Sec. 4303. Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income
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Chapter 36 is amended by adding at the end the following new subchapter: Sec. 4491. Imposition of tax on certain amounts from domestic corporations to foreign affiliates. There is hereby imposed on each specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation a tax equal to the highest rate of tax in effect under section 11 multiplied by such amount. The tax imposed by subsection
(a)shall be paid by the domestic corporation described in such subsection. Subsection
(a)shall not apply to so much of any specified amount as is effectively connected with the conduct of a trade or business within the United States if such amount is subject to tax under chapter 1. In the case of any amount which is treated as effectively connected with the conduct of a trade or business within the United States by reason of section 882(g), the preceding sentence shall apply to such amount only if the domestic corporation provides to the Secretary (at such time and in such form and manner as the Secretary may provide) a copy of the election made under section 882(g) by the foreign corporation referred to in subsection (a). Terms used in this section that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs
(5)and
(6)of such section shall apply for purposes of this section. . Section 275(a) is amended by inserting after paragraph
(6)the following new paragraph: Taxes imposed by section 4491. . The table of subchapters for chapter 36 is amended by adding at the end the following new item: Subchapter E. Tax on certain amounts to foreign affiliates. . Section 882 is amended by adding at the end the following new subsection: In the case of any specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation and which has elected to be subject to the provisions of this subsection— such amount shall be taken into account (other than for purposes of sections 245, 245A, and 881) as if such foreign corporation were engaged in a trade or business within the United States and had a permanent establishment in the United States during the taxable year and as if such payment were effectively connected with the conduct of a trade or business within the United States and were attributable to such permanent establishment, for purposes of subsection (c)(1)(A), no deduction shall be allowed with respect to such amount and such subsection shall be applied without regard to such amount, and there shall be allowed as a deduction the deemed expenses with respect such amount. For purposes of this subsection— The term specified amount means any amount which is, with respect to the payor, allowable as a deduction or includible in costs of goods sold, inventory, or the basis of a depreciable or amortizable asset. The term specified amount shall not include— interest, any amount paid or incurred for the acquisition of any commodity described in section 475(e)(2)(A) or section 475(e)(2)(D) (determined without regard to subclause
(i)thereof), except as provided in subparagraph (C), any amount with respect to which tax is imposed under section 881(a), and in the case of a payor which has elected to use a services cost method for purposes of section 482, any amount paid or incurred for services if such amount is the total services cost with no markup. Subparagraph (B)(iii) shall not apply to any specified amount to the extent of the same proportion of such amount as— the rate of tax imposed under section 881(a) with respect to such amount, bears to 30 percent. The deemed expenses with respect to any specified amount received by a foreign corporation during any reporting year is the amount of expenses such that the net income ratio of such foreign corporation with respect to such amount (taking into account only such deemed expenses) is equal to the net income ratio of the international financial reporting group determined for such reporting year with respect to the product line to which the specified amount relates. For purposes of this paragraph, the term net income ratio means the ratio of— net income determined without regard to interest income, interest expense, and income taxes, divided by revenues. Amounts described in subparagraph
(B)shall be determined on the basis of the consolidated financial statements referred to in paragraph (5)(A)(i) and the book and records of the members of the internal financial reporting group which are used in preparing such statements. For purposes of this subsection— The term international financial reporting group means any group of entities, with respect to any specified amount, if such amount is paid or incurred during a reporting year of such group with respect to which— such group prepares consolidated financial statements (within the meaning of section 163(n)(4)) with respect to such year, and the average annual aggregate payment amount of such group for the 3-reporting-year period ending with such reporting year exceeds $100,000,000. The term annual aggregate payment amount means, with respect to any reporting year of the group referred to in subparagraph (A)(i), the aggregate specified amounts to which paragraph
(1)applies (or would apply if such group were an international financial reporting group). Rules similar to the rules of subparagraphs (A), (B), and
(D)of section 448(c)(3) shall apply for purposes of this paragraph. Any specified amount paid, incurred, or received by a partnership which is a member of any international financial reporting group (and any amount treated as paid, incurred, or received by a partnership under this paragraph) shall be treated for purposes of this subsection as amounts paid, incurred, or received, respectively, by each partner of such partnership in an amount equal to such partner’s distributive share of the items of income, gain, deduction, or loss to which such amounts relate. Any specified amount paid, incurred, or received by a foreign corporation in connection with the conduct of a trade or business within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) shall be treated for purposes of this subsection as an amount paid, incurred, or received, respectively, by a domestic corporation. For purposes of the preceding sentence, a foreign corporation shall be deemed to pay, incur, and receive amounts with respect to a trade or business it conducts within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) to the extent such foreign corporation would be treated as paying, incurring, or receiving such amounts from such trade or business if such trade or business were a domestic corporation. In the case of any underpayment with respect to any taxable year of a foreign corporation which is a member of an international financial accounting group, each domestic corporation which is a member of such group at any time during such taxable year shall be jointly and severally liable for— so much of such underpayment as does not exceed the excess (if any) of such underpayment over the amount of such underpayment determined without regard to this subsection, and any penalty, addition to tax, or additional amount attributable to the amount described in subparagraph (A). No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any specified amount to which paragraph
(1)applies. No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph
(1)(determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). Any election under paragraph
(1)shall— be made at such time and in such form and manner as the Secretary may provide, and apply for the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary. The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance— to provide for the proper determination of product lines, and to prevent the avoidance of the purposes of this subsection through the use of conduit transactions or by other means. . Section 6038C(b) is amended to read as follows: The information described in this subsection is— the information described in section 6038A(b), and such other information as the Secretary may prescribe by regulations relating to any item not directly connected with a transaction for which information is required under subparagraph (A). In the case of any reporting corporation that receives during the taxable year any amount to which section 882(g)(1) applies, the information described in this subsection shall include, with respect to each member of the international financial reporting group from which any such amount is received— the name and taxpayer identification number of such member, the aggregate amounts received from such member, the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and a summary of any changes in financial accounting methods that affect the computation of any net income ratio described in clause (iii). Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs
(5)and
(6)of such section shall apply for purposes of this paragraph. . Subpart A of part III of subchapter A of chapter 61 is amended by inserting after section 6038D the following new section: In the case of any domestic corporation which pays or accrues any amount to which section 882(g)(1) applies, such person shall— make a return according to the forms and regulations prescribed the Secretary, setting forth the information described in subsection (b), and maintain (at the location, in the manner, and to the extent prescribed in regulations) such records as may be appropriate to determine liability for tax pursuant to paragraphs
(1)and
(7)of section 882(g). The information described in this subsection is— the name and taxpayer identification number of the common parent of the international financial reporting group in which such domestic corporation is a member, and with respect to any person who receives an amount described in subsection
(a)from such domestic corporation— the name and taxpayer identification number of such person, the aggregate amounts received by such person, the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and a summary of any changes in financial accounting methods that affect the computation of any net income ratios described in subparagraph (C). Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs
(5)and
(6)of such section shall apply for purposes of this paragraph. . The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6038D the following new item: Sec. 6038E. Information with respect to certain payments from domestic corporations to related foreign corporations. . The amendments made by this section shall apply to amounts paid or accrued after December 31, 2018.