I
103D CONGRESS
2D SESSION
H. R. 4860
To amend the Internal Revenue Code of 1986 to improve the collection
of taxes of United States persons moving production abroad and foreign
persons doing business in the United States, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JULY 29, 1994
Mr. GEPHARDT (for himself, Mr. OBEY, Mr. WHEAT, Mr. ANDREWS of Maine,
Mr. FRANK of Massachusetts, Mr. SARPALIUS, Mr. HUGHES, Mr. RA-
HALL, Mr. FROST, Mr. CLAY, Mr. KANJORSKI, Mr. BARRETT of Wiscon-
sin, Mr. BROWN of Ohio, Mr. DEFAZIO, Mr. DEUTSCH, Mr. EVANS, Mr.
FILNER, Mr. HINCHEY, Mr. JOHNSON of South Dakota, Ms. KAPTUR,
Mr. KLECZKA, Mrs. MEEK, Mr. POSHARD, Mr. STUPAK, Mrs. THURMAN,
Mr. VENTO, Mr. POMEROY, Mr. BRYANT, and Mr. TORRES) 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 improve
the collection of taxes of United States persons moving
production abroad and foreign persons doing business
in the United States, 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.
This Act may be cited as the ‘‘Foreign Tax Compli-
ance Act of 1994’’.
SEC. 2. TAXATION OF INCOME OF CONTROLLED FOREIGN
CORPORATIONS 
ATTRIBUTABLE 
TO 
IM-
PORTED PROPERTY.
(a) GENERAL RULE.—Subsection (a) of section 954
of the Internal Revenue Code of 1986 (defining foreign
base company income) 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 the following new paragraph:
‘‘(6) imported property income for the taxable
year (determined under subsection (h) and reduced
as provided in subsection (b)(5)).’’
(b) DEFINITION
OF
IMPORTED
PROPERTY
IN-
COME.—Section 954 of the Internal Revenue Code of 1986
is amended by adding at the end the following new sub-
section:
‘‘(h) IMPORTED PROPERTY INCOME.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(6), the term ‘imported property income’ means
income (whether in the form of profits, commissions,
fees, or otherwise) derived in connection with—
‘‘(A) manufacturing, producing, growing,
or extracting imported property,
‘‘(B) the sale, exchange, or other disposi-
tion of imported property, or
‘‘(C) the lease, rental, or licensing of im-
ported property.
Such term shall not include any foreign oil and gas
extraction income (within the meaning of section
907(c)) or any foreign oil related income (within the
meaning of section 907(c)).
‘‘(2) IMPORTED PROPERTY.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘imported
property’ means property which is imported
into the United States by the controlled foreign
corporation or a related person.
‘‘(B) IMPORTED PROPERTY INCLUDES CER-
TAIN
PROPERTY
IMPORTED
BY
UNRELATED
PERSONS.—The term ‘imported property’ in-
cludes any property imported into the United
States by an unrelated person if, when such
property was sold to the unrelated person by
the controlled foreign corporation (or a related
person), it was reasonable to expect that—
‘‘(i) such property would be imported
into the United States, or
‘‘(ii) such property would be used as
a component in other property which would
be imported into the United States.
‘‘(C) EXCEPTION FOR PROPERTY SUBSE-
QUENTLY
EXPORTED.—The term ‘imported
property’ does not include any property which is
imported into the United States and which—
‘‘(i) before substantial use in the
United States, is sold, leased, or rented by
the controlled foreign corporation or a re-
lated person for direct use, consumption,
or disposition outside the United States, or
‘‘(ii) is used by the controlled foreign
corporation or a related person as a com-
ponent in other property which is so sold,
leased, or rented.
‘‘(3) DEFINITIONS AND SPECIAL RULES.—
‘‘(A) IMPORT.—For purposes of this sub-
section, the term ‘import’ means entering, or
withdrawal from warehouse, for consumption or
use. Such term includes any grant of the right
to use an intangible (as defined in section
936(b)(3)(B)) in the United States.
‘‘(B) UNRELATED PERSON.—For purposes
of this subsection, the term ‘unrelated person’
means any person who is not a related person
with respect to the controlled foreign corpora-
tion.
‘‘(C) COORDINATION WITH FOREIGN BASE
COMPANY SALES INCOME.—For purposes of this
section, the term ‘foreign base company sales
income’ shall not include any imported property
income.’’
