QUALIFIED PENSION, ETC., PLAN COVERAGE FOR EMPLOYEES OF CERTAIN SUBSIDIARY EMPLOYERS.

SEC. 220. QUALIFIED PENSION, ETC., PLAN COVERAGE FOR EMPLOYEES OF CERTAIN SUBSIDIARY EMPLOYERS. (a) Employees of Foreign Subsidiaries Covered by Social Security Agreements.—Part I of subchapter D of chapter 1 (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by adding at the end thereof the following new section: “SEC. 406. CERTAIN EMPLOYEES OF FOREIGN SUBSIDIARIES. “(a) Treatment as Employees of Domestic Corporation.—For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a), an annuity plan described in section 403(a), or a bond purchase plan described in section 405(a), of a domestic corporation, an individual who is a citizen of the United States and who is an employee of a foreign subsidiary (as defined in section 3121(1) (8)) or such domestic corporation shall be treated as an employee of such domestic corporation, if— “(1) such domestic corporation has entered into an agreement under section 3121(1) which applies to the foreign subsidiary of which such individual is an employee; “(2) the plan of such domestic corporation expressly provides for contributions or benefits for individuals who are citizens of the United States and who are employees of its foreign subsidiaries to which an agreement entered into by such domestic corporation under section 3121 (1) applies; and “(3) contributions under a funded plan of deferred compensation (whether or not a plan described in section 401 (a), 403(a), or 405(a)) are not provided by any other person with respect to the remuneration paid to such individual by the foreign subsidiary. 78 Stat. 59 “(b) Special Rules for Application of Section 401(a).— “(1) Nondiscrimination requirements.—For purposes of applying paragraph (3)(B) and (4) of section 401(a) with respect to an individual who is treated as an employee of a domestic corporation under subsection (a)— “(A) if such individual is an officer, shareholder, or person whose principal duties consist in supervising the work of other employees of a foreign subsidiary of such domestic corporation, he shall be treated as having such capacity with respect to such domestic corporation; and “(B) the determination of whether such individual is a highly compensated employee shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such domestic corporation and by determining such individual’s status with regard to such domestic corporation. “(2) Determination of compensation.—For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of a domestic corporation under subsection (a)— “(A) the total compensation of such individual shall be the remuneration paid to such individual by the foreign subsidiary which would constitute his total compensation if his services had been performed for such domestic corporation, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary or his delegate; and “(B) such individual shall be treated as having paid the amount paid by such domestic corporation which is equivalent to the tax imposed by section 3101. “(c) Termination of Status as Deemed Employee Not To Be Treated as Separation From Service for Purposes of Capital Gain Provisions.—For purposes of applying section 402(a) (2) and section 403(a) (2) with respect to an individual who is treated as an employee of a domestic corporation under subsection (a), such individual shall not be considered as separated from the service of such domestic corporation solely by reason of the fact that— “(1) the agreement entered into by such domestic corporation under section 3121(1) which covers the employment of such individual is terminated under the provisions of such section, “(2) such individual becomes an employee of a foreign subsidiary with respect to which such agreement does not apply, “(3) such individual ceases to be an employee of the foreign subsidiary by reason of which he is treated as an employee of such domestic corporation, if he becomes an employee of another corporation controlled by such domestic corporation, or “(4) the provision of the plan described in subsection (a) (2) is terminated. “(d) Deductibility of Contributions.—For purposes of applying sections 404 and 405(c) with respect to contributions made to or under a pension, profit-sharing, stock bonus, annuity, or bond purchase plan by a domestic corporation, or by another corporation which is entitled to deduct its contributions under section 404(a) (3)(B), on behalf of an individual who is treated as an employee of such domestic corporation under subsection (a)— “(1) except as provided in paragraph (2), no deduction shall be allowed to such domestic corporation or to any other corporation which is entitled to deduct its contributions under such sections, 78 Stat. 60 “(2) there shall be allowed as a deduction to the foreign, subsidiary of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 (or section 405(c)) by the domestic corporation if he were an employee of the domestic corporation, and “(3) any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)). Any amount deductible by a foreign subsidiary under this subsection shall be deductible for its taxable year with or within which the taxable year of such domestic corporation ends. “(e) Treatment as Employee Under Related Provisions.