[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2254 Introduced in House (IH)]
<DOC>
117th CONGRESS
1st Session
H. R. 2254
To amend the Internal Revenue Code of 1986 to modify the treatment of
foreign corporations, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 26, 2021
Ms. Schakowsky introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to modify the treatment of
foreign corporations, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Corporate Tax Dodging Prevention
Act''.
SEC. 2. RESTORATION OF PROGRESSIVE CORPORATE TAX RATE.
(a) In General.--Section 11(b) of the Internal Revenue Code of 1986
is amended to read as follows:
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by
subsection (a) shall be the sum of--
``(A) 15 percent of so much of the taxable income
as does not exceed $50,000,
``(B) 25 percent of so much of the taxable income
as exceeds $50,000 but does not exceed $75,000,
``(C) 34 percent of so much of the taxable income
as exceeds $75,000 but does not exceed $10,000,000, and
``(D) 35 percent of so much of the taxable income
as exceeds $10,000,000.
In the case of a corporation which has taxable income in excess
of $100,000 for any taxable year, the amount of tax determined
under the preceding sentence for such taxable year shall be
increased by the lesser of (i) 5 percent of such excess, or
(ii) $11,750. In the case of a corporation which has taxable
income in excess of $15,000,000, the amount of the tax
determined under the foregoing provisions of this paragraph
shall be increased by an additional amount equal to the lesser
of (i) 3 percent of such excess, or (ii) $100,000.
``(2) Certain personal service corporations not eligible
for graduated rates.--Notwithstanding paragraph (1), the amount
of the tax imposed by subsection (a) on the taxable income of a
qualified personal service corporation (as defined in section
448(d)(2)) shall be equal to 35 percent of the taxable
income.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2021.
SEC. 3. EQUALIZATION OF TAX RATES ON DOMESTIC AND FOREIGN INCOME.
(a) In General.--Section 952 of the Internal Revenue Code of 1986
is amended by adding at the end the following new subsection:
``(e) Special Application of Subpart.--
``(1) In general.--For taxable years beginning after
December 31, 2021, notwithstanding any other provision of this
subpart, the term `subpart F income' means, in the case of any
controlled foreign corporation, the income of such corporation
derived from any foreign country.
``(2) Applicable rules.--Rules similar to the rules under
the last sentence of subsection (a) and subsection (d) shall
apply to this subsection.''.
(b) Treatment of Previously Deferred Foreign Income.--
(1) Treatment of interest.--Section 965(h) of the Internal
Revenue Code of 1986 is amended by adding at the end the
following new paragraph:
``(7) Rules relating to interest.--In the case of any
amount of the net tax liability prorated to an installment
under this subsection which has not been paid before the date
of the enactment of this paragraph, the last date prescribed
for payment of any such installment for purposes of section
6601 shall be the earlier of such last date (determined without
regard to this paragraph) or such date of enactment.''.
(2) Rules for s corporations.--Section 965(i)(2)(A) of such
Code is amended by adding at the end the following new clause:
``(iv) The date of the enactment of the
Corporate Tax Dodging Prevention Act.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2021, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4. COUNTRY-BY-COUNTRY APPLICATION OF LIMITATION ON FOREIGN TAX
CREDIT BASED ON TAXABLE UNITS.
(a) In General.--Section 904 is amended by inserting after
subsection (d) the following new subsection:
``(e) Country-by-Country Application of Section Based on Taxable
Units.--
``(1) In general.--The provisions of subsections (a), (b),
(c), and (d) and sections 907 and 960 shall be applied
separately with respect to each country and possession by
taking into account the aggregate items properly attributable
or otherwise allocable to a taxable unit of the taxpayer which
is a tax resident of such country or possession.
``(2) Taxable units.--
``(A) In general.--Unless otherwise provided by the
Secretary, to the extent an item may be properly
attributable or otherwise allocable to more than one
taxable unit under paragraph (1), such item shall be
treated as properly attributable or otherwise allocable
to the lowest-tier taxable unit of the taxpayer to
which such item may be properly attributable or
otherwise allocable. No item shall be attributable or
otherwise allocable to more than one taxable unit of
the taxpayer.
