I
108TH CONGRESS
1ST SESSION
H. R. 2184
To amend the Internal Revenue Code of 1986 to prevent corporations from
exploiting tax treaties to evade taxation of United States income and
to prevent manipulation of transfer prices by deflection of income to
tax havens.
IN THE HOUSE OF REPRESENTATIVES
MAY 21, 2003
Mr. DOGGETT (for himself, Ms. BALDWIN, Mr. CROWLEY, Mr. DEFAZIO, Mr.
DELAHUNT, Ms. DELAURO, Mr. FILNER, Mr. FROST, Mr. JEFFERSON,
Mrs. JONES of Ohio, Mr. KENNEDY of Rhode Island, Mr. KLECZKA, Mr.
KUCINICH, Ms. LEE, Mr. LEVIN, Mr. LEWIS of Georgia, Mr. MARKEY,
Mr. MATSUI, Mr. MCDERMOTT, Mr. MCGOVERN, Mr. MCNULTY, Mr.
GEORGE
MILLER
of California, Mr. NEAL
of Massachusetts, Mr.
PALLONE, Ms. LORETTA SANCHEZ of California, Mr. SANDERS, Ms.
SOLIS, Ms. SLAUGHTER, Mr. STARK, Mr. TIERNEY, and Mr. WAXMAN)
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 prevent
corporations from exploiting tax treaties to evade tax-
ation of United States income and to prevent manipula-
tion of transfer prices by deflection of income to tax
havens.
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 ‘‘Fairness and Account-
ability in International Taxation Act of 2003’’.
SEC. 2. DENIAL OF TREATY BENEFITS FOR CERTAIN DE-
DUCTIBLE PAYMENTS.
(a) IN GENERAL.—Section 894 of the Internal Rev-
enue Code of 1986 (relating to income affected by treaty)
is amended by adding at the end the following new sub-
section:
‘‘(d) DENIAL OF TREATY BENEFITS FOR CERTAIN
DEDUCTIBLE PAYMENTS.—
‘‘(1) IN GENERAL.—A foreign entity shall not
be entitled under any income tax treaty of the
United States with a foreign country to any reduced
rate of any withholding tax imposed by this title on
any deductible foreign payment unless such entity is
predominantly owned by individuals who are resi-
dents of such foreign country.
‘‘(2) DEDUCTIBLE
FOREIGN
PAYMENT.—For
purposes of paragraph (1), the term ‘deductible for-
eign payment’ means any payment—
‘‘(A) which is made by a domestic entity
directly or indirectly to a related person which
is a foreign entity, and
‘‘(B) which is allowable as a deduction
under this chapter.
‘‘(3) DOMESTIC AND FOREIGN ENTITIES; RE-
LATED PERSON.—For purposes of this subsection—
‘‘(A) DOMESTIC ENTITY.—The term ‘do-
mestic entity’ means any domestic corporation
or domestic partnership.
‘‘(B) FOREIGN
ENTITY.—The term ‘for-
eign entity’ means any foreign corporation or
foreign partnership.
‘‘(C) RELATED
PERSON.—The term ‘re-
lated person’ has the meaning given such term
by section 954(d)(3) (determined by sub-
stituting ‘domestic entity’ for ‘controlled foreign
corporation’ each place it appears).
‘‘(4) PREDOMINANT
OWNERSHIP.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—An entity is predomi-
nantly owned by individuals who are residents
of a foreign country if—
‘‘(i) in the case of a corporation, more
than 50 percent (by value) of the stock of
such corporation is owned (within the
meaning of section 883(c)(4)) by individ-
uals who are residents of such foreign
country, or
‘‘(I) such requirements would be
met if ‘30 percent’ were substituted
for ‘50 percent’ in subparagraph
(A)(i),
‘‘(II) the treaty country is a
member of a multinational economic
association such as the European
Union, and
‘‘(III) at least 50 percent of the
value of the stock of the corporation is
owned (within the meaning of section
883(c)(4)) by individuals who are resi-
dents of the treaty country or other
qualified foreign countries.
