Sec. 4301. Current year inclusion by United States shareholders with foreign high returns
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Subpart F of part III of subchapter N of chapter 1 is amended by inserting after section 951 the following new section: Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income for such taxable year 50 percent of such shareholder’s foreign high return amount for such taxable year. For purposes of this section— The term foreign high return amount means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of— such shareholder’s net CFC tested income for such taxable year, over the excess (if any) of— the applicable percentage of the aggregate of such shareholder’s pro rata share of the qualified business asset investment of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year (determined for each taxable year of each such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over the amount of interest expense taken into account under subsection (c)(2)(A)(ii) in determining the shareholder’s net CFC tested income for the taxable year.
The term applicable percentage means, with respect to any taxable year, the Federal short-term rate (determined under section 1274(d) for the month in which or with which such taxable year ends) plus 7 percentage points. For purposes of this section— The term net CFC tested income means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of— the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).
For purposes of this section— The term tested income means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of— the gross income of such corporation determined without regard to— any item of income which is effectively connected with the conduct by such corporation of a trade or business within the United States if subject to tax under this chapter, any gross income taken into account in determining the subpart F income of such corporation, except as otherwise provided by the Secretary, any amount excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of section 954(c)(6) but only to the extent that any deduction allowable for the payment or accrual of such amount does not result in a reduction in the foreign high return amount of any United States shareholder (determined without regard to this subclause), any gross income excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of subsection (c)(2)(C), (h), or
(i)of section 954, any gross income excluded from the insurance income (as defined in section 953) of such corporation by reason of section 953(a)(2), any gross income excluded from foreign base company income (as defined in section 954) or insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4), any dividend received from a related person (as defined in section 954(d)(3)), and any commodities gross income of such corporation, over the deductions (including taxes) properly allocable to such gross income under rules similar to the rules of section 954(b)(5) (or which would be so properly allocable if such corporation had such gross income). The term tested loss means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of the amount described in subparagraph (A)(ii) over the amount described in subparagraph (A)(i). For purposes of this section— The term qualified business asset investment means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the aggregate of the corporation’s adjusted bases (determined as of the close of such taxable year and after any adjustments with respect to such taxable year) in specified tangible property— used in a trade or business of the corporation, and of a type with respect to which a deduction is allowable under section 168. The term specified tangible property means any tangible property to the extent such property is used in the production of tested income or tested loss. For purposes of this subsection, if a controlled foreign corporation holds an interest in a partnership at the close of such taxable year of the controlled foreign corporation, such controlled foreign corporation shall take into account under paragraph
(1)the controlled foreign corporation’s distributive share of the aggregate of the partnership’s adjusted bases (determined as of such date in the hands of the partnership) in tangible property held by such partnership to the extent such property— is used in the trade or business of the partnership, is of a type with respect to which a deduction is allowable under section 168, and is used in the production of tested income or tested loss (determined with respect to such controlled foreign corporation’s distributive share of income or loss with respect to such property). For purposes of this paragraph, the controlled foreign corporation’s distributive share of the adjusted basis of any property shall be the controlled foreign corporation’s distributive share of income and loss with respect to such property. For purposes of this subsection, the adjusted basis in any property shall be determined without regard to any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section. The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this subsection, including regulations or other guidance which provide for the treatment of property if— such property is transferred, or held, temporarily, or the avoidance of the purposes of this paragraph is a factor in the transfer or holding of such property. For purposes of this section— The term commodities gross income means, with respect to any corporation— gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation (or a partnership in which such corporation is a partner), and gross income of such corporation from the disposition of property which gives rise to income described in subparagraph (A). The term commodity means any commodity described in section 475(e)(2)(A) or section 475(e)(2)(D) (determined without regard to clause
(i)thereof and by substituting a commodity described in subparagraph
(A)for such a commodity in clause
(ii)thereof). For purposes of this section— A United States shareholder of a controlled foreign corporation shall be treated as a United States shareholder of such controlled foreign corporation for any taxable year of such United States shareholder if— a taxable year of such controlled foreign corporation ends in or with such taxable year of such person, and such person owns (within the meaning of section 958(a)) stock in such controlled foreign corporation on the last day, in such taxable year of such foreign corporation, on which the foreign corporation is a controlled foreign corporation. Except for purposes of paragraph (1)(B) and the application of section 951(a)(2) to this section pursuant to subsection (g), a foreign corporation shall be treated as a controlled foreign corporation for any taxable year of such foreign corporation if such foreign corporation is a controlled foreign corporation at any time during such taxable year. For purposes of this section, pro rata shares shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income. Except as otherwise provided by the Secretary any foreign high return amount included in gross income under subsection
