To amend the Internal Revenue Code of 1986 to repeal the exclusion for extraterritorial income and provide for a deduction relating to income attributable to United States production activities, and for other purposes.

September 30 (legislative day, SEPTEMBER 29), 2003

Mr. ROCKEFELLER introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to repeal the exclusion for extraterritorial income and provide for a deduction relating to income attributable to United States production activities, 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; AMENDMENT OF 1986 CODE.

(a) SHORT TITLE- This Act may be cited as the `Securing American Factory Employment (SAFE) Act'.

(b) Amendment of 1986 Code- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME

SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

(a) IN GENERAL- Section 114 is hereby repealed.

(b) CONFORMING AMENDMENTS-

(1)(A) Subpart E of part III of subchapter N of chapter 1 (relating to qualifying foreign trade income) is hereby repealed.

(B) The table of subparts for such part III is amended by striking the item relating to subpart E.

(2) The table of sections for part III of subchapter B of chapter 1 is amended by striking the item relating to section 114.

(3) The second sentence of section 56(g)(4)(B)(i) is amended by striking `or under section 114'.

(4) Section 275(a) is amended--

(A) by inserting `or' at the end of paragraph (4)(A), by striking `or' at the end of paragraph (4)(B) and inserting a period, and by striking subparagraph (C), and

(B) by striking the last sentence.

(5) Paragraph (3) of section 864(e) is amended--

(A) by striking:

`(3) TAX-EXEMPT ASSETS NOT TAKEN INTO ACCOUNT-

`(A) IN GENERAL- For purposes of'; and inserting:

`(3) TAX-EXEMPT ASSETS NOT TAKEN INTO ACCOUNT- For purposes of', and

(B) by striking subparagraph (B).

(6) Section 903 is amended by striking `114, 164(a),' and inserting `164(a)'.

(7) Section 999(c)(1) is amended by striking `941(a)(5),'.

(c) EFFECTIVE DATE-

(1) IN GENERAL- The amendments made by this section shall apply to transactions occurring after the date of the enactment of this Act.

(2) BINDING CONTRACTS- The amendments made by this section shall not apply to any transaction in the ordinary course of a trade or business which occurs pursuant to a binding contract--

(A) which is between the taxpayer and a person who is not a related person (as defined in section 943(b)(3) of such Code, as in effect on the day before the date of the enactment of this Act), and

(B) which is in effect on September 17, 2003, and at all times thereafter.

(d) REVOCATION OF SECTION 943(e) ELECTIONS-

(1) IN GENERAL- In the case of a corporation that elected to be treated as a domestic corporation under section 943(e) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act)--

(A) the corporation may, during the 1-year period beginning on the date of the enactment of this Act, revoke such election, effective as of such date of enactment, and

(B) if the corporation does revoke such election--

(i) such corporation shall be treated as a domestic corporation transferring (as of such date of enactment) all of its property to a foreign corporation in connection with an exchange described in section 354 of such Code, and

(ii) no gain or loss shall be recognized on such transfer.

(2) EXCEPTION- Subparagraph (B)(ii) of paragraph (1) shall not apply to gain on any asset held by the revoking corporation if--

(A) the basis of such asset is determined in whole or in part by reference to the basis of such asset in the hands of the person from whom the revoking corporation acquired such asset,

(B) the asset was acquired by transfer (not as a result of the election under section 943(e) of such Code) occurring on or after the 1st day on which its election under section 943(e) of such Code was effective, and

(C) a principal purpose of the acquisition was the reduction or avoidance of tax (other than a reduction in tax under section 114 of such Code, as in effect on the day before the date of the enactment of this Act).

(e) GENERAL TRANSITION-

(1) IN GENERAL- In the case of a taxable year ending after the date of the enactment of this Act and beginning before January 1, 2007, for purposes of chapter 1 of such Code, a current FSC/ETI beneficiary shall be allowed a deduction equal to the transition amount determined under this subsection with respect to such beneficiary for such year.

(2) CURRENT FSC/ETI BENEFICIARY- The term `current FSC/ETI beneficiary' means any corporation which entered into one or more transactions during its taxable year beginning in calendar year 2002 with respect to which FSC/ETI benefits were allowable.

(3) TRANSITION AMOUNT- For purposes of this subsection--

(A) IN GENERAL- The transition amount applicable to any current FSC/ETI beneficiary for any taxable year is the phaseout percentage of the base period amount.

