LIMITATIONS ON FOREIGN TAX CREDIT FOR TAXES PAID IN CONNECTION WITH FOREIGN OIL AND GAS INCOME.

SEC. 601. LIMITATIONS ON FOREIGN TAX CREDIT FOR TAXES PAID IN CONNECTION WITH FOREIGN OIL AND GAS INCOME. (a) In General.— Subpart A of part. HI of subchapter N of chapter 1 (relating to foreign tax credit) is amended by adding at the end thereof the following new section: “SEC. 907. SPECIAL RULES IN CASE OF FOREIGN OIL AND GAS INCOME. “(a) Reduction in Amount Allowed as Foreign Tax Under Section 901.— In applying section 901, the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) during the taxable year with respect to foreign oil and gas extraction income which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of— “(1) the amount of the foreign oil and gas extraction income for the taxable year, multiplied by “(2) the percentage which is— “(A) in taxable years ending in 1975, 110 percent of, “(B) in taxable years ending in 1976, 105 percent of, and “(C) in taxable years ending after 1976, 2 percentage points above, the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11. “(b) Application of Section 904 Limitation.— The provisions of section 904 shall be applied separately with respect to— “(1) foreign oil related income, and “(2) other taxable income. With respect to foreign oil related income, the overall limitation provided by section 904(a)(2) shall apply and the per-country limitation provided by section 904(a)(1) shall not apply. “(c) Foreign Income Definitions and Special Rules.— For purposes of this section— “(1) Foreign oil and gas extraction income.— The term ‘foreign oil and gas extraction income’ means the taxable income derived from sources without the United States and its possessions from— “(A) the extraction (by the taxpayer or any other person) of minerals from oil or gas wells, or “(B) the sale or exchange of assets used by the taxpayer in the trade or business described in subparagraph (A). “(2) Foreign oil related income.— The term ‘foreign oil related income’ means the taxable income derived from sources outside the United States and its possessions from— “(A) the extraction (by the taxpayer or any other person) of minerals from oil or gas wells, “(B) the processing of such minerals into their primary products, “(C) the transportation of such minerals or primary products, “(D) the distribution or sale of such minerals or primary products, or “(E) the sale or exchange of assets used by the taxpayer in the trade or business described in subparagraph (A). (B), (C), or (D). 89 STAT. 55 “(3) Dividends, interest, partnership distribution, etc.— The term ‘foreign oil and gas extraction income’ and the term ‘foreign oil related income’ include— “(A) dividends and interest from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section 902, “(B) dividends from a domestic corporation which are treated under section 861(a)(2)(A) as income from sources without the United States, “(C) amounts with respect to which taxes are deemed paid under section 960(a), and “(D) the taxpayer’s distributive share of the income of partnerships. to the extent such dividends, interest, amounts, or distributive share is attributable to foreign oil and gas extraction income, or to foreign oil related income, as the case may be; except that interest described in subparagraph (A) and dividends described in subparagraph (B) shall not be taken into account in computing foreign oil and gas extraction income, but shall be taken into account in computing foreign oil-related income. “(4) Certain losses.— If for any foreign country for any taxable year the taxpayer would have a net operating loss if only items from sources within such country (including deductions properly apportioned or allocated thereto) which relate to the extraction of minerals from oil or gas wells were taken into account, such items— “(A) shall not be taken into account in computing foreign oil and gas extraction income for such year, but “(B) shall be taken into account in computing foreign oil related income for such year. “(d) Disregard of Certain Posted Prices, Etc.— For purposes of tills chapter, in determining the amount of taxable income in the case of foreign oil and gas extraction income, if the oil or gas is disposed of, or is acquired other than from the government, of a foreign country, at a posted price (or other pricing arrangement) which differs from the fair market value for such oil or gas, such fair market value shall be used in lieu of such posted price (or other pricing arrangement). “(e) Transitional Rules.— “(1) Taxable years ending after december 31, 1074.— In applying subsections (d) and (e.) of section 904 for purposes of determining the amount which may be carried over from a taxable year ending before January 1, 1975, to any taxable year ending after December 31, 1974— “(A) subsection (a) of this section shall be deemed to have been in effect for such prior taxable year and for all taxable years thereafter, and “(B) the carryover from such prior year shall be divided (effective as of the first day of the first taxable year ending after December 31, 1974) into— “(i) a foreign oil related carryover, and “(ii) another carryover, on the, basis of the proportionate share of the foreign oil related income, or the other taxable income, as the case may be, of the total taxable income taken into account in computing the amount of such carryover. “(2) Taxable years ending after december 31, 1975.