—An individual who is treated as an employee of a domestic corporation under subsection (a) shall also be treated as an employee of such domestic corporation, with respect to the plan described in subsection (a)(2), for purposes of applying the following provisions of this title: “(1) Section 72(d) (relating to employees’ annuities). “(2) Section 72(f) (relating to special rules for computing employees’ contributions). “(3) Section 101(b) (relating to employees’ death benefits). “(4) Section 2039 (relating to annuities). “(5) Section 2517 (relating to certain annuities under qualified plans)’.” (b) Employees of Domestic Subsidiaries Engaged in Business Outside the United States.—Part 1 of subchapter I) of chapter I (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by adding after section 406 (as added by subsection (a)) the following new section: “SEC. 407. CERTAIN EMPLOYEES OF DOMESTIC SUBSIDIARIES ENGAGED IN BUSINESS OUTSIDE THE UNITED STATES. “(a) Treatment as Employees of Domestic Parent Corporation.— “(1) In general.—For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a), an annuity plan described bisection 403(a), or a bond purchase plan described in section 405(a), of a domestic parent corporation, an individual who is a citizen of the United States and who is an employee of a domestic subsidiary (within the meaning of paragraph (2)) of such domestic parent corporation shall be treated as an employee of such domestic parent corporation, if— “(A) the plan of such domestic parent corporation expressly provides for contributions or benefits for individuals who are citizens of the United States and who are employees of its domestic subsidiaries; and “(B) contributions under a funded plan of deferred compensation (whether or not a plan described in section 401(a), 403(a), or 405(a)) are not provided by any other person with respect to the remuneration paid to such individual by the domestic subsidiary. “(2) Definitions.—For purposes of this section— “(A) Domestic subsidiary.—A corporation shall be treated as a domestic subsidiary for any taxable year only if— “(i) such corporation is a domestic corporation 80 percent or more of the outstanding voting stock of which is owned by another domestic corporation; 78 Stat. 61 “(ii) 95 percent or more of its gross income for the three-year period immediately preceding the close of its taxable year which ends on or before the close of the taxable year of such other domestic corporation (or for such part of such period during which the corporation was in existence) was derived from sources without the United States; and “(iii) 90 percent or more of its gross income for such period (or such part) was derived from the active conduct of a trade or business. If for the period (or part thereof) referred to in clauses (ii) and (iii) such corporation has no gross income, the provisions of clauses (ii) and (iii) shall be treated as satisfied if it is reasonable to anticipate that, with respect to the first taxable year thereafter for which such corporation has gross income, the provisions of such clauses will be satisfied. “(B) Domestic parent corporation.—The domestic parent corporation of any domestic subsidiary is the domestic corporation which owns 80 percent or more of the outstanding voting stock of such domestic subsidiary. “(b) Special Rules for Application of Section 401(a).— “(1) Nondiscrimination requirements.—For purposes of applying paragraphs (3) (B) and (4) of section 401(a) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a)— “(A) if such individual is an officer, shareholder, or person whose principal duties consist in supervising the work of other employees of a domestic subsidiary, he shall be treated as having such capacity with respect to suck domestic parent corporation; and “(B) the determination of whether such individual is a highly compensated employee shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such domestic parent corporation and by determining such individual’s status with regard to such domestic parent corporation. “(2) Determination of compensation.—For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a), the total compensation of such individual shall be the remuneration paid to such individual by the domestic subsidiary which would constitute his total compensation if his services had been performed for such domestic parent corporation, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary or his delegate. “(c) Termination of Status as Deemed Employee Not To Be Treated as Separation From Service for Purposes of Capital Gain Provisions.