(B) PHASEOUT PERCENTAGE-

(i) IN GENERAL- In the case of a taxpayer using the calendar year as its taxable year, the phaseout percentage shall be determined under the following table:

80

80

60.

(ii) SPECIAL RULE FOR 2003- The phaseout percentage for 2003 shall be the amount that bears the same ratio to 100 percent as the number of days after the date of the enactment of this Act bears to 365.

(iii) SPECIAL RULE FOR FISCAL YEAR TAXPAYERS- In the case of a taxpayer not using the calendar year as its taxable year, the phaseout percentage is the weighted average of the phaseout percentages determined under the preceding provisions of this paragraph with respect to calendar years any portion of which is included in the taxpayer's taxable year. The weighted average shall be determined on the basis of the respective portions of the taxable year in each calendar year.

(4) BASE PERIOD AMOUNT- For purposes of this subsection, the base period amount is the aggregate FSC/ETI benefits for the taxpayer's taxable year beginning in calendar year 2002.

(5) FSC/ETI BENEFIT- For purposes of this subsection, the term `FSC/ETI benefit' means--

(A) amounts excludable from gross income under section 114 of such Code, and

(B) the exempt foreign trade income of related foreign sales corporations from property acquired from the taxpayer (determined without regard to section 923(a)(5) of such Code (relating to special rule for military property), as in effect on the day before the date of the enactment of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000).

In determining the FSC/ETI benefit there shall be excluded any amount attributable to a transaction with respect to which the taxpayer is the lessor unless the leased property was manufactured or produced in whole or in part by the taxpayer.

(6) SPECIAL RULE FOR FARM COOPERATIVES- Determinations under this subsection with respect to an organization described in section 943(g)(1) of such Code, as in effect on the day before the date of the enactment of this Act, shall be made at the cooperative level and the purposes of this subsection shall be carried out in a manner similar to section 250(h) of such Code, as added by this Act. Such determinations shall be in accordance with such requirements and procedures as the Secretary may prescribe.

(7) CERTAIN RULES TO APPLY- Rules similar to the rules of section 41(f) of such Code shall apply for purposes of this subsection.

(8) COORDINATION WITH BINDING CONTRACT RULE- The deduction determined under paragraph (1) for any taxable year shall be reduced by the phaseout percentage of any FSC/ETI benefit realized for the taxable year by reason of subsection (c)(2), except that for purposes of this paragraph the phaseout percentage for 2003 shall be treated as being equal to 100 percent.

(9) SPECIAL RULE FOR TAXABLE YEAR WHICH INCLUDES DATE OF ENACTMENT- In the case of a taxable year which includes the date of the enactment of this Act, the deduction allowed under this subsection to any current FSC/ETI beneficiary shall in no event exceed--

(A) 100 percent of such beneficiary's base period amount for calendar year 2003, reduced by

(B) the aggregate FSC/ETI benefits of such beneficiary with respect to transactions occurring during the portion of the taxable year ending on the date of the enactment of this Act.

SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES PRODUCTION ACTIVITIES.

(a) IN GENERAL- Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding at the end the following new section:

`SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

`(a) IN GENERAL- There shall be allowed as a deduction an amount equal to 9 percent of the qualified production activities income of the taxpayer for the taxable year.

`(b) PHASEIN- In the case of taxable years beginning in 2004, 2005, 2006, 2007, or 2008, subsection (a) shall be applied by substituting for the `9 percent' the transition percentage determined under the following table:

1

2

3

6.

`(c) QUALIFIED PRODUCTION ACTIVITIES INCOME- For purposes of this section, the term `qualified production activities income' means an amount equal to the portion of the modified taxable income of the taxpayer which is attributable to domestic production activities.

`(d) DETERMINATION OF INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES- For purposes of this section--

`(1) IN GENERAL- The portion of the modified taxable income which is attributable to domestic production activities is so much of the modified taxable income for the taxable year as does not exceed--

`(A) the taxpayer's domestic production gross receipts for such taxable year, reduced by

`(B) the sum of--

`(i) the costs of goods sold that are allocable to such receipts,

`(ii) other deductions, expenses, or losses directly allocable to such receipts, and

`(iii) a proper share of other deductions, expenses, and losses that are not directly allocable to such receipts or another class of income.

