made and all subsequent taxable years un-
less revoked with the consent of the Sec-
retary.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 308. REPEAL OF SPECIAL CAPITAL GAINS TAX ON 
ALIENS PRESENT IN THE UNITED STATES 
FOR 183 DAYS OR MORE. 
(a) IN GENERAL.—Subsection (a) of section 871 is 
amended by striking paragraph (2) and by redesignating 
paragraph (3) as paragraph (2).
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 309. REPEAL OF WITHHOLDING TAX ON DIVIDENDS 
FROM CERTAIN FOREIGN CORPORATIONS. 
(a) IN GENERAL.—Paragraph (2) of section 871(i) 
(relating to tax not to apply to certain interest and divi-
dends) is amended by adding at the end the following new 
subparagraph: 
‘‘(D) Dividends paid by a foreign corpora-
tion.’’.
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to payments made after December 
31, 2003. 
SEC. 310. INTEREST EXPENSE ALLOCATION RULES. 
(a) ELECTION
TO
ALLOCATE
ON
WORLDWIDE 
BASIS.— Section 864 is amended by redesignating sub-
section (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection: 
‘‘(f) ELECTION TO ALLOCATE INTEREST, ETC. ON 
WORLDWIDE BASIS.—For purposes of this subchapter, at 
the election of the worldwide affiliated group—
‘‘(1) ALLOCATION AND APPORTIONMENT OF IN-
TEREST EXPENSE.—
‘‘(A) IN GENERAL.—The taxable income of 
each domestic corporation which is a member of 
a worldwide affiliated group shall be determined 
by allocating and apportioning interest expense
of each member as if all members of such group 
were a single corporation. 
‘‘(B) TREATMENT OF WORLDWIDE AFFILI-
ATED GROUP.—The taxable income of the do-
mestic members of a worldwide affiliated group 
from sources outside the United States shall be 
determined by allocating and apportioning the 
interest expense of such domestic members to
such income in an amount equal to the excess 
(if any) of—
‘‘(i) the total interest expense of the 
worldwide affiliated group multiplied by 
the ratio which the foreign assets of the 
worldwide affiliated group bears to all the 
assets of the worldwide affiliated group, 
over 
‘‘(ii) the interest expense of all foreign 
corporations which are members of the 
worldwide affiliated group to the extent 
such interest expense of such foreign cor-
porations would have been allocated and 
apportioned to foreign source income if 
this subsection were applied to a group 
consisting of all the foreign corporations in 
such worldwide affiliated group. 
‘‘(C) WORLDWIDE AFFILIATED GROUP.—
For purposes of this paragraph, the term 
‘worldwide affiliated group’ means an affiliated 
group as defined in section 1504(a), determined 
without regard to paragraphs (2), (3), and (4) 
of section 1504(b). 
‘‘(2) ALLOCATION
AND
APPORTIONMENT
OF 
OTHER
EXPENSES.—Expenses other than interest
which are not directly allocable or apportioned to 
any specific income producing activity shall be allo-
cated and apportioned as if all members of the affili-
ated group were a single corporation. For purposes 
of the preceding sentence, the term ‘affiliated group’ 
has the meaning given such term by section 1504 
(determined without regard to paragraph (4) of sec-
tion 1504(b)). 
‘‘(3) TREATMENT
OF
TAX-EXEMPT
ASSETS; 
BASIS
OF
STOCK
IN
NONAFFILIATED
10-PERCENT 
OWNED
CORPORATIONS.—The rules of paragraphs 
(3) and (4) of subsection (e) shall apply for purposes 
of this subsection; except that paragraph (3) shall be 
applied on worldwide affiliated group basis. 
‘‘(4) TREATMENT OF CERTAIN FINANCIAL IN-
STITUTIONS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), any corporation described in sub-
paragraph (B) shall be treated as an includible 
corporation for purposes of section 1504 only 
for purposes of applying this subsection sepa-
rately to corporations so described. 
‘‘(B) DESCRIPTION.—A corporation is de-
scribed in this subparagraph if—
‘‘(i) such corporation is a financial in-
stitution described in section 581 or 591, 
‘‘(ii) the business of such financial in-
stitution is predominantly with persons 
other than related persons (within the 
meaning of subsection (d)(4)) or their cus-
tomers, and 
‘‘(iii) such financial institution is re-
quired by State or Federal law to be oper-
ated separately from any other entity 
which is not such an institution. 
‘‘(C) TREATMENT OF BANK HOLDING COM-
PANIES.—To the extent provided in regula-
tions—
‘‘(i) a bank holding company (within 
the meaning of section 2(a) of the Bank 
Holding Company Act of 1956), and 
‘‘(ii) any subsidiary of a financial in-
stitution described in section 581 or 591 or 
of any bank holding company if such sub-
sidiary is predominantly engaged (directly 
or indirectly) in the active conduct of a 
banking, financing, or similar business, 
shall be treated as a corporation described in 
subparagraph (B).
‘‘(5) ELECTION TO EXPAND FINANCIAL INSTI-
TUTION GROUP OF WORLDWIDE GROUP.—
‘‘(A) IN GENERAL.—If a worldwide affili-
ated group elects the application of this sub-
section, all financial corporations which—
‘‘(i) are members of such worldwide 
affiliated group, but 
‘‘(ii) are not corporations described in 
paragraph (4)(B), 
shall be treated as described in paragraph 
(4)(B) for purposes of applying paragraph 
(4)(A). This subsection (other than this para-
graph) shall apply to any such group in the 
same manner as this subsection (other than this 
paragraph) applies to the pre-election worldwide 
affiliated group of which such group is a part. 
