
SEC. 6. EXTENSION OF PERIOD TO WHICH EXCESS FOR-
EIGN TAXES MAY BE CARRIED.
(a) GENERAL RULE.—Subsection (c) of section 904
(relating to carryback and carryover of excess tax paid)
is amended—
(1) by inserting ‘‘in the third preceding taxable
year,’’ before ‘‘in the second preceding taxable
year’’, and
(2) by striking ‘‘in the first, second, third,
fourth, or fifth’’ and inserting ‘‘in any of the first
15’’.
(b) EXCESS EXTRACTION TAXES.—Paragraph (1) of
section 907(f) is amended—
(1) by inserting ‘‘in the third preceding taxable
year,’’ before ‘‘in the second preceding taxable
year’’, and
(2) by striking ‘‘in the first, second, third,
fourth, or fifth’’ and inserting ‘‘in any of the first
15’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to excess foreign taxes for taxable
years beginning after December 31, 1995.
SEC. 7. APPLICATION OF SEPARATE FOREIGN TAX CREDIT
LIMITATION FOR NONCONTROLLED SECTION
902 CORPORATIONS.
(a) LOOK-THRU IN CASE OF NONCONTROLLED SEC-
TION 902 CORPORATIONS IF INFORMATION AVAILABLE.—
Section 904(d) (relating to separate application of section
with respect to certain categories of income) is amended
by redesignating paragraphs (4) and (5) as paragraphs
(5) and (6), respectively, and by inserting after paragraph
(3) the following new paragraph:
‘‘(4) LOOK-THRU
IN
THE
CASE
OF
CERTAIN
NONCONTROLLED SECTION 902 CORPORATIONS.—
‘‘(A) IN GENERAL.—Dividends received or
accrued by a corporation from a noncontrolled
section 902 corporation shall be treated as not
described in paragraph (1)(E) if information
necessary to make the determinations under
subparagraph (B) is readily available to the
taxpayer.
‘‘(B) ALLOCATION OF DIVIDENDS AMONG
CATEGORIES.—Dividends treated as provided in
subparagraph (A) which are paid out of the
earnings or profits of such corporation shall be
treated as income in a separate category in pro-
portion to the ratio of—
‘‘(i) the portion of the earnings and
profits attributable to income in such sepa-
rate category, to
‘‘(ii) the total amount of earnings and
profits.
‘‘(C) COORDINATION WITH OTHER PROVI-
SIONS.—Dividends treated as provided in sub-
paragraph (A) shall not be treated as dividends
from a noncontrolled section 902 corporation
for purposes of subparagraphs (C)(iii) and (D)
of paragraph (2).’’
(b) DIVIDENDS
FROM
OTHER
NONCONTROLLED
SECTION 902 CORPORATIONS ALL IN SAME SEPARATE
BASKET.—Subparagraph (E) of section 904(d)(1) is
amended to read as follows:
‘‘(E) in the case of a corporation, except as
provided in paragraph (4), dividends from all
noncontrolled section 902 corporations,’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 1995, and to taxable
years of United States shareholders in which or with which
such taxable years of foreign corporations end.
SEC. 8. COUNTRIES IN EUROPEAN UNION TREATED A SIN-
GLE COUNTRY UNDER SAME COUNTRY EX-
CEPTIONS.
(a) IN GENERAL.—Subsection (d) of section 954 is
amended by adding at the end the following new para-
graph:
‘‘(5) COUNTRIES IN EUROPEAN UNION TREAT-
ED AS 1 COUNTRY.—For purposes of this subsection
and subsection (e), in the case of a controlled for-
eign corporation which is created or organized under
the laws of a country included in the European
Union, the geographic extent of such country shall
be treated as including the countries in such
Union.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 1995, and to taxable
years of United States shareholders in which or with which
such taxable years of foreign corporations end.
SEC. 9. CONTROLLED FOREIGN CORPORATIONS PASSIVE
FOREIGN INVESTMENT COMPANY.
(a) IN GENERAL.—Subsection (b) of section 1297 is
amended by adding at the end thereof the following new
paragraph:
‘‘(10) EXCEPTION WHERE SECTION 951 APPLIES
WITHOUT
REGARD
TO
THIS
SECTION.—This part
shall not apply to a taxpayer with respect to a cor-
poration if, without regard to this section—
‘‘(A) such corporation is a controlled for-
eign corporation (as defined in section 957),
and
‘‘(B) the taxpayer is a United States
shareholder (as defined in section 951(b)) with
respect to such corporation.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years of foreign cor-
porations beginning after December 31, 1995, and to tax-
able years of United States shareholders in which or with
which such taxable years of foreign corporations end.
SEC. 10. EARNINGS AND PROFITS DEPRECIATION USED IN
ASSET BASIS IN ALLOCATING EXPENSES.
(a) IN GENERAL.—Subsection (e)(2) of section 864
is amended by inserting at the end thereof the following
new sentence: ‘‘Except as otherwise provided in this sub-
section, for purposes of allocating and apportioning any
deductible expense on the basis of assets, the taxpayer
shall be permitted to base such allocations and apportion-
ments on the adjusted bases of assets as determined by
applying the rules and principles of subsections (k) and
(n) of section 312.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1995.
SEC. 11. RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.
(a) GENERAL RULE.—Section 904 is amended by re-
designating subsections (g), (h), (i), and (j) as subsections
(h), (i), (j), and (k), respectively, and by inserting after
subsection (f) the following new subsection:
‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.—
‘‘(1) GENERAL
RULE.—For purposes of this
subpart, in the case of any taxpayer who sustains an
overall domestic loss for any taxable year beginning
after December 31, 1995, that portion of the tax-
payer’s taxable income from sources within the Unit-
ed States for each succeeding taxable year which is
equal to the lesser of—
‘‘(A) the amount of such loss (to the extent
not used under this paragraph in prior taxable
years), or
‘‘(B) 50 percent of the taxpayer’s taxable
income from sources within the United States
for such succeeding taxable year,
shall be treated as income from sources without the
United States (and not as income from sources with-
in the United States).
‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For
purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘overall do-
mestic loss’ means any domestic loss to the ex-
tent such loss offsets taxable income from
sources without the United States for the tax-
able year or for any preceding taxable year by
reason of a carryback. For purposes of the pre-
ceding sentence, the term ‘domestic loss’ means
the amount by which the gross income for the
taxable year from sources within the United
States is exceeded by the sum of the deductions
properly apportioned or allocated thereto (deter-
mined without regard to any carryback from a
subsequent taxable year).
‘‘(B) TAXPAYER
MUST
HAVE
ELECTED
FOREIGN TAX CREDIT FOR YEAR OF LOSS.—
The term ‘overall domestic loss’ shall not in-
clude any loss for any taxable year unless the
taxpayer chose the benefits of this subpart for
such taxable year.
‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN-
COME.—
‘‘(A) IN
GENERAL.—Any income from
sources within the United States that is treated
as income from sources without the United
States under paragraph (1) shall be allocated
among and increase the income categories in
proportion to the loss from sources within the
United States previously allocated to those in-
come categories.
‘‘(B) INCOME CATEGORY.—For purposes of
this paragraph, the term ‘income category’ has
the meaning given to such term by subsection
(f)(5)(E)(i).
‘‘(4) COORDINATION WITH SUBSECTION (f).—
The Secretary shall prescribe such regulations as
may be necessary to coordinate the provisions of this
subsection with the provisions of subsection (f).’’
(b) CONFORMING AMENDMENT.—Subparagraph (A)
of section 936(a)(2) is amended by striking ‘‘section
904(f)’’ and inserting ‘‘subsections (f) and (g) of section
904’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to losses for taxable years begin-
ning after December 31, 1995.
SEC. 12. EXPANSION OF DE MINIMIS RULE UNDER SUB-
PART F.
(a) IN GENERAL.—Subparagraph (A) of section
954(b)(3) (relating to de minimis, etc., rules) is amended
to read as follows:
‘‘(A) DE MINIMIS RULE.—If the sum of
foreign base company income (determined with-
out regard to paragraph (5)) and the gross in-
surance income for the taxable year is less than
10 percent of gross income, no part of the gross
income for the taxable year shall be treated as
foreign base company income or insurance in-
come.’’
(b) TECHNICAL AMENDMENTS.—
(1) Clause (ii) of section 864(d)(5)(A) is
amended by striking ‘‘5 percent or $1,000,000’’ and
inserting ‘‘10 percent’’.
(2) Clause (i) of section 881(c)(5)(A) is amend-
ed by striking ‘‘5 percent or $1,000,000’’ and insert-
ing ‘‘10 percent’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 13. ALLOCATION OF RESEARCH AND EXPERIMENTAL
EXPENDITURES.
(a) GENERAL RULE.—Subparagraph (B) of section
864(f)(1) (relating to allocation of research and experi-
mental expenditures) is amended by striking ‘‘50 percent’’
each place it appears and inserting ‘‘64 percent’’.
(b) ALLOCATION RULE MADE PERMANENT.—Sub-
section (f) of section 864 is amended by striking para-
graph (6).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the last taxable year to which section 864(f) of the Inter-
nal Revenue Code of 1986 would have applied but for this
section.
SEC. 14. INCREASE IN FILING THRESHOLDS FOR RETURNS
AS TO ORGANIZATION OF FOREIGN COR-
PORATIONS AND ACQUISITIONS OF STOCK IN
SUCH CORPORATIONS.
(a) IN GENERAL.—Subsection (a) of section 6046
(relating to returns as to organization or reorganization
of foreign corporations and as to acquisitions of their
stock) is amended to read as follows:
‘‘(a) REQUIREMENT OF RETURN.—A return comply-
ing with the requirements of subsection (b) shall be made
by—
‘‘(1) each United States citizen or resident who
becomes an officer or director of a foreign corpora-
tion, 10 percent or more in value of the stock of
which is owned by a United States person (as de-
fined in section 7701(a)(30)),
‘‘(2) each United States person—
‘‘(A) who acquires stock which, when
added to any stock owned on the date of such
acquisition, has a value equal to 10 percent or
more of the value of the stock of a foreign cor-
poration, or
‘‘(B) who acquires an additional 10 per-
cent or more in value of the stock of a foreign
corporation,
‘‘(3) each person (not described in paragraph
(2)) who is treated as a United States shareholder
under section 953(c) with respect to a foreign cor-
poration, and
‘‘(4) each person who becomes a United States
person while owning 10 percent or more in value of
the stock of a foreign corporation.
In the case of a foreign corporation with respect to which
any person is treated as a United States shareholder
under section 953(c), paragraph (1) shall be treated as
including a reference to each United States person who
is an officer or director of such corporation.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on January 1, 1996.
SEC. 15. SUBPART F EARNINGS AND PROFITS DETERMINED
UNDER GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
(a) IN GENERAL.—Subsection (a) of section 964 (re-
lating to miscellaneous provisions) is amended by striking
‘‘rules substantially similar to those applicable to domestic
corporations, under regulations prescribed by the Sec-
retary’’ and inserting ‘‘generally accepted accounting prin-
ciples in the United States’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to distributions during, and the
determination of the inclusion under section 951 of the
Internal Revenue Code of 1986 with respect to, taxable
years of foreign corporations beginning after December
31, 1995.
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