``(B) Determination of taxable units.--Except as
otherwise provided by the Secretary, the taxable units
of a taxpayer are as follows:
``(i) In general.--The general taxable unit
of the taxpayer which is not otherwise
described in a separate clause of this
subparagraph.
``(ii) Foreign branches.--Each foreign
branch the activities of which are carried on
directly or indirectly (through one or more
pass-through entities) by the taxpayer.
``(iii) Controlled foreign corporations.--
Each controlled foreign corporation with
respect to which the taxpayer is a United
States shareholder.
``(iv) Branches of controlled foreign
corporations.--Each branch the activities of
which are carried on directly or indirectly
(through one or more pass-through entities) by
a controlled foreign corporation referred to in
clause (iii).
``(v) Interests in pass-through entities.--
``(I) In general.--Each interest in
a pass-through entity held directly or
indirectly by the taxpayer or a
controlled foreign corporation referred
to in clause (iii) if such entity is a
tax resident of a foreign country.
``(II) Certain interests held by
controlled foreign corporations.--Each
interest in a pass-through entity held
directly or indirectly by a controlled
foreign corporation referred to in
clause (iii) if such entity is a tax
resident of a foreign country or such
entity is treated as a corporation (or
other entity that is not fiscally
transparent) for purposes of the tax
law of a foreign country in which such
controlled foreign corporation is a tax
resident.
``(3) Tax resident.--For purposes of this subsection, a
taxable unit shall be treated as a tax resident of a country or
possession if such taxable unit is liable to tax under the tax
law of such country or possession as a resident.
``(4) Pass-through entity.--For purposes of this
subsection, the term `pass-through entity' means any
partnership and any other type of entity (other than a
corporation) identified by the Secretary as a pass-through
entity for purposes of this subsection.
``(5) Regulations.--The Secretary shall issue such
regulations or other guidance as the Secretary determines
necessary or appropriate to carry out the purposes of this
subsection, including regulations or other guidance--
``(A) for determining the country or possession
with respect to which any taxable unit is a tax
resident, including--
``(i) determining such country or
possession on the basis of location if such
taxable unit would not otherwise be a tax
resident of any country or possession, and
``(ii) ensuring that such taxable unit is a
tax resident of not more than 1 country or
possession,
``(B) applying this section to hybrid entities,
passive foreign investment companies, tiered
structures, and branches, including branches that do
not give rise to a taxable presence under the tax law
of the country where the branch is located, and
``(C) determining whether any entity is not
fiscally transparent within the meaning of paragraph
(2)(B)(v)(II).''.
(b) Application of Foreign Tax Credit Limitation With Respect to
Foreign Branches.--Section 904(d)(2)(J)(i) is amended--
(1) by striking ``qualified business units (as defined in
section 989(a)) in 1 or more foreign countries'' and inserting
``foreign branches described in section 904(e)(2)(B)(ii)'', and
(2) by striking ``a qualified business unit'' and inserting
``a foreign branch''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2021.
SEC. 5. REPEAL OF CHECK-THE-BOX RULES FOR CERTAIN FOREIGN ENTITIES AND
CFC LOOK-THRU RULES.
(a) Check-the-Box Rules.--Paragraph (3) of section 7701(a) of the
Internal Revenue Code of 1986 is amended--
(1) by striking ``and'', and
(2) by inserting after ``insurance companies'' the
following: ``, and any foreign business entity that has one or
more owners all of which have limited liability.''.
(b) Look-Thru Rule.--Subparagraph (C) of section 954(c)(6) of such
Code is amended to read as follows:
``(C) Termination.--Subparagraph (A) shall not
apply to dividends, interest, rents, and royalties
received or accrued after the date of the enactment of
the Corporate Tax Dodging Prevention Act.''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 6. LIMITATION ON DEDUCTION OF INTEREST BY DOMESTIC CORPORATIONS
WHICH ARE MEMBERS OF AN INTERNATIONAL FINANCIAL REPORTING
GROUP.
(a) In General.--Section 163 of the Internal Revenue Code of 1986
is amended by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new subsection:
``(n) Limitation on Deduction of Interest by Domestic Corporations
in International Financial Reporting Groups.--
``(1) In general.--In the case of any domestic corporation
which is a member of any international financial reporting
group, the deduction under this chapter for interest paid or
accrued during the taxable year shall not exceed the sum of--
``(A) the allowable percentage of 105 percent of
the excess (if any) of--
``(i) the amount of such interest so paid
or accrued, over
``(ii) the amount described in subparagraph
(B), plus
``(B) the amount of interest includible in gross
income of such corporation for such taxable year.