`(2) ALLOCATION METHOD- The Secretary shall prescribe rules for the proper allocation of items of income, deduction, expense, and loss for purposes of determining income attributable to domestic production activities.

`(3) SPECIAL RULES FOR DETERMINING COSTS-

`(A) IN GENERAL- For purposes of determining costs under clause (i) of paragraph (1)(B), any item or service brought into the United States without a transfer price meeting the requirements of section 482 shall be treated as acquired by purchase, and its cost shall be treated as not less than its value when it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic production gross receipts.

`(B) EXPORTS FOR FURTHER MANUFACTURE- In the case of any property described in subparagraph (A) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under subparagraph (A) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.

`(4) MODIFIED TAXABLE INCOME- The term `modified taxable income' means taxable income computed without regard to the deduction allowable under this section.

`(e) DOMESTIC PRODUCTION GROSS RECEIPTS- For purposes of this section, the term `domestic production gross receipts' means the gross receipts of the taxpayer which are derived from--

`(1) any sale, exchange, or other disposition of, or

`(2) any lease, rental, or license of,

qualifying production property which was manufactured, produced, grown, or extracted in whole or in significant part by the taxpayer within the United States.

`(f) QUALIFYING PRODUCTION PROPERTY- For purposes of this section--

`(1) IN GENERAL- Except as otherwise provided in this paragraph, the term `qualifying production property' means--

`(A) any tangible personal property,

`(B) any computer software, and

`(C) any property described in section 168(f) (3) or (4).

`(2) EXCLUSIONS FROM QUALIFYING PRODUCTION PROPERTY- The term `qualifying production property' shall not include--

`(A) consumable property that is sold, leased, or licensed by the taxpayer as an integral part of the provision of services,

`(B) electricity,

`(C) water supplied by pipeline to the consumer,

`(D) utility services, or

`(E) any property (not described in paragraph (1)(B)) which is a film, tape, recording, book, magazine, newspaper, or similar property the market for which is primarily topical or otherwise essentially transitory in nature.

`(g) DEFINITIONS AND SPECIAL RULES-

`(1) TREATMENT OF PASS-THRU ENTITIES- The Secretary shall prescribe rules for the proper application of this section in the case of pass-thru entities other than cooperatives to which paragraph (2) applies and subchapter S corporations.

`(2) EXCLUSION FOR PATRONS OF COOPERATIVES-

`(A) IN GENERAL- If any amount described in paragraph (1) or (3) of section 1385 (a)--

`(i) is received by a person from an organization to which part I of subchapter T applies, and

`(ii) is allocable to the portion of the qualified production activities income of the organization which is deductible under subsection (a) and designated as such by the organization in a written notice mailed to its patrons during the payment period described in section 1382(a),

then such person shall be allowed an exclusion from gross income with respect to such amount. The taxable income of the organization shall not be reduced under section 1382 by the portion of any such amount with respect to which an exclusion is allowable to a person by reason of this paragraph.

`(B) SPECIAL RULES- For purposes of applying subparagraph (A), in determining the qualified production activities income of the organization under this section--

`(i) there shall not be taken into account in computing the organization's modified taxable income any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions), and

`(ii) the organization shall be treated as having manufactured, produced, grown, or extracted in whole or significant part any qualifying production property marketed by the organization which its patrons have so manufactured, produced, grown, or extracted.

`(3) COORDINATION WITH MINIMUM TAX- The deduction under this section shall be allowed for purposes of the tax imposed by section 55; except that for purposes of section 55, alternative minimum taxable income shall be taken into account in determining the deduction under this section.

`(4) ORDERING RULE- The amount of any other deduction allowable under this chapter shall be determined as if this section had not been enacted.

`(5) COORDINATION WITH TRANSITION RULES- For purposes of this section--

`(A) domestic production gross receipts shall not include gross receipts from any transaction if the binding contract transition relief of section 101(c)(2) of the Securing American Factory Employment (SAFE) Act applies to such transaction, and

`(B) any deduction allowed under section 101(e) of such Act shall be disregarded in determining the portion of the taxable income which is attributable to domestic production gross receipts.'.

