EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

SEC. 1102. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES. (a) Accrued Taxes Translated by Using Average Rate for Year to Which Taxes Relate.—111 STAT. 964 (1) In general.—Subsection (a) of section 986 (relating to translation of foreign taxes) is amended to read as follows: “(a) Foreign Income Taxes.— “(1) Translation of accrued taxes.— “(A) In general.—For purposes of determining the amount of the foreign tax credit, in the case of a taxpayer who takes foreign income taxes into account when accrued, the amount of any foreign income taxes (and any adjustment thereto) shall be translated into dollars by using the average exchange rate for the taxable year to which such taxes relate. “(B) Exception for certain taxes.—Subparagraph (A) shall not apply to any foreign income taxes— “(i) paid after the date 2 years after the close of the taxable year to which such taxes relate, or “(ii) paid before the beginning of the taxable year to which such taxes relate. “(C) Exception for inflationary currencies.—Subparagraph (A) shall not apply to any foreign income taxes the liability for which is denominated in any inflationary currency (as determined under regulations). “(D) Cross reference.— “For adjustments where tax is not paid within 2 years, see section 905(c). “(2) Translation of taxes to which paragraph (1) does not apply.—For purposes of determining the amount of the foreign tax credit, in the case of any foreign income taxes to which subparagraph (A) of paragraph (1) does not apply— “(A) such taxes shall be translated into dollars using the exchange rates as of the time such taxes were paid to the foreign country or possession of the United States, and “(B) any adjustment to the amount of such taxes shall be translated into dollars using— “(i) except as provided in clause (ii), the exchange rate as of the time when such adjustment is paid to the foreign country or possession, or “(ii) in the case of any refund or credit of foreign income taxes, using the exchange rate as of the time of the original payment of such foreign income taxes. “(3) Foreign income taxes.—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.”. (2) Adjustment when not paid within 2 years after year to which taxes relate.—Subsection (c) of section 905 is amended to read as follows: “(c) Adjustments to Accrued Taxes.— “(1) In general.—If— “(A) accrued taxes when paid differ from the amounts claimed as credits by the taxpayer, “(B) accrued taxes are not paid before the date 2 years after the close of the taxable year to which such taxes relate, or “(C) any tax paid is refunded in whole or in part, the taxpayer shall notify the Secretary, who shall redetermine the amount of the tax for the year or years affected. The 111 STAT. 965Secretary may prescribe adjustments to the pools of post-1986 foreign income taxes and the pools of post-1986 undistributed earnings under sections 902 and 960 in lieu of the redetermination under the preceding sentence. “(2) Special rule for taxes not paid within 2 years.— “(A) In general.—Except as provided in subparagraph (B), in making the redetermination under paragraph (1), no credit shall be allowed for accrued taxes not paid before the date referred to in subparagraph (B) of paragraph (1). “(B) Taxes subsequently paid.—Any such taxes if subsequently paid— “(i) shall be taken into account— “(I) in the case of taxes deemed paid under section 902 or section 960, for the taxable year in which paid (and no redetermination shall be made under this section by reason of such payment), and “(II) in any other case, for the taxable year to which such taxes relate, and “(ii) shall be translated as provided in section 986(a)(2)(A). “(3) Adjustments.—The amount of tax (if any) due on any redetermination under paragraph (1) shall be paid by the taxpayer on notice and demand by the Secretary, and the amount of tax overpaid (if any) shall be credited or refunded to the taxpayer in accordance with subchapter B of chapter 66 (section 6511 et seq.). “(4) Bond requirements.—In the case of any tax accrued but not paid, the Secretary, as a condition precedent to the allowance of the credit provided in this subpart, may require the taxpayer to give a bond, with sureties satisfactory to and approved by the Secretary, in such sum as the Secretary may require, conditioned on the payment by the taxpayer of any amount of tax found due on any such redetermination. Any such bond shall contain such further conditions as the Secretary may require. “(5) Other special rules.—In any redetermination under paragraph (1) by the Secretary of the amount of tax due from the taxpayer for the year or years affected by a refund, the amount of the taxes refunded for which credit has been allowed under this section shall be reduced by the amount of any tax described in section 901 imposed by the foreign country or possession of the United States with respect to such refund; but no credit under this subpart, or deduction under section 164, shall be allowed for any taxable year with respect to any such tax imposed on the refund. No interest shall be assessed or collected on any amount of tax due on any redetermination by the Secretary, resulting from a refund to the taxpayer, for any period before the receipt of such refund, except to the extent interest was paid by the foreign country or possession of the United States on such refund for such period.”. (b) Authority To Use Average Rates.— (1) In general.—Subsection (a) of section 986 (as amended by subsection (a)) is amended by redesignating paragraph (3) 111 STAT. 966as paragraph (4) and inserting after paragraph (2) the following new paragraph: “(3) Authority to permit use of average rates.—To the extent prescribed in regulations, the average exchange rate for the period (specified in such regulations) during which the taxes or adjustment is paid may be used instead of the exchange rate as of the time of such payment.”. (2) Determination of average rates.—Subsection (c) of section 989 is amended by striking “and” at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting “, and”, and by adding at the end thereof the following new paragraph: “(6) setting forth procedures for determining the average exchange rate for any period.”. (3) Conforming amendments.—Subsection (b) of section 989 is amended by striking “weighted” each place it appears. (c) Effective Dates.— (1) In general.—The amendments made by subsections (a)(1) and (b) shall apply to taxes paid or accrued in taxable years beginning after December 31, 1997. (2) Subsection (a)(2).—The amendment made by subsection (a)(2) shall apply to taxes which relate to taxable years beginning after December 31, 1997.