``(2) International financial reporting group.--
``(A) For purposes of this subsection, the term
`international financial reporting group' means, with
respect to any reporting year, any group of entities
which--
``(i) includes--
``(I) at least one foreign
corporation engaged in a trade or
business within the United States, or
``(II) at least one domestic
corporation and one foreign
corporation,
``(ii) prepares consolidated financial
statements with respect to such year, and
``(iii) reports in such statements average
annual gross receipts (determined in the
aggregate with respect to all entities which
are part of such group) for the 3-reporting-
year period ending with such reporting year in
excess of $25,000,000.
``(B) Rules relating to determination of average
gross receipts.--For purposes of subparagraph (A)(iii),
rules similar to the rules of section 448(c)(3) shall
apply.
``(3) Allowable percentage.--For purposes of this
subsection--
``(A) In general.--The term `allowable percentage'
means, with respect to any domestic corporation for any
taxable year, the ratio (expressed as a percentage and
not greater than 100 percent) of--
``(i) such corporation's allocable share of
the international financial reporting group's
reported net interest expense for the reporting
year of such group which ends in or with such
taxable year of such corporation, over
``(ii) such corporation's reported net
interest expense for such reporting year of
such group.
``(B) Reported net interest expense.--The term
`reported net interest expense' means--
``(i) with respect to any international
financial reporting group for any reporting
year, the excess of--
``(I) the aggregate amount of
interest expense reported in such
group's consolidated financial
statements for such taxable year, over
``(II) the aggregate amount of
interest income reported in such
group's consolidated financial
statements for such taxable year, and
``(ii) with respect to any domestic
corporation for any reporting year, the excess
of--
``(I) the amount of interest
expense of such corporation reported in
the books and records of the
international financial reporting group
which are used in preparing such
group's consolidated financial
statements for such taxable year, over
``(II) the amount of interest
income of such corporation reported in
such books and records.
``(C) Allocable share of reported net interest
expense.--With respect to any domestic corporation
which is a member of any international financial
reporting group, such corporation's allocable share of
such group's reported net interest expense for any
reporting year is the portion of such expense which
bears the same ratio to such expense as--
``(i) the EBITDA of such corporation for
such reporting year, bears to
``(ii) the EBITDA of such group for such
reporting year.
``(D) EBITDA.--
``(i) In general.--The term `EBITDA' means,
with respect to any reporting year, earnings
before interest, taxes, depreciation, and
amortization--
``(I) as determined in the
international financial reporting
group's consolidated financial
statements for such year, or
``(II) for purposes of subparagraph
(A)(i), as determined in the books and
records of the international financial
reporting group which are used in
preparing such statements if not
determined in such statements.
``(ii) Treatment of disregarded entities.--
The EBITDA of any domestic corporation shall
not fail to include the EBITDA of any entity
which is disregarded for purposes of this
chapter.
``(iii) Treatment of intra-group
distributions.--The EBITDA of any domestic
corporation shall be determined without regard
to any distribution received by such
corporation from any other member of the
international financial reporting group.
``(E) Special rules for non-positive ebitda.--
``(i) Non-positive group ebitda.--In the
case of any international financial reporting
group the EBITDA of which is zero or less,
paragraph (1) shall not apply to any member of
such group the EBITDA of which is above zero.
``(ii) Non-positive entity ebitda.--In the
case of any group member the EBITDA of which is
zero or less, paragraph (1) shall be applied
without regard to subparagraph (A) thereof.
