| Proposal |
Thomas
(H.R. 2896) |
Hatch
(S. 1475) |
Crane/Rangel
(H.R. 1769) |
ETI
(Sec. 4001 of Thomas Bill, Sec. 101 of Hatch Bill, and Sec. 2 of
Crane-Rangel Bill) |
Repealed for transactions after 2003 with transition
relief as follows: 65% of current benefit in 2004; 35% of current
benefit in 2005. The FSC grandfather rules are retained. |
Repealed with transition relief as follows:
75% of current benefit in 2004; 50% of current benefit in 2005; 25%
of current benefit in 2006. The FSC grandfather rules are retained
(with modifications). |
Repealed for transactions after date of enactment
with transition relief. ETI rules retained for transactions in the
ordinary course of trade or business under binding contract with unrelated
person in effect on April 11, 2003.
Allow base amount of ETI benefits, first indexed and then phased out
as follows: 100% in 2004-2005, 75% in 2006-2007, 50% in 2008, and
0% in 2009 and thereafter. The FSC grandfather rules would be retained. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Domestic Production Activities
(Sec. 3 of Crane-Rangel Bill) |
No Provision. |
No Provision. |
Deduction allowed for certain income attributable
to domestic production activities, phased in as follows: 1% in 2006,
2% in 2007, 4% in 2008, 9% in 2009 and 10% in 2010 and thereafter.
The benefit is reduced to the extent that the taxpayer has foreign
production activities (the so-called “foreign production haircut”). |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Repatriation from CFCs
(Sec. 1021 of Thomas Bill and Sec. 211 of Hatch Bill) |
For 6-month period, taxpayers permitted an election
to apply an 80% dividends- received deduction (7% rate) to dividends
from CFCs in excess of a base period amount (the annual average of
dividends including section 956 amounts for the past five years, excluding
the years with the highest and lowest amount of dividends).
Qualifying amounts are further limited to amounts shown on the most
recently audited financial statement as being permanently reinvested
outside the United States. The benefits are subject to recapture in
the event that the taxpayer’s repatriation level falls below the base
period average during the 10 years following the year in which the
benefit is claimed. Effective for the first taxable year on or after
date of enactment or the last taxable year beginning before date of
enactment. |
On a permanent basis, taxpayers permitted to
elect on an annual basis a 5.25% rate (85% dividends-received deduction)
on dividends from CFCs to the extent that a company’s spending on
equipment and research exceeds an “innovation baseline” (85% of the
average spending on equipment and research over the past three years).
Effective for taxable years beginning after December 31, 2003. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Earnings Stripping
(Sec. 2001 of Thomas Bill and Sec. 255 of Hatch Bill) |
The 1.5 to 1 debt-to-equity “safe harbor” is
repealed; the ATI threshold is reduced to 25% (35% in 2004) for related-party
debt; the 50% ATI limitation is maintained for guaranteed debt; the
3-year excess limitation carryforward is repealed; and the carryover
period on disallowed interest is reduced to 10 years.
Effective generally for taxable years beginning after December 31,
2003 (effective for certain inverted structures for taxable years
ending after March 4, 2003). |
Section 163(j) liberalized by permitting a deduction
of interest on unrelated party debt guaranteed by a foreign person
if the taxpayer establishes that it could have borrowed the same amount
from an unrelated lender without a guarantee. Regulatory authority
is granted to disallow interest on such guaranteed debt if the terms
of the loan without the guarantee would be substantially dissimilar.
Effective for guarantees issued on or after date of enactment. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Corporate Inversions
(Sec. 2002-2004 of Thomas Bill) |
Certain inverting companies required to pay
the full U.S. tax on the transfer of assets by a U.S. corporation
as part of the inversion; 15% excise tax imposed on certain stock-based
compensation of insiders; and tax treatment of foreign reinsurance
agreements modified.
Inversion proposal is effective for taxable years ending after March
4, 2003; excise tax proposal generally is effective as of March 4,
2003; reinsurance proposal is effective after date of enactment. |
No provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Subpart F Reform
Foreign Base Company Sales and Services Income Rules
(Sec. 1101 of Thomas Bill and Sec. 201 of Hatch Bill) |
Repealed, with income from sales of products
made and sold for use or consumption in U.S. still subject to tax
under subpart F as FPHCI.
