H.R. 11059. An act relating to the effective date of the qualification of Bricklayers Local 45 (Buffalo, N.Y.) pension fund as a qualified trust under section 401(a) of the Internal Revenue Code of 1954:

H.R. 11799. An act defining the interest of local public agencies in water reservoirs constructed by the Government which have been financed partially by such agencies;

H.R. 11951. An act to provide for the transportation of mail by aircraft upon star routes within the Commonwealth of Puerto Rico;

H.R. 12402. An act for the relief of Concetta Maria, Rosetta, and Tomasino Mangiaracina;

H.R. 12451. An act to authorize reimbursement to appropriations of the U.S. Secret Service of moneys expended for the purchase of counterfeits;

H.R. 12539. An act for the relief of Leslie O. Cox and other employees of the Federal Aviation Agency;

H.R. 12650. An act for the relief of Luella O. Babb;

H.R. 12907. An act for the relief of Dr. Mehmet Vecihi Kalaycioglu; and

H.J. Res. 730. Joint resolution to authorize the President to proclaim May 15 of each year as Peace Officers Memorial Day and the calendar week of each year during which such May 15 occurs as Police Week.

HOUSE BILLS AND JOINT RESOLUTION
REFERRED

The bills and joint resolution, this day received from the House of Representatives for concurrence, were severally read the first and second times by unanimous consent,

Ordered, That the bills H.R. 1362, H.R. 1480, H.R. 1483, H.R. 1598, H.R. 2675, H.R. 2977, H.R. 2978, H.R. 4034, H.R. 7123, H.R. 7438, H.R. 8483, H.R. 8855, H.R. 9472, H.R. 9578, H.R. 9893, H.R. 10002. H.R. 10199, H.R. 10316, H.R. 10605. H.R. 10881, H.R. 10897, H.R 12402. H.R. 12451, H.R. 12539, H.R. 12650, H.R. 12907, and the joint resolution H.J. Res. 730 be referred to the Committee on the Judiciary:

That the bills H.R. 2079, H.R. 10936, and H.R. 11951 be referred to the Committee on Post Office and Civil Service:

That the bills H.R. 8517 and H.R. 11059 be referred to the Committee on Finance; and

That the bill H.R. 11799 be referred to the Committee on Public Works.

REVENUE ACT OF 1962

The Senate resumed the consideration of its unfinished business, viz, the bill (H.R. 10650) to amend the Internal Revenue Code of 1954 to provide a credit for investment in certain depreciable property, to eliminate certain defects and inequities, and for other purposes.

On motion by Mr. GORE (for himself and Mr. DOUGLAS) to further amend the bill by striking out all on line 9, page 175, down to and including line 18, on page 245, as amended, and inserting in lieu thereof other words, Pending debate,

On motion by Mr. MANSFIELD, and by unanimous consent,

Ordered, That further debate on the pending amendment be limited to 20 minutes, to be equally divided and controlled by Mr. GORE and Mr. KERR.

On motion by Mr. MANSFIELD, and by unanimous consent,

The yeas and nays were ordered on the question of agreeing to the amend

ment.

After debate,

The question being taken on agreeing to the amendment, viz, strike out all on line 9. page 175, down to and including line 18, on page 245, as amended, and insert in lieu thereof the following: Sec. 12. Controlled Foreign Corporations.

(a) In General.—Part III of subchapter N of chapter 1 (relating to income from sources without the United States) is amended by adding at the end thereof the following new subpart: "Subpart F-Controlled Foreign Corporations

"Sec. 951. Amounts included in gross income of United States shareholders. "Sec. 952. Limitations on amounts included in gross income of United States shareholders.

"Sec. 954.

"Sec. 953. Less developed country corporations defined. Withdrawal of previously excluded foreign base company income from qualified investment. "Sec. 955. Investment of earnings in United States property.

"Sec. 956. Controlled foreign corporations. "Sec. 957. Rules for determining stock ownership.

"Sec. 958. Exclusion from gross income of previously tazed earnings and profits.

"Sec. 959. Special rules for foreign tax credit.

"Sec. 960. Adjustments to basis of stock in controlled foreign corporations and of other property. Miscellaneous provisions. Inclusion on a consolidated basis of earnings and profits.

"Sec. 961. “Sec. 962.

"Sec. 951. Amounts included in gross income of United States shareholders.

"(a) Amounts Included.— "(1) In general.-If a foreign corporation is a controlled corporation on any day of a taxable year beginning after December 31, 1962, every person who is a United States shareholder (as defined in subsection (b)) of such corporation and who owns (within the meaning of section 957 (a)) stock in such corporation on the last day, in such year, on which such corporation is a controlled foreign corporation shall include in his gross income, for his taxable year in which or with which such taxable year of the corporation ends

"(A) in case of a controlled foreign corporation which is not a less developed country corporation (as defined in section 953(a)), his pro rata share (determined under paragraph (2)) of the corporation's earnings and profits for such year; and

"(B) his pro rata share (determined under section 955(a) (2)) of the cor

poration's increase in earnings invested in United States property for such year (but only to the extent not excluded from gross income under section 958(a)(2)).