``(4) Consolidated financial statement.--For purposes of
this subsection, the term `consolidated financial statement'
means any consolidated financial statement described in
paragraph (2)(A)(ii) if such statement is--
``(A) a financial statement which is certified as
being prepared in accordance with generally accepted
accounting principles, international financial
reporting standards, or any other comparable method of
accounting identified by the Secretary, and which is--
``(i) a 10-K (or successor form) or annual
statement to shareholders required to be filed
with the United States Securities and Exchange
Commission,
``(ii) an audited financial statement which
is used for--
``(I) credit purposes,
``(II) reporting to shareholders,
partners, or other proprietors, or to
beneficiaries, or
``(III) any other substantial
nontax purpose,
but only if there is no statement described in
clause (i), or
``(iii) filed with any other Federal or
State agency for nontax purposes, but only if
there is no statement described in clause (i)
or (ii), or
``(B) a financial statement which--
``(i) is used for a purpose described in
subclause (I), (II), or (III) of subparagraph
(A)(ii), or
``(ii) filed with any regulatory or
governmental body (whether domestic or foreign)
specified by the Secretary,
but only if there is no statement described in
subparagraph (A).
``(5) Reporting year.--For purposes of this subsection, the
term `reporting year' means, with respect to any international
financial reporting group, the year with respect to which the
consolidated financial statements are prepared.
``(6) Application to certain entities.--
``(A) Partnerships.--The secretary shall prescribe
rules for application of this subsection to any
partnership which is a member of any international
financial reporting group. Such rules shall treat any
such partnership in a manner similar to the way such
partnership would be treated under this subsection if
it were a domestic corporation which is a member of any
international financial reporting group.
``(B) Foreign corporations engaged in trade or
business within the united states.--Except as otherwise
provided by the Secretary in paragraph (7), any
deduction for interest paid or accrued by a foreign
corporation engaged in a trade or business within the
United States shall be limited in a manner consistent
with the principles of this subsection.
``(C) Consolidated groups.--For purposes of this
subsection, the members of any group that file (or are
required to file) a consolidated return with respect to
the tax imposed by chapter 1 for a taxable year shall
be treated as a single corporation.
``(7) Regulations.--The Secretary may issue such
regulations or other guidance as are necessary or appropriate
to carry out the purposes of this subsection.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 7. MODIFICATIONS TO RULES RELATING TO INVERTED CORPORATIONS.
(a) In General.--Subsection (b) of section 7874 of the Internal
Revenue Code of 1986 is amended to read as follows:
``(b) Inverted Corporations Treated as Domestic Corporations.--
``(1) In general.--Notwithstanding section 7701(a)(4), a
foreign corporation shall be treated for purposes of this title
as a domestic corporation if--
``(A) such corporation would be a surrogate foreign
corporation if subsection (a)(2) were applied by
substituting `80 percent' for `60 percent', or
``(B) such corporation is an inverted domestic
corporation.
``(2) Inverted domestic corporation.--For purposes of this
subsection, a foreign corporation shall be treated as an
inverted domestic corporation if, pursuant to a plan (or a
series of related transactions)--
``(A) the entity completes after May 8, 2014, the
direct or indirect acquisition of--
``(i) substantially all of the properties
held directly or indirectly by a domestic
corporation, or
``(ii) substantially all of the assets of,
or substantially all of the properties
constituting a trade or business of, a domestic
partnership, and
``(B) after the acquisition, more than 50 percent
of the stock (by vote or value) of the entity is held--
``(i) in the case of an acquisition with
respect to a domestic corporation, by former
shareholders of the domestic corporation by
reason of holding stock in the domestic
corporation, or
``(ii) in the case of an acquisition with
respect to a domestic partnership, by former
partners of the domestic partnership by reason
of holding a capital or profits interest in the
domestic partnership.
``(3) Exception for corporations with substantial business
activities in foreign country of organization.--A foreign
corporation described in paragraph (2) shall not be treated as
an inverted domestic corporation if after the acquisition the
expanded affiliated group which includes the entity has
substantial business activities in the foreign country in which
or under the law of which the entity is created or organized
when compared to the total business activities of such expanded
affiliated group. For purposes of subsection (a)(2)(B)(iii) and
the preceding sentence, the term `substantial business
activities' shall have the meaning given such term under
regulations in effect on May 8, 2014, except that the Secretary
may issue regulations increasing the threshold percent in any
of the tests under such regulations for determining if business
activities constitute substantial business activities for
purposes of this paragraph.''.
(b) Conforming Amendments.--
(1) Clause (i) of section 7874(a)(2)(B) of the Internal
Revenue Code of 1986 is amended by striking ``after March 4,
2003,'' and inserting ``after March 4, 2003, and before May 9,
2014,''.