‘‘(B) FINANCIAL CORPORATION.—For pur-
poses of this paragraph, the term ‘financial cor-
poration’ means any corporation if at least 80 
percent of its gross income is income described 
in section 904(d)(2)(C)(ii) and the regulations 
thereunder which is derived from transactions 
with persons who are not related (within the 
meaning of section 267(b) or 707(b)(1)) to the 
corporation. For purposes of the preceding sen-
tence, there shall be disregarded any item of in-
come or gain from a transaction or series of 
transactions a principal purpose of which is the 
qualification of any corporation as a financial 
corporation. 
‘‘(C) ANTIABUSE RULES.—In the case of a 
corporation which is a member of an electing fi-
nancial institution group, to the extent that 
such corporation—
‘‘(i) distributes dividends or makes 
other distributions with respect to its stock 
after the date of the enactment of this 
paragraph to any member of the pre-elec-
tion worldwide affiliated group (other than 
to a member of the electing financial insti-
tution group) in excess of the greater of—
‘‘(I) its average annual dividend 
(expressed as a percentage of current 
earnings and profits) during the 5-
taxable-year period ending with the 
taxable year preceding the taxable 
year, or 
‘‘(II) 25 percent of its average 
annual earnings and profits for such 
5-taxable-year period, or
‘‘(ii) deals with any person in any 
manner not clearly reflecting the income of 
the corporation (as determined under prin-
ciples similar to the principles of section 
482), 
an amount of indebtedness of the electing fi-
nancial institution group equal to the excess 
distribution or the understatement or overstate-
ment of income, as the case may be, shall be re-
characterized (for the taxable year and subse-
quent taxable years) for purposes of this para-
graph as indebtedness of the worldwide affili-
ated group (excluding the electing financial in-
stitution group). If a corporation has not been 
in existence for 5 taxable years, this subpara-
graph shall be applied with respect to the pe-
riod it was in existence. 
‘‘(D) ELECTION.—An election under this 
paragraph with respect to any financial institu-
tion group may be made only by the common 
parent of the pre-election worldwide affiliated 
group and may be made only for the first tax-
able year beginning after December 31, 2002, 
in which such affiliated group includes 1 or 
more financial corporations. Such an election,
once made, shall apply to all financial corpora-
tions which are members of the electing finan-
cial institution group for such taxable year and 
all subsequent years unless revoked with the 
consent of the Secretary. 
‘‘(E) 
DEFINITIONS
RELATING
TO 
GROUPS.—For purposes of this paragraph—
‘‘(i) PRE-ELECTION WORLDWIDE AF-
FILIATED GROUP.—The term ‘pre-election 
worldwide affiliated group’ means, with re-
spect to a corporation, the worldwide affili-
ated group of which such corporation 
would (but for an election under this para-
graph) be a member for purposes of apply-
ing paragraph (1). 
‘‘(ii) ELECTING
FINANCIAL
INSTITU-
TION GROUP.—The term ‘electing financial 
institution group’ means the group of cor-
porations to which this subsection applies 
separately by reason of the application of 
paragraph (5)(A) and which includes fi-
nancial corporations by reason of an elec-
tion under subparagraph (A). 
‘‘(F) REGULATIONS.—The Secretary shall 
prescribe such regulations as may be appro-
priate to carry out this subsection, including 
regulations—
‘‘(i) providing for the direct allocation 
of interest expense in other circumstances 
where such allocation would be appropriate 
to carry out the purposes of this sub-
section, 
‘‘(ii) preventing assets or interest ex-
pense from being taken into account more 
than once, and 
‘‘(iii) dealing with changes in mem-
bers of any group (through acquisitions or 
otherwise) treated under this paragraph as 
an affiliated group for purposes of this 
subsection. 
‘‘(6) ELECTION.—An election to have this sub-
section apply with respect to any worldwide affiliated 
group may be made only by the common parent of 
the domestic affiliated group referred to in para-
graph (1)(C) and may be made only for the first 
taxable year beginning after December 31, 2002, in 
which a worldwide affiliated group exists which in-
cludes such affiliated group and at least one foreign 
corporation. Such an election, once made, shall apply 
to such common parent and all other corporations
which are members of such worldwide affiliated 
group for such taxable year and all subsequent years 
unless revoked with the consent of the Secretary.’’. 
(b) EXPANSION
OF REGULATORY AUTHORITY.—
Paragraph (7) of section 864(e) is amended—
(1) by inserting before the comma at the end of 
subparagraph (B) ‘‘and in other circumstances 
where such allocation would be appropriate to carry 
out the purposes of this subsection’’, and 
(2) by striking ‘‘and’’ at the end of subpara-
graph (E), by redesignating subparagraph (F) as 
subparagraph (G), and by inserting after subpara-
graph (E) the following new subparagraph: 
‘‘(F) preventing assets or interest expense 
from being taken into account more than once, 
and’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 311. PERMANENT EXTENSION OF SUBPART F EXEMP-
TION FOR ACTIVE FINANCING. 
(a) IN GENERAL.—
(1) Section 953(e)(10) is amended—
(A) by striking ‘‘, and before January 1, 
2007,’’, and
(B) by striking the second sentence. 
(2) Section 954(h)(9) is amended by striking ‘‘, 
and before January 1, 2007,’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003.
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