termination of special rules for interest and dividends received from persons meeting the 80-percent foreign business requirements

termination of special rules for interest and dividends received from persons meeting the 80-percent foreign business requirementsSec. 217. (a) In General.—Paragraph (1) of section 861(a) of the Internal Revenue Code of 1986 is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.(b) Grandfather Rule With Respect To Withholding on Interest and Dividends Received From Persons Meeting the 80-percent Foreign Business Requirements.—(1) In general.—Subparagraph (B) of section 871(i)(2) of the Internal Revenue Code of 1986 is amended to read as follows:“(B) The active foreign business percentage of—“(i) any dividend paid by an existing 80/20 company, and“(ii) any interest paid by an existing 80/20 company.”.(2) Definitions and special rules.—Section 871 of such Code is amended by redesignating subsections (l) and (m) as subsections (m) and (n), respectively, and by inserting after subsection (k) the following new subsection:“(l) Rules Relating to Existing 80/20 Companies.—For purposes of this subsection and subsection (i)(2)(B)—“(1) Existing 80/20 company.—“(A) In general.—The term ‘existing 80/20 company’ means any corporation if—124 STAT. 2401“(i) such corporation met the 80-percent foreign business requirements of section 861(c)(1) (as in effect before the date of the enactment of this subsection) for such corporation’s last taxable year beginning before January 1, 2011,“(ii) such corporation meets the 80-percent foreign business requirements of subparagraph (B) with respect to each taxable year after the taxable year referred to in clause (i), and“(iii) there has not been an addition of a substantial line of business with respect to such corporation after the date of the enactment of this subsection.“(B) Foreign business requirements.—“(i) In general.—Except as provided in clause (iv), a corporation meets the 80-percent foreign business requirements of this subparagraph if it is shown to the satisfaction of the Secretary that at least 80 percent of the gross income from all sources of such corporation for the testing period is active foreign business income.“(ii) Active foreign business income.—For purposes of clause (i), the term ‘active foreign business income’ means gross income which—“(I) is derived from sources outside the United States (as determined under this subchapter), and“(II) is attributable to the active conduct of a trade or business in a foreign country or possession of the United States.“(iii) Testing period.—For purposes of this subsection, the term ‘testing period’ means the 3-year period ending with the close of the taxable year of the corporation preceding the payment (or such part of such period as may be applicable). If the corporation has no gross income for such 3-year period (or part thereof), the testing period shall be the taxable year in which the payment is made.“(iv) Transition rule.—In the case of a taxable year for which the testing period includes 1 or more taxable years beginning before January 1, 2011—“(I) a corporation meets the 80-percent foreign business requirements of this subparagraph if and only if the weighted average of—“(aa) the percentage of the corporation’s gross income from all sources that is active foreign business income (as defined in subparagraph (B) of section 861(c)(1) (as in effect before the date of the enactment of this subsection)) for the portion of the testing period that includes taxable years beginning before January 1, 2011, and“(bb) the percentage of the corporation’s gross income from all sources that is active foreign business income (as defined in clause (ii) of this subparagraph) for the portion of the testing period, if any, that includes taxable years beginning on or after January 1, 2011,is at least 80 percent, and124 STAT. 2402“(II) the active foreign business percentage for such taxable year shall equal the weighted average percentage determined under subclause (I).“(2) Active foreign business percentage.—Except as provided in paragraph (1)(B)(iv), the term ‘active foreign business percentage’ means, with respect to any existing 80/20 company, the percentage which—“(A) the active foreign business income of such company for the testing period, is of“(B) the gross income of such company for the testing period from all sources.“(3) Aggregation rules.—For purposes of applying paragraph (1) (other than subparagraphs (A)(i) and (B)(iv) thereof) and paragraph (2)—“(A) In general.—The corporation referred to in paragraph (1)(A) and all of such corporation’s subsidiaries shall be treated as one corporation.“(B) Subsidiaries.—For purposes of subparagraph (A), the term ‘subsidiary’ means any corporation in which the corporation referred to in subparagraph (A) owns (directly or indirectly) stock meeting the requirements of section 1504(a)(2) (determined by substituting ‘50 percent’ for ‘80 percent’ each place it appears and without regard to section 1504(b)(3)).“(4) Regulations.—The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section, including regulations or other guidance which provide for the proper application of the aggregation rules described in paragraph (3).”.(c) Conforming Amendments.—(1) Section 861 of the Internal Revenue Code of 1986 is amended by striking subsection (c) and by redesignating subsections (d), (e), and (f) as subsections (c), (d), and (e), respectively.(2) Paragraph (9) of section 904(h) of such Code is amended to read as follows:“(9) Treatment of certain domestic corporations.—In the case of any dividend treated as not from sources within the United States under section 861(a)(2)(A), the corporation paying such dividend shall be treated for purposes of this subsection as a United States-owned foreign corporation.”.(3) Subsection (c) of section 2104 of such Code is amended in the last sentence by striking “or to a debt obligation of a domestic corporation” and all that follows and inserting a period.(d) Effective Date.—(1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2010.(2) Grandfather rule for outstanding debt obligations.—(A) In general.—The amendments made by this section shall not apply to payments of interest on obligations issued before the date of the enactment of this Act.(B) Exception for related party debt.—Subparagraph (A) shall not apply to any interest which is payable 124 STAT. 2403 to a related person (determined under rules similar to the rules of section 954(d)(3)).(C) Significant modifications treated as new issues.—For purposes of subparagraph (A), a significant modification of the terms of any obligation (including any extension of the term of such obligation) shall be treated as a new issue.