Sec. 502. Excess income from transfers of intangibles to low-taxed affiliates treated as subpart F income

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Subsection

(a)of section 954 of the Internal Revenue Code of 1986 is amended by inserting after paragraph

(3)the following new paragraph: the foreign base company excess intangible income for the taxable year (determined under subsection

(f)and reduced as provided in subsection (b)(5)), and . Section 954 of such Code is amended by inserting after subsection

(e)the following new subsection: For purposes of subsection (a)(4) and this subsection: The term foreign base company excess intangible income means, with respect to any covered intangible, the excess of— the sum of— gross income from the sale, lease, license, or other disposition of property in which such covered intangible is used directly or indirectly, and gross income from the provision of services related to such covered intangible or in connection with property in which such covered intangible is used directly or indirectly, over 150 percent of the costs properly allocated and apportioned to the gross income taken into account under clause

(i)other than expenses for interest and taxes and any expenses which are not directly allocable to such gross income. If— the sale, lease, license, or other disposition of the property referred to in subparagraph (A)(i)(I) is for use, consumption, or disposition in the country under the laws of which the controlled foreign corporation is created or organized, or the services referred to in subparagraph (A)(i)(II) are performed in such country, the gross income from such sale, lease, license, or other disposition, or provision of services, shall not be taken into account under subparagraph (A)(i). Foreign base company excess intangible income shall not include the applicable percentage of any item of income received by a controlled foreign corporation if the taxpayer establishes to the satisfaction of the Secretary that such income was subject to an effective rate of income tax imposed by a foreign country in excess of 5 percent. For purposes of subparagraph (A), the term applicable percentage means the ratio (expressed as a percentage), not greater than 100 percent, of— the number of percentage points by which the effective rate of income tax referred to in subparagraph

(A)exceeds 5 percentage points, over 10 percentage points. For purposes of determining the effective rate of income tax imposed by any foreign country— such effective rate shall be determined without regard to any losses carried to the relevant taxable year, and to the extent the income with respect to such intangible reduces losses in the relevant taxable year, such effective rate shall be treated as being the effective rate which would have been imposed on such income without regard to such losses. The term covered intangible means, with respect to any controlled foreign corporation, any intangible property (as defined in section 936(h)(3)(B))— which is sold, leased, licensed, or otherwise transferred (directly or indirectly) to such controlled foreign corporation from a related person, or with respect to which such controlled foreign corporation and one or more related persons has (directly or indirectly) entered into any shared risk or development agreement (including any cost sharing agreement). The term related person has the meaning given such term in subsection (d)(3). . Subsection

(d)of section 904 of such Code is amended by redesignating paragraph

(7)as paragraph

(8)and by inserting after paragraph

(6)the following new paragraph: Subsections (a), (b), and

(c)of this section and sections 902, 907, and 960 shall be applied separately with respect to each item of income which is taken into account under section 954(a)(4) as foreign base company excess intangible income. The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which provides that related items of income may be aggregated for purposes of this paragraph. . Paragraph

(4)of section 954(b) of such Code is amended by inserting foreign base company excess intangible income described in subsection (a)(4) or before foreign base company oil-related income in the last sentence thereof. Subsection

(b)of section 954 of such Code is amended by adding at the end the following new paragraph: Income of a corporation which is foreign base company excess intangible income shall not be considered foreign base company income of such corporation under paragraph (2), (3), or

(5)of subsection (a). . The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.