(c) SEPARATE APPLICATION
OF LIMITATIONS
ON
FOREIGN TAX CREDIT FOR IMPORTED PROPERTY IN-
COME.—
(1) IN
GENERAL.—Paragraph (1) of section
904(d) of the Internal Revenue Code of 1986 (relat-
ing to separate application of section with respect to
certain categories of income) is amended by striking
‘‘and’’ at the end of subparagraph (H), by redesig-
nating subparagraph (I) as subparagraph (J), and
by inserting after subparagraph (H) the following
new subparagraph:
‘‘(I) imported property income, and’’.
(2) IMPORTED PROPERTY INCOME DEFINED.—
Paragraph (2) of section 904(d) of such Code is
amended by redesignating subparagraphs (H) and
(I) as subparagraphs (I) and (J), respectively, and
by inserting after subparagraph (G) the following
new subparagraph:
‘‘(H) IMPORTED PROPERTY INCOME.—The
term ‘imported property income’ means any in-
come received or accrued by any person which
is of a kind which would be imported property
income (as defined in section 954(h)).’’
(3) LOOK-THRU RULES TO APPLY.—Clause (i)
of section 904(d)(3)(F) of such Code is amended by
striking ‘‘or (E)’’ and inserting ‘‘(E), or (H)’’.
(d) TECHNICAL AMENDMENTS.—
(1) Clause (iii) of section 952(c)(1)(B) of the
Internal Revenue Code of 1986 (relating to certain
prior year deficits may be taken into account) is
amended by inserting the following subclause after
subclause (II) (and by redesignating the following
subclauses accordingly):
‘‘(III) imported property income,’’.
(2) Paragraph (5) of section 954(b) of such
Code (relating to deductions to be taken into ac-
count) is amended by striking ‘‘and the foreign base
company oil related income’’ and inserting ‘‘the for-
eign base company oil related income, and the im-
ported property income’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 1994, and to taxable
years of United States shareholders within which or
with which such taxable years of such foreign cor-
porations end.
(2) SUBSECTION (c).—The amendments made
by subsection (c) shall apply to taxable years begin-
ning after December 31, 1994.
SEC. 3. IMPROVEMENTS IN THE COLLECTION OF UNITED
STATES TAXES OWED BY FOREIGN PERSONS.
(a) FINDINGS.—The Congress finds that—
(1) foreign-controlled corporations doing busi-
ness in the United States do not pay their fair share
of taxes;
(2) up to 72 percent of foreign-controlled cor-
porations doing business in the United States pay no
Federal income tax;
(3) the Internal Revenue Service has limited its
own ability to enforce Federal tax laws against for-
eign-controlled corporations, to the detriment of do-
mestic taxpayers;
(4) the Internal Revenue Service has been using
antiquated accounting concepts to deal with sophisti-
cated multinational corporations;
(5) billions of dollars of Federal revenues are
lost annually due to the inability of the Internal
Revenue Service to enforce the ‘‘arm’s length’’
transaction rule—not even counting the costs of bu-
reaucracy and litigation;
(6) current procedures of the Internal Revenue
Service are insufficient for ensuring that a foreigner
who is not a resident of a foreign country does not
take advantage of the treaty benefits of that coun-
try; and
(7) current regulations and other positions
adopted by the Internal Revenue Service may permit
foreign persons to avoid United States taxes by uti-
lizing derivative financial products which replicate
the economic features of United States taxable in-
vestments.
(b) SENSE OF THE CONGRESS.—It is the sense of
the Congress that deficit reduction should be achieved, in
part, by eliminating enforcement breakdowns that now en-
able foreign-controlled corporations operating in the Unit-
ed States, and foreign persons investing in the United
States, to pay no taxes, including—
(1) a more streamlined and efficient method of
enforcing Federal tax laws involving multinational
corporations, especially those based abroad; in par-
ticular, the use of a formula approach by the Treas-
ury Department where the ‘‘arm’s length’’ trans-
action rule does not work; and
(2) the Secretary of the Treasury or the Sec-
retary’s delegate shall, no later than December 31,
1994, prescribe regulations which—
(A) establish certification, refund, or other
procedures which ensure that any treaty benefit
relating to withholding of tax under sections
1441 and 1442 of the Internal Revenue Code of
1986 is available only to persons entitled to the
benefit, and
(B) prevent the avoidance of withholding
of tax under such sections by use of derivative
financial instruments, including regulations pro-
viding for the sourcing of income of foreign
residents from notional principal contracts as
income from sources within the United States
in appropriate cases.
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