Effective for taxable years of foreign corporations beginning after
December 31, 2005, and to taxable years of U.S. shareholders with
or within which such taxable years end. |
Repealed, conditioned on income derived from
transaction with a CFC eligible for the benefits of a comprehensive
U.S. treaty that the Treasury determines is satisfactory for this
purpose and which has an exchange of information program, or where
companies enter into APAs with IRS. Income from sales of products
made and sold for use or consumption in U.S. still subject to tax
under subpart F as FPHCI.
Effective for taxable years of foreign corporations beginning after
December 31, 2005, and to taxable years of U.S. shareholders with
or within which such taxable years end. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Active Financing Income Exception
(Sec. 1102 of Thomas Bill and Sec. 206 of Hatch Bill) |
Extended for one year through the end of 2007. |
Extended permanently. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Payments Between Related CFCs under
FPHCI Rules
(Sec. 1103 of Thomas Bill and Sec. 202 of Hatch Bill) |
Dividends, interest, rents and royalties received
by one CFC from a related CFC are not treated as FPHCI to the extent
attributable to non-subpart F earnings of the payor. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Sales of Partnership Interests by CFCs
(Sec. 1104 of Thomas Bill and Sec. 203 of Hatch Bill) |
Sale of a partnership interest by a 25% CFC
partner treated as the sale of a proportionate share of partnership
assets for purposes of determining FPHCI under subpart F. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Foreign Personal Holding Company and
Foreign Investment Company Rules
(Sec. 1105 of Thomas Bill and Sec. 204 of Hatch Bill) |
Repealed. Certain personal services contract
income subject to the present-law foreign personal holding company
rules included as subpart F FPHCI. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Foreign Base Company Oil Related Income
(Sec. 1106 of Thomas Bill and Sec. 205 of Hatch Bill) |
Exception provided for pipeline transportation
of oil or gas within a foreign country. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Commodity Hedging Transactions
(Sec. 1107 of Thomas Bill and Sec. 209 of Hatch Bill) |
Exception for commodity hedging transactions
conformed to existing rules for asset hedging transactions. Effective
for transactions entered into after December 31, 2004. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Foreign Base Company Shipping Income
Rules
(Sec. 1108 of Thomas Bill and Sec. 210 of Hatch Bill) |
Repealed. Safe harbor from subpart F FPHCI for
rents derived from leasing aircraft or vessels in foreign commerce.
Such rents are treated as active income if active leasing expenses
comprise at least 10% of the profit on the lease. |
Repealed. Safe harbor from subpart F altogether
for certain income derived from leasing or renting aircraft or vessels.
The rents and gains must be derived from an active leasing business
in which the CFC conducts substantial activity, and the leased property
is used by an unrelated lessee/end-user in foreign commerce outside
the U.S.
Effective for taxable years of foreign corporations beginning after
December 31, 2005, and to taxable years of U.S. shareholders with
or within which such taxable years end. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Expansion of De Minimis Rule
(Sec. 207 of Hatch Bill) |
No provision. |
Subpart F de minimis rule expanded to be the
lesser of 5% of gross income or $5 million. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Modify Interaction between Subpart F
and PFIC rules
(Sec. 208 of Hatch Bill) |
No provision. |
Exception added to the rules eliminating the
overlap of the subpart F and PFIC rules for U.S. shareholders that
face only a remote likelihood of incurring subpart F inclusion in
the event that a CFC earns subpart F income. Effective for taxable
years of foreign corporations beginning after December 31, 2003, and
to taxable years of U.S. shareholders with or within which such taxable
years end. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
General Effective Dates
(Sec. 1109 of Thomas Bill and Sec. 212 of Hatch Bill) |
Except as otherwise provided above, effective
for taxable years of foreign corporations beginning after December
31, 2004, and to taxable years of U.S. shareholders with or within
which such taxable years end. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Foreign Tax Credit Reform
Allocation and Apportionment of Interest Expense (Sec. 1111 of Thomas
Bill and Sec. 221 of Hatch Bill) |
Taxpayers allowed to make a one-time election
to apportion and allocate interest expense on a worldwide fungibility
basis, including controlled foreign corporations in the definition
of an expanded affiliated group for these purposes. One-time financial
institution group election also provided that expands the present-law
bank group. Effective for taxable years beginning after December 31,
2005. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Overall Domestic Loss Recharacterization
(Sec. 1112 of Thomas Bill and Sec. 227 of Hatch Bill) |
Taxpayers allowed to recharacterize as foreign-source
income a portion of the taxpayer’s U.S. source income for a tax year
in an amount equal to the lesser of (1) the amount of the unrecharacterized
“overall domestic loss”, or (2) 50% of the taxpayer’s U.S. source
income for that year. Effective for losses incurred in taxable years
beginning after December 31, 2004. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Reduction of FTC Baskets
(Sec. 1113 of Thomas Bill and Sec. 226 of Hatch Bill) |
Current nine baskets reduced to two: passive
(current definition of passive, plus dividends from a DISC, distributions
from a FSC and foreign trade income) and active income. Effective
for taxable years beginning after December 31, 2004. |
Current nine baskets reduced to two: general
category income (income from the present-law general limitation basket,
as well as income from the high withholding interest income and financial
services income baskets) and typically low-taxed income (income from
the passive, shipping and DISC/FSC baskets). Effective for taxable
years beginning after December 31, 2004. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Extension of Foreign Credit Carryforward
Periods
(Sec. 1114 of Thomas Bill and Secs. 222-223 of Hatch Bill) |
Carryforward period extended from 5 to 10 years.