(2) Subsection (c) of section 7874 of such Code is
amended--
(A) in paragraph (2)--
(i) by striking ``subsection
(a)(2)(B)(ii)'' and inserting ``subsections
(a)(2)(B)(ii) and (b)(2)(B)'', and
(ii) by inserting ``or (b)(2)(A)'' after
``(a)(2)(B)(i)'' in subparagraph (B),
(B) in paragraph (3), by inserting ``or (b)(2)(B),
as the case may be,'' after ``(a)(2)(B)(ii)'',
(C) in paragraph (5), by striking ``subsection
(a)(2)(B)(ii)'' and inserting ``subsections
(a)(2)(B)(ii) and (b)(2)(B)'', and
(D) in paragraph (6), by inserting ``or inverted
domestic corporation, as the case may be,'' after
``surrogate foreign corporation''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years ending after May 8, 2014.
SEC. 8. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN THE
UNITED STATES AS DOMESTIC CORPORATIONS.
(a) In General.--Section 7701 of the Internal Revenue Code of 1986
is amended by redesignating subsection (p) as subsection (q) and by
inserting after subsection (o) the following new subsection:
``(p) Certain Corporations Managed and Controlled in the United
States Treated as Domestic for Income Tax.--
``(1) In general.--Notwithstanding subsection (a)(4), in
the case of a corporation described in paragraph (2) if--
``(A) the corporation would not otherwise be
treated as a domestic corporation for purposes of this
title, but
``(B) the management and control of the corporation
occurs, directly or indirectly, primarily within the
United States,
then, solely for purposes of chapter 1 (and any other provision
of this title relating to chapter 1), the corporation shall be
treated as a domestic corporation.
``(2) Corporation described.--
``(A) In general.--A corporation is described in
this paragraph if--
``(i) the stock of such corporation is
regularly traded on an established securities
market, or
``(ii) the aggregate gross assets of such
corporation (or any predecessor thereof),
including assets under management for
investors, whether held directly or indirectly,
at any time during the taxable year or any
preceding taxable year is $50,000,000 or more.
``(B) General exception.--A corporation shall not
be treated as described in this paragraph if--
``(i) such corporation was treated as a
corporation described in this paragraph in a
preceding taxable year,
``(ii) such corporation--
``(I) is not regularly traded on an
established securities market, and
``(II) has, and is reasonably
expected to continue to have, aggregate
gross assets (including assets under
management for investors, whether held
directly or indirectly) of less than
$50,000,000, and
``(iii) the Secretary grants a waiver to
such corporation under this subparagraph.
``(3) Management and control.--
``(A) In general.--The Secretary shall prescribe
regulations for purposes of determining cases in which
the management and control of a corporation is to be
treated as occurring primarily within the United
States.
``(B) Executive officers and senior management.--
Such regulations shall provide that--
``(i) the management and control of a
corporation shall be treated as occurring
primarily within the United States if
substantially all of the executive officers and
senior management of the corporation who
exercise day-to-day responsibility for making
decisions involving strategic, financial, and
operational policies of the corporation are
located primarily within the United States, and
``(ii) individuals who are not executive
officers and senior management of the
corporation (including individuals who are
officers or employees of other corporations in
the same chain of corporations as the
corporation) shall be treated as executive
officers and senior management if such
individuals exercise the day-to-day
responsibilities of the corporation described
in clause (i).
``(C) Corporations primarily holding investment
assets.--Such regulations shall also provide that the
management and control of a corporation shall be
treated as occurring primarily within the United States
if--
``(i) the assets of such corporation
(directly or indirectly) consist primarily of
assets being managed on behalf of investors,
and
``(ii) decisions about how to invest the
assets are made in the United States.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning on or after the date which is 2 years
after the date of the enactment of this Act.
SEC. 9. MODIFICATIONS TO BASE EROSION AND ANTI-ABUSE TAX.
(a) Acceleration of Modifications.--Section 59A(b) of the Internal
Revenue Code of 1986 is amended--
(1) in paragraph (1)(A), by striking ``10 percent (5
percent in the case of taxable years beginning in calendar year
2018)'' and inserting ``12.5 percent'',
(2) in paragraph (1)(B), by striking ``by the excess of''
and all that follows and inserting ``by the aggregate amount of
the credits allowed under this chapter against such regular tax
liability.'',
(3) by striking paragraphs (2) and (4) and redesignating
paragraph (3) as paragraph (2), and
(4) in paragraph (2)(A) (as so redesignated), by striking
``paragraphs (1)(A) and (2)(A) shall each'' and inserting
``paragraph (1)(A) shall''.