— In applying subsections (d) and (e) of section 904 for purposes of determining the amount which may be carried over from a tax-89 STAT. 56able year ending before January 1, 1976, to any taxable year ending after December 31, 1975, if the per-country limitation provided by section 904(a)(1) applied to such prior taxable year and to the taxpayer’s last taxable year ending before January 1, 1976, then in the case of any foreign oil related carryover— “(A) the first sentence of section 904(e)(2) shall not apply, but “(B) such amount may not exceed the amount which could have been used in such succeeding taxable year if the per-country limitation continued to apply. “(f) Recapture of Foreign Oil Related Loss.— “(1) General rule.— For purposes of this subpart, in the case of any taxpayer who sustains a foreign oil related loss for any taxable year— “(A) that portion of the foreign oil related income for each succeeding taxable year which is equal to the lesser of— “(i) the amount of such loss (to the extent not used under this paragraph in prior years), or “(ii) 50 percent of the foreign oil related income for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States), and “(B) the amount of the income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) to a foreign country for such succeeding taxable year with respect to foreign oil related income shall lie reduced by an amount which bears the same proportion to the total amount of such foreign taxes as the amount treated as income from sources within the United States under subparagraph (A) bears to the total foreign oil related income for such succeeding taxable year. For purposes of this chapter, the amount of any foreign taxes for which credit is denied under subparagraph (B) of the preceding sentence shall not be allowed as a deduction for any taxable year. For purposes of this subsection, foreign oil related income shall be determined without regard to this subsection. “(2) Foreign oil related loss defined.— For purposes of this subsection, the term ‘foreign oil related loss’ means the amount by which the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the foreign oil related income for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account— “(A) any net operating loss deduction allowable for such year under section 172(a) or any capital loss carrybacks and carryovers to such year tinder section 1212, and “(B) any— “(i) foreign expropriation loss for such year, as defined in section 172(k)(1),or “(ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. “(3) Dispositions.— “(A) In general.— For purposes of this chapter, if property used in a trade or business described in subparagraph89 STAT. 57 (A), (B), (C), or (D) of subsection (c)(2) is disposed of during any taxable year— “(i) the taxpayer notwithstanding any other provision of this chapter (other than paragraph (1)) shall be deemed to have received and recognized foreign oil related income in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the foreign oil related losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and “(ii) paragraph (1) shall be applied with respect to such income by substituting ‘100 percent’ for ‘50 percent’. “(B) Disposition defined.— For purposes of this subsection, the term ‘disposition’ includes a sale, exchange, distribution, or gift of property, whether or not gain or loss is recognized on the transfer. “(C) Exceptions.— Notwithstanding subparagraph (B), the term ‘disposition’ does not include— “(i) a disposition of property which is not a material factor in the realization of income by the taxpayer, or “(ii) a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a). “(g) Western Hemisphere Trade Corporations Which Are Members of an Affiliated Group.— If a Western Hemisphere trade corporation is a member of an affiliated group for the taxable year, then in applying section 901, the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have linen paid) during the taxable year with respect to foreign oil and gas extraction income which would (but for this section and section 1503(b)) be taken into account for purposes of section 901 shall lie reduced by the greater of— “(1) the reduction with respect to such taxes provided by subsection (a) of this section, or “(2) the reduction determined under section 1503(b) by applying section 1503(b) separately with respect to such taxes, but not by both such reductions.” (b) Certain Payments Not To Be Considered as Taxes.— Section 901 is amended by redesignating subsection (f) as subsection (g),and by adding after subsection (e) the following new subsection: “(f) Certain Payments for Oil or Gas Not Considered as Taxes.— Notwithstanding subsection (b) and sections 902 and 960, the amount of any income, or profits, and excess profits taxes paid or accrued during the taxable year to any foreign country in connection with the purchase and sale of oil or gas extracted in such country is not to be considered as tax for purposes of section 275(a) and this section if— “(1) the taxpayer has no economic interest in the oil or gas to which section 611 (a) applies, and “(2) either such purchase or sale is at a price which differs from the fair market value for such oil or gas at the time of such purchase or sale.” (c) Clerical Amendment.— The table of sections for subpart A of part III of subchapter N of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 907. Special rules in care of foreign oil and gas income.” 89 STAT. 58 (d) Effective Dates.— The amendments made by this section shall apply Lo taxable years ending after December 31, 1974; except that— (1) the second sentence of section 907(b) shall apply to taxable years ending after December 31, 1975, and (2) the provisions of section 907 (f) shall apply to losses sustained in taxable years ending after December 31, 1975.