109th CONGRESS
2d Session

H. R. 6288

To amend the Internal Revenue Code of 1986 to improve the rules relating to income earned abroad.

IN THE HOUSE OF REPRESENTATIVES

September 29, 2006

Mr. SAM JOHNSON of Texas 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 improve the rules relating to income earned abroad.

    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; TABLE OF CONTENTS.

    (a) Short Title- This Act may be cited as the `International Tax Simplification Act of 2006'.

    (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.

    (c) Table of Contents- The table of contents for this Act is as follows:

      Sec. 1. Short title; amendment of 1986 Code; table of contents.

      Sec. 2. Permanent Subpart F exemption for active financing income.

      Sec. 3. Permanent look-thru rule for related controlled foreign corporations.

      Sec. 4. Repeal of foreign base company sales and services income rules.

      Sec. 5. Repeal of foreign base company oil related income rules.

      Sec. 6. Repeal of special rules for applying foreign tax credit in case of foreign oil and gas income.

      Sec. 7. Extension of carryforward period for excess foreign taxes.

      Sec. 8. Subpart F earnings and profits determined under generally accepted accounting principles.

      Sec. 9. Acceleration of election to allocate interest on a worldwide basis.

      Sec. 10. Expansion of de minimis rule under subpart F.

SEC. 2. PERMANENT SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME.

    (a) Exempt Insurance Income- Paragraph (10) of section 953(e) is amended--

      (1) by striking `and before January 1, 2009,', and

      (2) by striking the second sentence.

    (b) Foreign Personal Holding Company Income- Paragraph (9) of section 954(h) is amended by striking `and before January 1, 2009,'.

SEC. 3. PERMANENT LOOK-THRU RULE FOR RELATED CONTROLLED FOREIGN CORPORATIONS.

    Subparagraph (B) of section 954(c)(6) (relating to application) is amended by striking `and before January 1, 2009,'.

SEC. 4. REPEAL OF FOREIGN BASE COMPANY SALES AND SERVICES INCOME RULES.

    (a) In General- Subsection (a) of section 954 (relating to foreign base company income) is amended by striking paragraphs (2) and (3).

    (b) Certain Sales- Paragraph (1) of section 954(c) is amended by adding at the end the following new subparagraph:

        `(I) CERTAIN SALES- Income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with the purchase of personal property from a related person and its sale to any person, the sale of personal property to any person on behalf of a related person, the purchase of personal property from any person and its sale to a related person, or the purchase of personal property from any person on behalf of a related person where--

          `(i) the property which is purchased (or in the case of property sold on behalf of a related person, the property which is sold) is manufactured, produced, grown, or extracted in the United States, and

          `(ii) the property is sold for use, consumption, or disposition in the United States, or, in the case of property purchased on behalf of a related person, is purchased for use, consumption, or disposition in the United States.'.

    (c) Conforming Amendments-

      (1) Clause (iii) of section 952(c)(1)(B) is amended by striking subclauses (II) and (III) and by redesignating subclauses (IV) and (V) as subclauses (II) and (III), respectively.

      (2) Paragraph (5) of section 954(b) is amended by striking `, the foreign base company sales income, the foreign base company services income,'.

      (3) Section 954 is amended by striking subsections (d) and (e).

      (4)(A) Subsection (b) of section 954 is amended by adding at the end the following new paragraph:

      `(7) RELATED PERSON DEFINED- For purposes of this section, a person is a related person with respect to a controlled foreign corporation if--

        `(A) such person is an individual, corporation, partnership, trust, or estate which controls, or is controlled by, the controlled foreign corporation, or--

        `(B) such person is a corporation, partnership, trust, or estate which is controlled by the same person or persons which control the controlled foreign corporation.

      For purposes of the preceding sentence, control means, with respect to a corporation, the ownership, directly or indirectly, of stock possessing more than 50 percent of the total voting power of all classes of stock entitled to vote or of the total value of stock of such corporation. In the case of a partnership, trust, or estate, control means the ownership, directly or indirectly, of more than 50 percent (by value) of the beneficial interests in such partnership, trust, or estate. For purposes of this paragraph, rules similar to the rules of section 958 shall apply.'.