(b) DEDUCTION ALLOWED TO SHAREHOLDERS OF S CORPORATIONS-

(1) IN GENERAL- Section 1363(b) (relating to computation of S corporation's taxable income) is amended by striking `and' at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting `, and', and by adding at the end the following new paragraph:

`(5) the deduction under section 199 shall be allowed to the S corporation.'

(2) INCREASE IN BASIS- Section 1367(a)(1) (relating to increases in basis) is amended by striking `and' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting `, and', and by adding at the end the following new subparagraph:

`(D) any deduction allowed under section 199.'

(c) MINIMUM TAX- Section 56(g)(4)(C) (relating to disallowance of items not deductible in computing earnings and profits) is amended by adding at the end the following new clause:

`(v) DEDUCTION FOR DOMESTIC PRODUCTION- Clause (i) shall not apply to any amount allowable as a deduction under section 199.'

(d) CLERICAL AMENDMENT- The table of sections for part VI of subchapter B of chapter 1 is amended by adding at the end the following new item:

`Sec. 199. Income attributable to domestic production activities.'

(e) EFFECTIVE DATE-

(1) IN GENERAL- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

(2) APPLICATION OF SECTION 15- Section 15 of the Internal Revenue Code of 1986 shall apply to the amendments made by this section as if they were changes in a rate of tax.

TITLE II--EMPLOYER-PROVIDED RETIRED EMPLOYEE HEALTH CARE TAX CREDIT

SEC. 201. TAX CREDIT FOR 75 PERCENT OF EMPLOYER-PROVIDED RETIRED EMPLOYEE HEALTH PREMIUMS.

(a) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 (relating to business-related credits) is amended by adding at the end the following:

`SEC. 45G. RETIRED EMPLOYEE HEALTH INSURANCE EXPENSES.

`(a) GENERAL RULE- For purposes of section 38, in the case of a qualified employer, the retired employee health insurance expenses credit determined under this section is an amount equal to 75 percent of the amount paid by the taxpayer during the taxable year for qualified retired employee health insurance expenses.

`(b) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) QUALIFIED EMPLOYER- The term `qualified employer' means any employer which is eligible for the deduction allowable under section 199 for the taxable year.

`(2) QUALIFIED RETIRED EMPLOYEE HEALTH INSURANCE EXPENSES-

`(A) IN GENERAL- The term `qualified retired employee health insurance expenses' means any amount paid by an employer for health insurance coverage to the extent such amount is attributable to coverage provided to any retired employee and such retired employee's spouse and dependents.

`(B) EXCEPTION FOR AMOUNTS PAID UNDER SALARY REDUCTION ARRANGEMENTS- No amount paid or incurred for health insurance coverage pursuant to a salary reduction arrangement shall be taken into account under subparagraph (A).

`(C) HEALTH INSURANCE COVERAGE- The term `health insurance coverage' has the meaning given such term by paragraph (1) of section 9832(b) (determined by disregarding the last sentence of paragraph (2) of such section).

`(3) RETIRED EMPLOYEE--The term `retired employee' means an individual who has met any years of service or disability requirements under an employee benefit plan of the employer.

`(c) CERTAIN RULES MADE APPLICABLE- For purposes of this section, rules similar to the rules of section 52 shall apply.

`(d) DENIAL OF DOUBLE BENEFIT- No deduction or credit under any other provision of this chapter shall be allowed with respect to qualified retired employee health insurance expenses taken into account under subsection (a).

`(e) TERMINATION- This section shall not apply to taxable years beginning after December 31, 2003.'.

(b) CREDIT TO BE PART OF GENERAL BUSINESS CREDIT- Section 38(b) (relating to current year business credit) is amended by striking `plus' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting `, plus', and by adding at the end the following:

`(16) the retired employee health insurance expenses credit determined under section 45G.'.

(c) NO CARRYBACKS- Subsection (d) of section 39 (relating to carryback and carryforward of unused credits) is amended by adding at the end the following:

`(11) NO CARRYBACK OF SECTION 45G CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the retired employee health insurance expenses credit determined under section 45G may be carried back to a taxable year ending before the date of the enactment of section 45G.'.

(d) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following:

`Sec. 45G. Retired employee health insurance expenses.'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2003.

TITLE III--AMENDMENTS TO TITLE VII OF THE TARIFF ACT OF 1930

SEC. 301. CAPTIVE PRODUCTION.

