Sec. 126. Prohibition on offshore loan abuse
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Subpart F of part III of subchapter N of chapter 1 is amended by adding at the end the following new section: In the case of a United States shareholder, there shall be included in income for the taxable year an amount equal to the disqualified CFC loan amount. For purposes of this section, the disqualified CFC loan amount for any taxable year is an amount equal to the lesser of— the aggregate amount of obligations of the United States shareholder which originated in such taxable year and are held (directly or indirectly) by controlled foreign corporations, or the foreign group earnings amount.
In determining the amount of obligations under subparagraph (A), there shall be excluded any obligation described in section 956(c)(2)(C). If, for any taxable year, the amount under subparagraph
(A)exceeds the amount under subparagraph (B), such excess shall be taken into account as an obligation to which subparagraph
(A)applies for the succeeding taxable year. For purposes of this section, the term foreign group earnings amount means the aggregate earnings and profits of all controlled foreign corporations in the worldwide affiliated group (as defined in section 864(f)(1)(C)) of the United States shareholder, determined— as of the last day of the taxable year of the United States shareholder, and without regard to any distributions made during such taxable year. No deduction shall be allowed for interest paid or accrued with respect to obligations taken into account under subsection (b). Any amount included in income under subsection
(a)shall be treated as income from sources within the United States. . Paragraph
(2)of section 956(c) is amended by striking and at the end of subparagraph (K), by striking the period at the end of subparagraph (L)(ii) and inserting ; and , and by inserting after subparagraph
(L)the following new subparagraph: any obligation which is taken into account in determining the disqualified CFC loan amount under section 966. . The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by adding at the end the following new item: Sec. 966. Income inclusion for loans to certain United States shareholders from controlled foreign corporations. . The amendments made by this section shall apply to obligations originated after the date of the enactment of this Act.