INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER COMPANIES.

SEC. 1113. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER COMPANIES. (a) Section 902 Credit.— (1) In general.—Subsection (b) of section 902 (relating to deemed taxes increased in case of certain 2nd and 3rd tier foreign corporations) is amended to read as follows: “(b) Deemed Taxes Increased in Case of Certain Lower Tier Corporations.— “(1) In general.—If— “(A) any foreign corporation is a member of a qualified group, and “(B) such foreign corporation owns 10 percent or more of the voting stock of another member of such group from which it receives dividends in any taxable year, such foreign corporation shall be deemed to have paid the same proportion of such other member’s post-1986 foreign income taxes as would be determined under subsection (a) if such foreign corporation were a domestic corporation. “(2) Qualified group.—For purposes of paragraph (1), the term ‘qualified group’ means— “(A) the foreign corporation described in subsection (a), and “(B) any other foreign corporation if— “(i) the domestic corporation owns at least 5 percent of the voting stock of such other foreign corporation indirectly through a chain of foreign corporations connected through stock ownership of at least 10 percent of their voting stock, “(ii) the foreign corporation described in subsection (a) is the first tier corporation in such chain, and “(iii) such other corporation is not below the sixth tier in such chain. The term ‘qualified group’ shall not include any foreign corporation below the third tier in the chain referred to in clause (i) unless such foreign corporation is a controlled foreign corporation (as defined in section 957) and the domestic corporation is a United States shareholder (as defined in section 951(b)) in such foreign corporation. Paragraph (1) shall apply to those taxes paid by a member of the qualified group below the third tier only with respect to periods during which it was a controlled foreign corporation.”. (2) Conforming amendments.— (A) Subparagraph (B) of section 902(c)(3) is amended by adding “or” at the end of clause (i) and by striking clauses (ii) and (iii) and inserting the following new clause: “(ii) the requirements of subsection (b)(2) are met with respect to such foreign corporation.”.111 STAT. 971 (B) Subparagraph (B) of section 902(c)(4) is amended by striking “3rd foreign corporation” and inserting “sixth tier foreign corporation”. (C) The heading for paragraph (3) of section 902(c) is amended by striking “where domestic corporation acquires 10 percent of foreign corporation” and inserting “where foreign corporation first qualifies”. (D) Paragraph (3) of section 902(c) is amended by striking “ownership” each place it appears. (b) Section 960 Credit.—Paragraph (1) of section 960(a) (relating to special rules for foreign tax credits) is amended to read as follows: “(1) Deemed paid credit.—For purposes of subpart A of this part, if there is included under section 951(a) in the gross income of a domestic corporation any amount attributable to earnings and profits of a foreign corporation which is a member of a qualified group (as defined in section 902(b)) with respect to the domestic corporation, then, except to the extent provided in regulations, section 902 shall be applied as if the amount so included were a dividend paid by such foreign corporation (determined by applying section 902(c) in accordance with section 904(d)(3)(B)).”. (c) Effective Date.— (1) In general.—The amendments made by this section shall apply to taxes of foreign corporations for taxable years of such corporations beginning after the date of enactment of this Act. (2) Special rule.—In the case of any chain of foreign corporations described in clauses (i) and (ii) of section 902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended by this section), no liquidation, reorganization, or similar transaction in a taxable year beginning after the date of the enactment of this Act shall have the effect of permitting taxes to be taken into account under section 902 of the Internal Revenue Code of 1986 which could not have been taken into account under such section but for such transaction.