(b) Modifications to Definition of Applicable Taxpayer.--Section
59A(e)(1) of the Internal Revenue Code of 1986 is amended--
(1) by striking ``$500,000,000'' in subparagraph (B) and
inserting ``$25,000,000'', and
(2) by inserting ``and'' at the end of subparagraph (A), by
striking ``, and'' at the end of subparagraph (B) and inserting
a period, and by striking subparagraph (C).
(c) Exceptions to Definition of Base Erosion Payment.--Section
59A(d) of the Internal Revenue Code of 1986 is amended by adding at the
end the following new paragraph:
``(6) Exception for certain payments includible in gross
income of payee.--
``(A) In general.--Paragraph (1) shall not apply to
any portion of an amount--
``(i) which is paid or accrued by the
taxpayer to a foreign person who is a member of
the same controlled group of corporations as
the taxpayer, and
``(ii) which--
``(I) is treated by the foreign
person as an amount of income from
sources within the United States which
is effectively connected with the
conduct by such person of a trade or
business within the United States, or
``(II) if the foreign person is a
controlled foreign corporation, is
included in the income of a United
States shareholder of such controlled
foreign corporation under section
951(a).
``(B) Controlled group of corporations.--For
purposes of this paragraph, the term `controlled group
of corporations' has the same meaning given to such
term by section 1563(a), except that--
``(i) `more than 50 percent' shall be
substituted for `at least 80 percent' each
place it appears in section 1563(a)(1), and
``(ii) the determination shall be made
without regard to subsections (a)(4),
(b)(2)(C), and (e)(3)(C) of section 1563.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning in calendar years beginning after the
date of the enactment of this Act.
SEC. 10. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO OIL,
GAS, MINING, GAMBLING AND OTHER INDUSTRY TAXPAYERS
RECEIVING SPECIFIC ECONOMIC BENEFITS.
(a) In General.--Section 901 of the Internal Revenue Code of 1986
is amended by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new subsection:
``(n) Special Rules Relating to Dual Capacity Taxpayers.--
``(1) General rule.--Notwithstanding any other provision of
this chapter, any amount paid or accrued by a dual capacity
taxpayer to a foreign country or possession of the United
States for any period shall not be considered a tax--
``(A) if, for such period, the foreign country or
possession does not impose a generally applicable
income tax, or
``(B) to the extent such amount exceeds the amount
(determined in accordance with regulations) which--
``(i) is paid by such dual capacity
taxpayer pursuant to the generally applicable
income tax imposed by the country or
possession, or
``(ii) would be paid if the generally
applicable income tax imposed by the country or
possession were applicable to such dual
capacity taxpayer.
Nothing in this paragraph shall be construed to imply
the proper treatment of any such amount not in excess
of the amount determined under subparagraph (B).
``(2) Dual capacity taxpayer.--For purposes of this
subsection, the term `dual capacity taxpayer' means, with
respect to any foreign country or possession of the United
States, a person who--
``(A) is subject to a levy of such country or
possession, and
``(B) receives (or will receive) directly or
indirectly a specific economic benefit (as determined
in accordance with regulations) from such country or
possession.
``(3) Generally applicable income tax.--For purposes of
this subsection--
``(A) In general.--The term `generally applicable
income tax' means an income tax (or a series of income
taxes) which is generally imposed under the laws of a
foreign country or possession on income derived from
the conduct of a trade or business within such country
or possession.
``(B) Exceptions.--Such term shall not include a
tax unless it has substantial application, by its terms
and in practice, to--
``(i) persons who are not dual capacity
taxpayers, and
``(ii) persons who are citizens or
residents of the foreign country or
possession.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxes paid or accrued in taxable years beginning after the
date of the enactment of this Act.
(c) Special Rule for Treaties.--Notwithstanding sections 894 or
7852(d) of the Internal Revenue Code of 1986, the amendments made by
this section shall apply without regard to any treaty obligation of the
United States.