      (B) Sections 552(c)(2), 861(c)(2)(B), 904(d)(2)(H), 953(d)(3), 953(e), 955(b), 958(b), 971(f), 988(e)(3)(C), 1297(b)(2), 1298(d)(3), and 1298(e)(2)(B) are each amended by striking `954(d)(3)' each place it appears and inserting `954(b)(7)'.

    (d) Effective Date- The amendments made by this section shall apply to taxable years of a foreign corporation beginning after December 31, 2006, and to taxable years of United States shareholders with or within which any such taxable year of such foreign corporation ends.

SEC. 5. REPEAL OF FOREIGN BASE COMPANY OIL RELATED INCOME RULES.

    (a) In General- Subsection (a) of section 954 (relating to foreign base company income) is amended by striking paragraph (5).

    (b) Conforming Amendments-

      (1) Clause (iii) of section 952(c)(1)(B), as amended by this Act, is amended by striking subclause (I) and by redesignating subclauses (II) and (III) as subclauses (I) and (II), respectively.

      (2) Paragraph (5) of section 954(b), as amended by this Act, is amended by striking `and the foreign base company oil related income'.

      (3) Section 954 is amended by striking subsection (g).

    (c) Effective Date- The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2006, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.

SEC. 6. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX CREDIT IN CASE OF FOREIGN OIL AND GAS INCOME.

    (a) In General- Section 907 (relating to special rules in case of foreign oil and gas income), as amended by this Act, is repealed.

    (b) Conforming Amendments-

      (1) Each of the following provisions are amended by striking `907,':

        (A) Section 245(a)(10).

        (B) Section 865(h)(1)(B).

        (C) Section 904(d)(1).

        (D) Section 904(g)(10)(A).

      (2) Section 904(f)(5)(E)(iii) is amended by inserting `, as in effect before its repeal by the International Tax Simplification Act of 2006' after `section 907(c)(4)(B)'.

      (3) Section 954(g)(1) is amended by inserting `, as in effect before its repeal by the International Tax Simplification Act of 2006' after `907(c)'.

      (4) Section 6501(i) is amended--

        (A) by striking `, or under section 907(f) (relating to carryback and carryover of disallowed oil and gas extraction taxes)', and

        (B) by striking `or 907(f)'.

      (5) The table of sections for subpart A of part III of subchapter N of chapter 1 is amended by striking the item relating to section 907.

    (c) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2006.

SEC. 7. EXTENSION OF CARRYFORWARD PERIOD FOR EXCESS FOREIGN TAXES.

    (a) In General- Section 904(c)(1) is amended by striking `10' and inserting `20'.

    (b) Excess Extraction Taxes- Paragraph (1) of section 907(f) is amended by striking `10 succeeding taxable year' and inserting `20 succeeding taxable years'.

    (c) Effective Date- The amendments made by this section shall apply to excess foreign taxes arising in taxable years beginning after December 31, 2006.

SEC. 8. SUBPART F EARNINGS AND PROFITS DETERMINED UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

    (a) In General- Section 964(a) (relating to earnings and profits) is amended by striking `rules substantially similar to those applicable to domestic corporations, under regulations prescribed by the Secretary' and inserting `generally accepted accounting principles in the United States'.

    (b) Effective Date- The amendment made by subsection (a) shall apply to distributions during, and the determination of the inclusion under section 951 of the Internal Revenue Code of 1986 with respect to, taxable years of foreign corporations beginning after December 31, 2006.

SEC. 9. ACCELERATION OF ELECTION TO ALLOCATE INTEREST ON A WORLDWIDE BASIS.

    (a) In General- Section 864(f)(6) is amended by striking `December 31, 2008' and inserting `December 31, 2006'.

    (b) Conforming Amendment- Section 401(c) of the American Jobs Creation Act of 2004 is amended by striking `December 31, 2008' and inserting `December 31, 2006'.

    (c) Effective Date- The amendments made by this section shall take effect as if included in section 401 of the American Jobs Creation Act of 2004.

SEC. 10. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.

    (a) In General- Sections 954(b)(3)(A)(ii), 864(d)(5)(A)(ii), and 881(c)(5)(A)(i) are each amended by striking `$1,000,000' and inserting `$5,000,000'.

    (b) Effective Date- The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2006, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.

END