‘‘(ii) 
QUALIFIED
FOREIGN
COUN-
TRY.—For purposes of this subparagraph,
the term ‘qualified foreign country’ means
any foreign country if—
‘‘(I) such foreign country is a
member of the multinational economic
association of which the treaty coun-
try is a member, and
‘‘(II) such foreign country has a
tax treaty with the United States pro-
viding a withholding tax rate reduc-
tion which is not less than the with-
holding tax rate reduction applicable
(without regard to this subsection) to
the payment received by such foreign
corporation.
‘‘(5) EXCEPTION
FOR
CORPORATIONS
WITH
SUBSTANTIAL
BUSINESS
ACTIVITIES
IN
TREATY
COUNTRY.—Paragraph (1) shall not apply to a pay-
ment received by a foreign corporation if such cor-
poration has substantial business activities in the
treaty country and if such corporation establishes to
the satisfaction of the Secretary that the payment is
subject to an effective rate of income tax imposed by
such country greater than 90 percent of the max-
imum rate of tax specified in section 11.
‘‘(6) EXCEPTION FOR PAYMENTS RECEIVED BY
CONTROLLED
FOREIGN
CORPORATION.—Paragraph
(1) shall not apply to any deductible foreign pay-
ment made by a corporation if the recipient of the
payment is a controlled foreign corporation and the
payor is a United States shareholder (as defined in
section 951(b)) of such corporation.
‘‘(7) CONDUIT PAYMENTS.—Under regulations
prescribed by the Secretary, paragraph (1) shall not
apply to a payment received by a foreign entity re-
ferred to in paragraph (1) if—
‘‘(A) within a reasonable period after such
entity receives such payment, such entity makes
a comparable payment directly or indirectly to
another related person,
‘‘(B) such related person is a resident of a
foreign country with which the United States
has an income tax treaty,
‘‘(C) such related person is predominantly
owned by individuals who are residents of such
country, and
‘‘(D) the withholding tax rate applicable
under such treaty is equal to or greater than
the withholding tax rate applicable (without re-
gard to this paragraph) to the payment received
by such foreign entity.
A similar rule shall apply where the payment is in-
cludible in the gross income of a related person by
reason of a foreign law comparable to subpart F of
part III of subchapter N.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 3. TRANSFER PRICE REDUCED BY DEFLECTED TAX
HAVEN INCOME.
(a) IN GENERAL.—Section 482 of the Internal Rev-
enue Code of 1986 (relating to allocation of income and
deductions among taxpayers) is amended by inserting ‘‘(a)
IN GENERAL.—’’ before ‘‘In the case of two or more’’ and
by adding at the end the following new subsection:
‘‘(b) SPECIAL RULE FOR RELATED-PARTY INBOUND
AND OUTBOUND TRANSACTIONS.—
‘‘(1) IN GENERAL.—In the case of property or
services to which this subsection applies, the transfer
price under this section for such property or service
shall be the transfer price determined without regard
to this subsection—
‘‘(A) in the case of a related-party inbound
transaction, reduced by the deflected tax haven
income with respect to such property or service,
or
‘‘(B) in the case of a related-party out-
bound transaction, increased by the deflected
tax haven income with respect to such property
or service.
‘‘(2) PROPERTY OR SERVICES TO WHICH SUB-
SECTION APPLIES.—
‘‘(A) IN
GENERAL.—This subsection ap-
plies to any property or services if there is a re-
lated-party inbound or outbound transaction
with respect to such property or services.
‘‘(B) RELATED-PARTY
INBOUND
TRANS-
ACTION.—A related-party inbound transaction
is any transaction where—
‘‘(i) property is acquired directly or
indirectly by a foreign-controlled domestic
corporation from a foreign related person,
or
‘‘(ii) the services are performed di-
rectly or indirectly for a foreign-controlled
domestic corporation by a foreign related
person.
‘‘(C) RELATED-PARTY OUTBOUND TRANS-
ACTION.—A related-party outbound transaction
is any transaction where—
‘‘(i) property is sold directly or indi-
rectly by a foreign-controlled domestic cor-
poration to a foreign related person, or
‘‘(ii) services are performed directly or
indirectly by a foreign-controlled domestic
corporation for a foreign related person.
‘‘(3) DEFLECTED
TAX
HAVEN
INCOME.—For
purposes of this subsection—