Sec. 138124. Modifications to foreign tax credit limitations
2,095 words·~10 min read·
/bill/117/hr/5376/eh/section-138124·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
Section 904 is amended by inserting after subsection
(d)the following new subsection: Subsection
(d)(and the provisions of this title referred to in paragraph
(1)of such subsection) shall be applied separately with respect to each country by taking into account the aggregate income properly attributable or otherwise allocable to a taxable unit of the taxpayer which is a tax resident of (or, in the case of a branch, is located in) such country. Except as otherwise provided by the Secretary, each item shall be attributable or otherwise allocable to exactly one taxable unit of the taxpayer. Except as otherwise provided by the Secretary, the taxable units of a taxpayer are as follows: The person that is the taxpayer and that is not otherwise described in a separate clause of this subparagraph. Each foreign corporation with respect to which the taxpayer is a United States shareholder. Each interest held (directly or indirectly) by the taxpayer or any controlled foreign corporation referred to in clause
(ii)in a pass-through entity if such pass-through entity is a tax resident of a country other than the country with respect to which such taxpayer or controlled foreign corporation (as the case may be) is a tax resident. Each branch (or portion thereof) the activities of which are directly or indirectly carried on by the taxpayer or any controlled foreign corporation referred to in clause
(ii)and which give rise to a taxable presence in a country other than the country with respect to which such taxpayer or controlled foreign corporation (as the case may be) is a tax resident. For purposes of this subsection— Except as otherwise provided by the Secretary, the term tax resident means a person or entity subject to tax under the tax law of a country as a resident. If an entity is organized under the law of a country, or resident in a country, that does not impose an income tax with respect to such entities, such entity shall, except as provided by the Secretary, be treated as subject to tax under the tax law of such country for the purposes of the preceding sentence. Except as otherwise provided by the Secretary, the term pass-through entity includes any partnership or other entity to the extent that income, gain, deduction, or loss of the entity is taken into account in determining the income or loss of a person that owns (directly or indirectly) an interest in such entity. Except as otherwise provided by the Secretary, the term branch means a taxable presence of a tax resident in a country other than its country of residence as determined under such other country’s tax law. The Secretary shall provide regulations or other guidance applying such term to activities in a country that do not give rise to a taxable presence. Any fiscally autonomous jurisdiction shall be treated as a separate country. Any possession of the United States shall also be treated as a separate country. The term possession of the United States means each of American Samoa, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico, Guam, and the Virgin Islands. The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out, or prevent avoidance of, the purposes of this subsection, including regulations or other guidance— providing for the application of this subsection to an entity or arrangement that is considered a tax resident of more than one country or of no country, providing for the application of this subsection to hybrid entities or hybrid transactions (as such terms are used for purposes of section 267A), pass-through entities, passive foreign investment companies, trusts, and other entities or arrangements not otherwise described in this subsection, and providing for the assignment of any item (including foreign taxes and deductions) to taxable units, including in the case of amounts not otherwise taken into account in determining taxable income under this chapter. . Section 904(f)(5)(B) is amended to read as follows: Except as otherwise provided in this subparagraph, the separate limitation losses for any taxable year (to the extent such losses do not exceed the separate limitation incomes for such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis. In the case of a separate limitation loss for any taxable year in any category other than subparagraph (d)(1)(A), the amount of such separate limitation loss shall be allocated among (and operate to reduce) separate limitation income in any category other than income described in subparagraph (d)(1)(A) on a proportionate basis (without regard to income described in subparagraph (d)(1)(A)). The remaining separate limitation losses may reduce separate limitation income described in subparagraph (d)(1)(A) only to the extent that the aggregate amount of such losses exceeds the aggregate amount of separate limitation incomes (other than income described in subparagraph (d)(1)(A)) for such taxable year. . Section 904(f)(5)(E)(i) is amended to read as follows: The term income category means each category of income with respect to which this section is required to be applied separately by reason of any provision of this title. . Section 904(f)(5)(E)(iii) is amended to read as follows: The term separate limitation loss means, with respect to any income category, the amount by which the gross income from sources outside the United States is exceeded by the sum of the deductions properly allocated and apportioned thereto. . Section 904(d)(1) is amended by striking subparagraph
(B)and redesignating subparagraphs
(C)and
(D)as subparagraph
(B)and (C). Section 250(b)(3)(A) is amended— by striking subclause
(VI)of clause
