I
103D CONGRESS
1ST SESSION
H. R. 1409
To amend the Internal Revenue Code of 1986 to reduce compliance costs
and administrative burdens in connection with foreign taxes, and for
other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 18, 1993
Mr. THOMAS of California 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 reduce
compliance costs and administrative burdens in connec-
tion with foreign taxes, 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 TAX CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Foreign Tax Simplification Act of 1993’’.
(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. 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
not apply to any foreign person except to the extent
necessary for the computation of taxable income
under sections 871(b)(2) and 882(a)(2) for purposes
of the taxes imposed by sections 871(b)(1) and
882(a)(1).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to costs incurred after December
31, 1993, in taxable years ending after such date.
SEC. 3. DEFINITION OF PASSIVE FOREIGN INVESTMENT
COMPANY.
(a) EXCLUSION
OF CONTROLLED FOREIGN COR-
PORATIONS.—Section 1296 (defining passive foreign in-
vestment company) is amended by adding at the end
thereof the following new subsection:
‘‘(e) SECTION 957 CORPORATIONS.—For purposes of
this part, a foreign corporation shall not be considered a
passive foreign investment company for any day on which
such corporation was a controlled foreign corporation to
which section 957(a) applied.’’
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by
this section shall apply to taxable years of foreign
corporations ending after December 31, 1992.
(2) TRANSITION RULE.—If, for the 1st taxable
year to which the amendment made by this section
applies, a foreign corporation which was a passive
foreign investment corporation for any preceding
taxable year is not such a corporation for such 1st
taxable year by reason of such amendment, section
1297(b)(1) of the Internal Revenue Code of 1986
shall not apply to such 1st taxable year and subse-
quent taxable years solely by reason of such corpora-
tion being a passive foreign investment corporation
before such 1st taxable year.
SEC. 4. APPLICATION OF SEPARATE FOREIGN TAX CREDIT
LIMITATION FOR NONCONTROLLED SECTION
902 CORPORATIONS.
(a) IN GENERAL.—Subparagraph (E) of section
904(d)(1) (relating to separate application of section with
respect to certain categories of income) is amended to read
as follows:
‘‘(E) in the case of a corporation, divi-
dends from all noncontrolled section 902 cor-
porations,’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 5. 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,