—For purposes of applying section 402(a) (2) and section 403(a)(2) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a), such individual shall not be considered as separated from the service of such domestic parent corporation solely by reason of the fact that— “(1) the corporation of which such individual is an employee ceases, for any taxable year, to be a domestic subsidiary within the meaning of subsection (a) (2) (A), 78 Stat. 62 “(2) such individual ceases to be an employee of a domestic subsidiary of such domestic parent corporation, if he becomes an employee of another corporation controlled by such domestic parent corporation, or “(3) the provision of the plan described in subsection (a) (1) (A) is terminated. “(d) Deductibility of Contributions.—For purposes of applying sections 404 and 405(c) with respect to contributions made to or under a pension, profit-sharing, stock bonus, annuity, or bond purchase plan by a domestic parent corporation, or by another corporation which is entitled to deduct its contributions under section 404 (a) (3) (B), on behalf of an individual who is treated as an employee of such domestic corporation under subsection (a)— “(1) except as provided in paragraph (2), no deduction shall be allowed to such domestic parent corporation or to any other corporation which is entitled to deduct its contributions under such sections, “(2) there shall be allowed as a deduction to the domestic subsidiary of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 (or section 405(c)) by the domestic parent corporation if he were an employee of the domestic parent corporation, and “(3) any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)). Any amount deductible by a domestic subsidiary under this subsection shall be deductible for its taxable year with or within which the taxable year of such domestic parent corporation ends. “(e) Treatment as Employee Under Related Provisions.—An individual who is treated as an employee of a domestic parent corporation under subsection (a) shall also be treated as an employee of such domestic parent corporation, with respect to the plan described in subsection (a)(1)(A), for purposes of applying the following provisions of this title: “(1) Section 72(d) (relating to employees’ annuities). “(2) Section 72(f) (relating to special rules for computing employees’ contributions). “(3) Section 101(b) (relating to employees’ death benefits). “(4) Section 2039 (relating to annuities). “(5) Section 2517 (relating to certain annuities under qualified plans).” (c) Technical Amendments.— (1) The table of sections for part I of subchapter D of chapter 1 is amended by adding at the end thereof the following: “Sec. 406. Certain employees of foreign subsidiaries. “Sec. 407. Certain employees of domestic subsidiaries engaged in business outside the United States.” (2) Section 3121(a)(5) (relating to definition of wages) is amended by striking out “or” at the end of subparagraph (A) and by striking out subparagraph (B) and inserting in lieu thereof the following new subparagraphs: “(B) under or to an annuity plan which, at the time of such payment, is a plan described in section 403(a), or “(C) under or to a bond purchase plan which, at the time of such payment, is a qualified bond purchase plan described in section 405(a);”. 78 Stat. 63 (3) Section 209(e) of the Social Security Act (relating to the definition of wages) is amended to read as follows: “(e) Any payment made to, or on behalf of, an employee or his beneficiary (1) from or to a trust exempt from tax under section 165(a) of the Internal Revenue Code of 1939 at the time of such payment or, in the case of a payment after 1954, under sections 401 and 501(a) of the Internal Revenue Code of 1954, unless such payment is made to an employee of the trust as remuneration for services rendered as such employee and not as a beneficiary of the trust, or (2) under or to an annuity plan which, at the time of such payment, meets the requirements of section 165(a) (3), (4), (5), and (6) of the Internal Revenue Code of 1939 or, in the case of a payment after 1954 and prior to 1963, the requirements of section 401(a) (3), (4), (5), and (6) of the Internal Revenue Code of 1954, or (3) under or to an annuity plan which, at the time of any such payment after 1962, is a plan described in section 403(a) of the Internal Revenue Code of 1954, or (4) under or to a bond purchase plan which, at the time of any such payment after 1962, is a qualified bond purchase plan described in section 405(a) of the Internal Revenue Code of 1954;”. (d) Effective Date.—The amendments made by subsections (a), (b), and (c)(1) shall apply to taxable years ending after December 31, 1963. The amendments made by subsections (c) (2) and (3) shall apply to remuneration paid after December 31, 1962.