Section 771(7)(C)(iv) of the Tariff Act of 1930 (19 U.S.C. 1677(7)(C)(iv)) is amended to read as follows:

`(iv) CAPTIVE PRODUCTION- If domestic producers transfer internally, including to affiliated persons as defined in paragraph (33), significant production of the domestic like product for the production of a downstream article and sell significant production of the domestic like product in the merchant market, then the Commission, in determining market share and the factors affecting financial performance set forth in clause (iii), shall focus primarily on the merchant market for the domestic like product.'.

SEC. 302. PRICE.

Section 771(7)(C)(ii) of the Tariff Act of 1930 (19 U.S.C. 1677(7)(C)(ii)) is amended by adding at the end the following flush sentence:

`Imports of the subject merchandise may have a significant effect on prices irrespective of whether the magnitude of, or change in the volume of, imports of the subject merchandise is significant.'.

SEC. 303. VULNERABILITY OF INDUSTRY.

Section 771(7)(C)(iii) of the Tariff Act of 1930 (19 U.S.C. 1677(7)(C)(iii)) is amended in the last sentence by striking the period at the end and inserting `, including whether the industry is vulnerable to the effects of imports of the subject merchandise.'.

SEC. 304. CAUSAL RELATIONSHIP BETWEEN IMPORTS AND INJURY.

Section 771(7)(E)(ii) of the Tariff Act of 1930 (19 U.S.C. 1677(7)(E)(ii)) is amended by adding at the end the following: `The Commission need not determine the significance of imports of the subject merchandise relative to other economic factors.'.

SEC. 305. PREVENTION OF CIRCUMVENTION.

Section 781(c) of the Tariff Act of 1930 (19 U.S.C. 1677j(c)) is amended by adding at the end the following new paragraph:

`(3) SPECIAL RULE- The administering authority shall apply paragraph (1) with respect to altered merchandise excluded from, or not specifically included in, the merchandise description used in an outstanding order or finding, if such application is not inconsistent with the affirmative determination of the Commission on which the order or finding is based.'.

SEC. 306. FULL RECOGNITION OF SUBSIDY CONFERRED THROUGH PROVISION OF GOODS AND SERVICES AND PURCHASE OF GOODS.

Section 771(5)(E) of the Tariff Act of 1930 (19 U.S.C. 1677(5)(E)) is amended by adding at the end the following: `If transactions in the country which is the subject of the investigation or review do not reflect market conditions due to government action associated with provision of the good or service or purchase of the goods, determination of the adequacy of remuneration shall be through comparison with the most comparable market price elsewhere in the world.'.

SEC. 307. PROHIBITION ON MASKING REIMBURSEMENT OF DUTIES.

Section 772(d) of the Tariff Act of 1930 (19 U.S.C. 1677a(d)) is amended--

(1) by striking `and' at the end of paragraph (2);

(2) by striking the period at the end of paragraph (3) and inserting `; and'; and

(3) by adding at the end the following new paragraphs:

`(4) if the importer is the producer or exporter, or the importer and the producer or exporter are affiliated persons, an amount equal to the dumping margin calculated under section 771(35)(A), unless the producer or exporter is able to demonstrate that the importer was in no way reimbursed for any antidumping duties paid; and

`(5) if the importer is the producer or exporter, or the importer and the producer or exporter are affiliated persons, an amount equal to the net countervailable subsidy calculated under section 771(6), unless the producer or exporter is able to demonstrate that the importer was in no way reimbursed for any countervailing duties paid.'.

SEC. 308. EXPORT PRICE AND CONSTRUCTED EXPORT PRICE.

Section 772(c)(2)(A) of the Tariff Act of 1930 (19 U.S.C. 1677a(c)(2)(A)) is amended by inserting `(including countervailing duties imposed under this title)' after `duties'.

SEC. 309. APPLICATION TO CANADA AND MEXICO.

Pursuant to article 1902 of the North American Free Trade Agreement and section 408 of the North American Free Trade Agreement Implementation Act, the amendments made by this title shall apply with respect to goods from Canada and Mexico.

SEC. 310. EFFECTIVE DATE.

The amendments made by this title shall apply with respect to determinations made under title VII of the Tariff Act of 1930 that--

(1) are made with respect to investigations initiated or petitions filed after the date of enactment of this Act; or

(2) have not become final as of such date of enactment.

END