(i)and inserting the following new subclause: the income which is attributable to 1 or more branches (within the meaning of section 904(e)(3)(C)) or pass-through entities (within the meaning of section 904(e)(3)(B)) in 1 or more foreign countries, over , and by adding at the end the following flush sentence: For purposes of clause (i)(VI), the amount of income attributable to a branch or pass-through entity shall be determined under rules established by the Secretary. . Section 904(d)(2)(A)(ii) is amended by striking , foreign branch income, . Section 904(d)(2)(H) is amended to read as follows: The Secretary shall issue regulations or other guidance assigning to the proper category of income any tax imposed under the law of a foreign country or possession of the United States on an amount which does not constitute income under United States tax principles. . Section 904(d)(2) is amended by striking subparagraph (J). Section 904(c) is amended— by striking in the first preceding taxable year, and , by striking preceding or each place it appears, and by striking in the heading thereof. Carryback and Section 907(f)(1) is amended by striking in the first preceding taxable year and . Section 904(c) is amended by striking the last sentence. Section 904(c), as amended by the preceding provisions of this Act, is amended— by striking Any amount by which all taxes and all that precedes it and inserting the following: Any amount by which all taxes , and by adding at the end the following new paragraph: In the case of taxes paid or accrued with respect to amounts described in subsection (d)(1)(A), paragraph
(1)shall be applied by substituting 5 succeeding taxable years for 10 succeeding taxable years . Subparagraph
(A)shall not apply to any tax paid or accrued in a taxable year beginning after December 31, 2030. . Section 904(b) is amended by striking paragraph (4). Section 864(e)(3) is amended by striking or 245(a) and inserting , 245(a), or 245A . Section 904(b), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: In the case of a domestic corporation and solely for purposes of the application of subsection
(a)with respect to amounts described in subsection (d)(1)(A), the taxpayer’s taxable income from sources without the United States shall be determined— by allocating and apportioning any deduction allowed under section 250(a)(2) (and any deduction allowed under section 164(a)(3) for taxes imposed on amounts described in section 250(a)(2)) to such income, and by allocating and apportioning any other deduction to such income only if the Secretary determines that such deduction is directly allocable to such income. Any deduction which would (but for subparagraph (B)) have been allocated or apportioned to such income shall only be allocated or apportioned to income which is from sources within the United States. . Section 904(b), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: Except as otherwise provided by the Secretary, in the case of any covered asset disposition, the principles of section 338(h)(16) shall apply in determining the source and character of any item for purposes of this part. For purposes of this paragraph, the term covered asset disposition means any transaction which— is treated as a disposition of assets under subchapter N of this chapter, and is treated as a disposition of stock of a corporation (or is disregarded) for purposes of the tax laws of a relevant foreign country or possession of the United States. The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out, or to prevent the avoidance of, the purposes of this paragraph. . Section 905(c) is amended— in paragraph (1), by striking or at the end of subparagraph
(B)and by inserting after subparagraph
(C)the following new subparagraphs: the taxpayer makes a timely change in its choice to claim a credit or deduction for taxes paid or accrued, or there is any other change in the amount, or treatment, of taxes, which affects the taxpayer’s tax liability under this chapter, , in paragraph (2)(B), by striking Any such taxes and inserting Except as otherwise provided by the Secretary, any such taxes , and by striking in the heading thereof. accrued Section 901(a) is amended by striking the second sentence and inserting the following: Such choice for any taxable year may be made or changed at any time before the expiration of the applicable period prescribed by section 6511 for making a claim for credit or refund of an overpayment of the tax imposed by this chapter for such taxable year that is attributable to such amounts. . Section 6511(d)(3) is amended— in subparagraph (A)— by inserting a change in the liability for before any taxes paid or accrued , by striking actually paid and inserting paid (or deemed paid under section 960) , and by inserting before change in the liability for in the heading thereof, and foreign taxes in subparagraph (B), by striking the allowance of a credit for the taxes and inserting the allowance of an additional credit by reason of the change in liability for the taxes . Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2022. The amendments made by subsection
(c)shall apply to taxes paid or accrued in taxable years beginning after December 31, 2022. The amendment made by subsection
(f)shall apply to transactions after the date of the enactment of this Act. The amendment made by subsection
(f)shall not apply to any transaction which is made pursuant to a written binding contract which was in effect on September 13, 2021, and is not modified in any material respect thereafter. Except as otherwise provided in this paragraph, the amendments made by subsection
(g)shall apply to taxes paid or accrued in taxable years beginning after December 31, 2021. The amendments made by subparagraphs
(A)and
(C)of subsection (g)(1) shall apply to changes that occur on or after the date which is 60 days after the date of the enactment of this Act. The amendments made by subsection (g)(3) shall apply to taxes paid, accrued, or deemed paid in taxable years beginning after December 31, 2021. The Secretary shall issue regulations or other guidance providing for the application of subsections (d), (e), (f), and
(g)of section 904 of the Internal Revenue Code of 1986 (as amended by this section) with respect to amounts carried over under subsections (c), (f), or
(g)from a taxable year with respect to which subsection
(e)of such section does not apply to a taxable year with respect to which such subsection
(e)does apply and from a taxable year with respect to which subsection (d)(1)(B) of such section (determined without regard to the amendments made by this section) applies to a taxable year with respect to which such section does not apply.