(a)shall be treated in the same manner as an amount included under section 951(a)(1)(A) for purposes of applying sections 168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 961, 962, 993(a)(1)(E), 996(f)(1), 1248(b)(1), 1248(d)(1), 6501(e)(1)(C), 6654(d)(2)(D), and 6655(e)(4). For purposes of applying paragraph
(1)with respect to sections 168(h)(2)(B), 851(b), 959, 961, 962, 1248(b)(1), and 1248(d)(1), the foreign high return amount included in gross income under subsection
(a)shall be determined by substituting 100 percent for 50 percent in such subsection. For purposes of the sections referred to in paragraph (1), with respect to any controlled foreign corporation any pro rata amount from which is taken into account in determining the foreign high return amount included in gross income of a United States shareholder under subsection (a), the portion of such foreign high return amount which is treated as being with respect to such controlled foreign corporation is— in the case of a controlled foreign corporation with tested loss, zero, and in the case of a controlled foreign corporation with tested income, the portion of such foreign high return amount which bears the same ratio to such foreign high return amount as— such United States shareholder’s pro rata amount of the tested income of such controlled foreign corporation, bears to the aggregate amount determined under subsection (c)(1)(A) with respect to such United States shareholder. In the case of any United States shareholder of any controlled foreign corporation, the amount included in gross income under section 951(a)(1)(A) shall be determined by increasing the earnings and profits of such controlled foreign corporation (solely for purposes of determining such amount) by an amount that bears the same ratio (not greater than 1) to such shareholder’s pro rata share of the tested loss of such controlled foreign corporation as— the aggregate amount determined under subsection (c)(1)(A) with respect to such shareholder, bears to the aggregate amount determined under subsection (c)(1)(B) with respect to such shareholder. . Section 960, as amended by the preceding provisions of this Act, is amended by redesignating subsections
(d)and
(e)as subsections
(e)and (f), respectively, and by inserting after subsection
(c)the following new subsection: For purposes of this subpart, if any amount is includible in the gross income of a domestic corporation under section 951A, such domestic corporation shall be deemed to have paid foreign income taxes equal to 80 percent of— such domestic corporation’s foreign high return percentage, multiplied by the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations with respect to which such domestic corporation is a United States shareholder. For purposes of paragraph (1), the term foreign high return percentage means, with respect to any domestic corporation, the ratio (expressed as a percentage) of— such corporation’s foreign high return amount (as defined in section 951A(b)), divided by the aggregate amount determined under section 951A(c)(1)(A) with respect to such corporation. For purposes of paragraph (1), the term tested foreign income taxes means, with respect to any domestic corporation which is a United States shareholder of a controlled foreign corporation, the foreign income taxes paid or accrued by such foreign corporation which are properly attributable to gross income described in section 951A(c)(2)(A)(i). . Section 904(d)(1) is amended by redesignating subparagraphs
(A)and
(B)as subparagraphs
(B)and (C), respectively, and by inserting before subparagraph
(B)(as so redesignated) the following new subparagraph: any amount includible in gross income under section 951A, . Section 904(c) is amended by adding at the end the following: This subsection shall not apply to taxes paid or accrued with respect to amounts described in subsection (d)(1)(A). Section 78, as amended by the preceding provisions of this Act, is amended— by striking any taxable year, an amount and inserting any taxable year— an amount , and by striking the period at the end and inserting , and an amount equal to the taxes deemed to be paid by such corporation under section 960(d) for such taxable year (determined by substituting 100 percent for 80 percent in such section) shall be treated for purposes of this title (other than sections 959, 960, and 961) as an increase in the foreign high return amount of such domestic corporation under section 951A for such taxable year. . Section 170(b)(2)(D) is amended by striking computed without regard to and all that follows and inserting computed— without regard to— this section, part VIII (except section 248), any net operating loss carryback to the taxable year under section 172, any capital loss carryback to the taxable year under section 1212(a)(1), and by substituting 100 percent for 50 percent in section 951A(a). . Section 246(b)(1) is amended by— striking and without regard to and inserting without regard to , and by striking the period at the end and inserting , and by substituting . 100 percent for 50 percent in section 951A(a). Section 469(i)(3)(F) is amended by striking determined without regard to and all that follows and inserting determined— without regard to— any amount includible in gross income under section 86, the amounts allowable as a deduction under section 219, and any passive activity loss or any loss allowable by reason of subsection (c)(7), and by substituting 100 percent for 50 percent in section 951A(a). . Section 856(c)(2) is amended by striking and at the end of subparagraph (H), by adding and at the end of subparagraph (I), and by inserting after subparagraph
(I)the following new subparagraph: amounts includible in gross income under section 951A(a); . Section 856(c)(3)(D) is amended by striking dividends or other distributions on, and gain and inserting dividends, other distributions on, amounts includible in gross income under section 951A(a) with respect to, and gain . The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by inserting after the item relating to section 951 the following new item: Sec. 951A. Foreign high return amount included in gross income of United States shareholders. . The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.