HR1911-119

1. Certain payments to foreign related parties subject to sufficient foreign tax not treated as base erosion payments Section 59A of the Internal Revenue Code of 1986 is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: An amount shall not be treated as a base erosion payment if the taxpayer establishes to the satisfaction of the Secretary that— the foreign person to whom such amount is paid or incurred is subject to an effective rate of foreign income tax of at least 15 percent, and such amount is subject to an effective rate of foreign income tax of at least 15 percent. Except as otherwise provided by the Secretary, the effective rate of foreign income tax may be established on the basis of applicable financial statements (as defined in section 451(b)(3)) with appropriate adjustments (as determined by the Secretary) for excluded dividends, net tax expense, excluded equity gain or loss, included revaluation method gain or loss, gain or loss from intragroup transfers of assets and liabilities, asymmetric foreign currency gains or losses, bribes, illegal payments, large penalties, prior period errors and changes in accounting methods, accrued pension expenses, and such other items as the Secretary may provide. For purposes of this subsection, the term “foreign income taxes” means any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States. Section 59A(j) of such Code, as redesignated by subsection (a), is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and, and by adding at the end the following new paragraph: for the application of subsection (i), including— procedures for determining the effective rate of foreign income tax, and rules to the prevent tax avoidance or abuse, including rules for recharacterizing a transaction or series of transactions among related parties. The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (i)Certain payments to foreign related parties subject to sufficient foreign tax not treated as base erosion payments(1)In generalAn amount shall not be treated as a base erosion payment if the taxpayer establishes to the satisfaction of the Secretary that—(A)the foreign person to whom such amount is paid or incurred is subject to an effective rate of foreign income tax of at least 15 percent, and(B)such amount is subject to an effective rate of foreign income tax of at least 15 percent.(2)Determination of effective rate on basis of applicable financial statementsExcept as otherwise provided by the Secretary, the effective rate of foreign income tax may be established on the basis of applicable financial statements (as defined in section 451(b)(3)) with appropriate adjustments (as determined by the Secretary) for excluded dividends, net tax expense, excluded equity gain or loss, included revaluation method gain or loss, gain or loss from intragroup transfers of assets and liabilities, asymmetric foreign currency gains or losses, bribes, illegal payments, large penalties, prior period errors and changes in accounting methods, accrued pension expenses, and such other items as the Secretary may provide.(3)Foreign income taxFor purposes of this subsection, the term “foreign income taxes” means any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States.. (3)for the application of subsection (i), including—(A)procedures for determining the effective rate of foreign income tax, and(B)rules to the prevent tax avoidance or abuse, including rules for recharacterizing a transaction or series of transactions among related parties..