SEC. 11. LIMITATIONS ON TREATY BENEFITS.
(a) Limitation for Certain Deductible Payments.--Section 894 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new subsection:
``(d) Limitation on Treaty Benefits for Certain Deductible
Payments.--
``(1) In general.--In the case of any deductible related-
party payment, any withholding tax imposed under chapter 3 (and
any tax imposed under subpart A or B of this part) with respect
to such payment may not be reduced under any treaty of the
United States unless any such withholding tax would be reduced
under a treaty of the United States if such payment were made
directly to the foreign parent corporation.
``(2) Deductible related-party payment.--For purposes of
this subsection, the term `deductible related-party payment'
means any payment made, directly or indirectly, by any person
to any other person if the payment is allowable as a deduction
under this chapter and both persons are members of the same
foreign controlled group of entities.
``(3) Foreign controlled group of entities.--For purposes
of this subsection--
``(A) In general.--The term `foreign controlled
group of entities' means a controlled group of entities
the common parent of which is a foreign corporation.
``(B) Controlled group of entities.--The term
`controlled group of entities' means a controlled group
of corporations as defined in section 1563(a)(1),
except that--
``(i) `more than 50 percent' shall be
substituted for `at least 80 percent' each
place it appears therein, and
``(ii) the determination shall be made
without regard to subsections (a)(4) and (b)(2)
of section 1563.
A partnership or any other entity (other than a
corporation) shall be treated as a member of a
controlled group of entities if such entity is
controlled (within the meaning of section 954(d)(3)) by
members of such group (including any entity treated as
a member of such group by reason of this sentence).
``(4) Foreign parent corporation.--For purposes of this
subsection, the term `foreign parent corporation' means, with
respect to any deductible related-party payment, the common
parent of the foreign controlled group of entities referred to
in paragraph (3)(A).
``(5) Regulations.--The Secretary may prescribe such
regulations or other guidance as are necessary or appropriate
to carry out the purposes of this subsection, including
regulations or other guidance which provide for--
``(A) the treatment of two or more persons as
members of a foreign controlled group of entities if
such persons would be the common parent of such group
if treated as one corporation, and
``(B) the treatment of any member of a foreign
controlled group of entities as the common parent of
such group if such treatment is appropriate taking into
account the economic relationships among such
entities.''.
(b) Limitation for Certain Income Attributable to Permanent
Establishments in a Third Country.--Section 894 of such Code, as
amended by subsection (a), is amended by adding at the end the
following new subsection:
``(e) Denial of Treaty Benefits With Respect to Certain Income
Attributable to a Permanent Establishment in a Third Country.--A
foreign person shall not be entitled under any income tax treaty of the
United States with a foreign country to any exemption from, or
reduction of, any tax with respect to income if--
``(1) such income is income from sources within the United
States, and
``(2) such income is attributable to a permanent
establishment which is outside of such foreign country and--
``(A) the profits of which are subject to a
combined aggregate effective rate of tax in such
foreign country and the country of the permanent
establishment that is less than the lesser of--
``(i) 15 percent, or
``(ii) 60 percent of the general statutory
rate of tax on income on corporations in such
foreign country, or
``(B) which is located in a foreign country with
which the United States does not have an income tax
treaty and is not taxed by the foreign country which is
a party to the treaty.''.
(c) Effective Date.--The amendments made by this section shall
apply to payments made after the date of the enactment of this Act.
(d) Special Rule for Treaties.--Notwithstanding sections 894 or
7852(d) of the Internal Revenue Code of 1986, the amendments made by
this section shall apply without regard to any treaty obligation of the
United States.
SEC. 12. REPEAL OF DEDUCTION FOR FOREIGN-DERIVED INTANGIBLE INCOME.
(a) In General.--Part VIII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 is amended by striking section 250 (and
the item related to such section in the table of sections for such
part).
(b) Conforming Amendments.--
(1) Section 172(d) of the Internal Revenue Code of 1986 is
amended by striking paragraph (9).
(2) Section 246 of such Code is amended--
(A) by striking the comma after ``section
243(a)(1)'' the first place it appears and inserting
``and'' and by striking ``and section 250'', and
(B) by insert after ``section 243(a)(1)'' the
second place it appears and by striking ``, and 250''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2021.
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