Effective for foreign tax credits that may be carried to any taxable
years beginning after December 31, 2004. |
Carryforward period extended from 5 to 20 years.
Utilization of foreign tax credits reordered so that credits carried
from prior years are used before current year credits on a FIFO basis.
Extension effective for excess foreign taxes arising in taxable years
beginning after December 31, 2003. Reordering effective for taxes
paid or accrued for taxable years beginning after December 31, 2003,
and to carryfowards of taxes from taxable years beginning after December
31, 1997. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Look-Through Rule for 10/50 Companies
(Sec. 1115 of Thomas Bill and Secs. 225 and 223 of Hatch Bill) |
Look-through rules applied to dividends of a
10/50 company, regardless of the year the E&P from which a dividend
is paid were accumulated. Effective for taxable years beginning after
December 31, 2002. |
Similar provision. Look-through rules also applied
to interest, rents, and royalties received from a 10/50 company, effective
for taxable years beginning after December 31, 2004. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Attribution of Stock Ownership Through
Partnership
(Sec. 1116 of Thomas Bill and Sec. 231 of Hatch Bill) |
Domestic corporation entitled to claim deemed
paid indirect foreign tax credits with respect to a foreign corporation
that is held indirectly through a foreign or domestic partnership,
provided that the domestic corporation owns indirectly through the
partnership at least 10% of the foreign corporation’s voting stock.
Effective for taxable years of corporations beginning on or after
date of enactment. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Clarification of Treatment of Deemed
Royalty Payments
(Sec. 1117 of Thomas Bill and Sec. 234 of Hatch Bill) |
Deemed payments with respect to transfers of
certain intangibles are treated as royalties for basketing purposes.
Effective retroactively to amounts treated as received on or after
August 5, 1997. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Repeal of Limitations of FTC under AMT
(Sec. 1061 of Thomas Bill and Sec. 224 of Hatch Bill) |
90% limitation repealed on the use of the AMT
FTC. Effective for taxable years beginning after December 31, 2003. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Equal Treatment for Interest Paid by
Foreign Partnerships and Corporations doing Business in the U.S.
(Sec. 232 of Hatch Bill) |
No provision. |
Foreign-source treatment provided for interest
paid by a foreign partnership that is not engaged in a U.S. trade
or business and not allocable to income effectively connected with
a U.S. trade or business. Effective for taxable years beginning after
December 31, 2003. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Repeal of Rules Relating to Foreign
Oil and Gas Income
(Sec. 228 of Hatch Bill) |
No provision. |
Special limitation rules of section 907 for
applying the foreign tax credit to foreign oil and gas income repealed.
Effective for taxable years beginning after December 31, 2005. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Increase in Individual Exemption from
Foreign Tax Credit Limitation
(Sec. 229 of Hatch Bill) |
No provision. |
Individual exemption amount increased to $500
with cost of living adjustments. Effective for taxable years beginning
after December 31, 2003. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Other International Tax Simplifications
Application of UNICAP Rules to Foreign Persons (Sec. 1118 of Thomas
Bill and Sec. 251 of Hatch Bill) |
U.S. GAAP applied in lieu of UNICAP rules for
capitalizing costs incurred in producing property or acquiring property
for resale. UNICAP rule applied to foreign persons only for purposes
of taxing income effectively connected with the conduct of a U.S.
trade or business. Effective for taxable years beginning after December
31, 2004. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
U.S. Property Not to Include Certain
Financial Assets Acquired in the Ordinary Course of Business
(Sec. 1119 of Thomas Bill and Sec. 230 of Hatch Bill) |
Certain securities held by securities or commodities
dealer in the ordinary course of trade or business excluded from “U.S.
property” definition if securities held primarily for sale to customers
and disposed of within reasonable period. Effective for taxable years
of foreign corporations beginning after December 31, 2004, and for
taxable years of U.S. shareholders with or within which such taxable
year ends. |
Similar provision. Obligations excluded for
a U.S. person which is not a U.S. corporation or which is not a U.S.
shareholder of a CFC or a partnership, estate or trust in which the
CFC or a related person is a partner, beneficiary or trustee immediately
after the acquisition of the obligation by the CFC. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Treatment of Certain Dividends of RICs
(Sec. 1120 of Thomas Bill and Sec. 252 of Hatch Bill) |
Certain dividends received by nonresident alien
individuals or foreign corporations from mutual fund excluded from
U.S. withholding tax to the extent attributable to interest and short-term
capital gains of the RIC. Generally effective for taxable years of
RICs beginning after date of enactment. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Repeal of Withholding Tax on Dividends
from Certain Foreign Corporations
(Sec. 1122 of Thomas Bill and Sec. 253 of Hatch Bill) |
Secondary withholding tax on dividends paid
by certain foreign corporations repealed. Effective for payments made
after December 31, 2004. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Airline Mileage Awards to Certain Foreign
Persons
(Sec. 254 of Hatch Bill) |
No provision. |
Airline mileage awards issued to individuals
whose mailing address is outside the U.S. excluded from excise taxes.
Effective for amounts paid or benefits provided after December 31,
2003. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Modification of Reporting Requirements
for Certain Foreign Owned Corporations
(Sec. 256 of Hatch Bill) |
No provision. |
De minimis exception from reporting requirements
provided if the aggregate value of transactions with related foreign
parties during a year does not exceed $5 million, with 60-day window
for translating documents into English. Generally effective for taxable
years beginning after December 31, 2003. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Repeal of Tax on Certain U.S. Source
Capital Gains of Nonresident Aliens
(Sec. 257 of Hatch Bill) |
No provision. |
Special tax on U.S. source capital gains of
non-resident aliens present in the U.S. for 183 days or more repealed.
Effective for taxable years beginning after December 31, 2003. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Election Not to Use Average Exchange
Rate for Foreign Tax Paid in Nonfunctional Currency
(Sec. 1121 of Thomas Bill and Sec. 258 of Hatch Bill) |
Election provided to translate foreign income
tax payments using spot rates on date of payment, provided the taxes
are denominated in a non-functional currency. Effective for taxable
years beginning after December 31, 2004. |
Same provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
| Treasury Studies |
Treasury Department directed to conduct three
separate studies on transfer pricing rules, U.S. income tax treaties,
and the earnings stripping and corporate inversion provisions in the
bill. The transfer pricing study is due by June 30, 2004, the treaty
study is due by the end of 2003, and the earnings stripping and corporate
inversion studies are due by the end of 2005. |
Treasury directed to conduct a study of the
impact of Federal international tax rules on taxpayers other than
large corporations, including compliance burdens. A report to the
Senate Finance Committee and House Ways and Means Committee is due
no later than 180 days after date of enactment. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Other Provisions
Minimum Holding Period Requirement on Withholding Taxes Other Than
Dividends
(Sec. 301 of the Thomas Bill) |
Present-law disallowance of foreign tax credits
expanded to include credits for gross-basis withholding taxes with
respect to any item of income or gain (other than dividends) if the
taxpayer did not hold the property for more than 15 days (within a
30-day testing period), exclusive of periods during which the taxpayer
is protected from risk of loss. Exceptions are provided for property
held by active dealers. Effective for amounts paid or accrued more
than 30 days after date of enactment. |
No provision. |
No provision. |
| Proposal |
Thomas |
Hatch |
Crane/Rangel |
Revision of Tax Rules on Expatriation
of Individuals
(Sec. 2005 of Thomas Bill) |
“Objective” standards provided for determining
whether former citizens or former long-term residents are subject
to the alternative tax regime; full U.S. tax imposed on individuals
subject to the alternative tax regime who return to the U.S. for extended
periods; U.S. gift tax imposed on gifts of stock of closely-held foreign
corporations that hold U.S. situated property; an annual filing requirement
imposed for individuals subject to the alternative regime for 10 years
following expatriation. Effective for individuals who relinquish citizenship
or terminate long-term residency after February 27, 2003. |
No provision. |
No provision. |