"(2) Pro rata share of earnings and profits.—The pro rata share referred to in paragraph (1)(A) in the case of any United States shareholder is the amount

“(A) which would have been distributed with respect to the stock which such shareholder owns (within the meaning of section 957(a)) in such corporation if on the last day, in its taxable year, on which the corporation is a controlled foreign corporation it had distributed pro rata to its shareholders an amount (1) which bears the same ratio to its earnings and profits for the taxable year, as t the part of such year during which the corporation is a controlled foreign corporation bears to the entire year, reduced by

"(B)_the_amount of any distribution received by any other United States person during such year as a dividend with respect to such stock.

"(3) Limitation on pro rata share of investment in United States property.— For purposes of paragraph (1)(B), the pro rata share of any United States shareholder in the increase of the earnings of a controlled foreign corporation inrested in United States property shall not exceed an amount (A) which bears the same ratio to his pro rata share of such increase (as determined under section 955(a)(2) for the taxable year, as (B) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year.

"(b) United States Shareholder Defined. For purposes of this subpart, the term 'United States shareholder' means, with respect to any foreign corporation, United States person (as defined in section 7701(a)(30)) who owns (within the meaning of section 957(a), or is considered as owning by applying the rules of ownership of section 957(b), 10 percent or more of the total combined roting power of all classes of stock, or of the total value of shares of all classes of stock, of such foreign corporation.

"(c) Coordination With Election of a Foreign Investment Company To Distribute Income.-A United States shareholder who, for his taxable year, is a qualified shareholder (within the meaning of section 1247(c)) of a foreign investment company with respect to which an election under section 1247 is in effect shall not be required to include in gross income, for such taxable year, any amount under subsection (a) with respect to such company.

"Sec. 952. Limitations on amount in cluded in gross income of United States Shareholders. “(a) In General.—For purposes of section 951(a) the term 'earnings and profits for the taxable year' means, in the case of any controlled foreign corporation, the earnings and profits as defined

in section 316(a) (2) for the taxable year subject to the provisions of subsections (b) and (c).

"(b) Exclusion of United States Income.-Earnings and profits do not include any item includible in gross income under this chapter (other than this subpart) as income derived from sources within the United States of a foreign corporation engaged in trade or business in the United States.

"(c) Limitation.-For purposes of subsection (a), the earnings and profits of any controlled foreign corporation for any taxable year shall not exceed the earnings and profits of such corporation for such year reduced by the amount (if any) by which

"(1) the sum of the deficits in earnings and profits for prior taxable years beginning after December 31, 1962, exceeds

"(2) an amount equal to the earnings and profits described in section 958 (c) (3) accumulated for taxable years beginning after December 31, 1962 (determined as of the close of the taxable year).

For purposes of the preceding sentence, any deficit in earings and profits for any prior taxable year shall be taken into account under paragraph (1) for any taxable year only to the extent it has not been taken into account under such paragraph for any preceding taxable year to reduce earnings and profits of such preceding year.

"(d) Special Rule in Case of Indirect Ownership.-For purposes of subsection (c), if

"(1) a United States shareholder owns (within the meaning of section 957 (a)) stock of a foreign corporation, and by reason of such ownership owns (within the meaning of such section) stock of any other foreign corporation, and

"(2) any of such foreign corporations has a deficit in earnings and profits for the taxable year, then the earnings and profits for the taxable year of each such foreign corporation which is a controlled foreign corporation shall, with respect to such United States shareholder, be properly reduced to take into account any deficit described in paragraph (2) in such manner as the Secretary or his delegate shall prescribe by regulations. "Sec. 953. Less Developed Country Corporations Defined.

"(a) Less Developed Country Corporations.

"(1) In general.-For purposes of this subpart, the term 'less developed country corporation' means a foreign corporation which during the taxable year is engaged in the active conduct of one or more trades or businesses and

"(A) 80 percent or more of the gross income of which for the taxable year is derived from sources within less developed countries other than as foreign base company income or as previously excluded foreign base company income withdrawn from qualified investment in less developed country corporations,

"(B) 80 percent or more in value of the assets of which on each day of the taxable year consists of

"(i) property used in such trades or businesses and located in less developed countries,

"(ii) money, and deposits with persons carrying on the banking business, located in less developed countries,

"(iii) stock, and obligations which, at the time of their acquisition, have a maturity of 5 years or more, of any other less developed country corporation,

"(iv) obligations of the government of a less developed country,

"(v) an investment which is required because of restrictions imposed by a less developed country, and

"(vi) property described in section 955(b) (2); and

"(C) is created or organized under the laws of one of the less developed countries in which property described in subparagraph (B) (i) is located. For purposes of subparagraph (A), the determination as to whether income is derived from sources within less developed countries shall be made under regulations prescribed by the Secretary or his delegate and, for purposes of subparagraph (A) only, amounts previously excluded from foreign base company income withdrawn from qualified investment in less developed country corporations shall be treated as included in gross income.

"(2) Less developed country defined.For purposes of this subpart, the term 'less developed country' means (in respect of any foreign corporation) any foreign country (other than an area within the Sino-Soviet bloc) or any possession of the United States, with respect to which on the first day of the taxable year, there is in effect an Executive order by the President of the United States designating such country or possession as an economically less developed country for purposes of this subpart. For purposes of the preceding sentence, an overseas territory, department, province, or possession may be treated as a separate country. No designation shall be made under this paragraph with respect to Australia, Austria, Belgium, Canada, Denmark, France, Germany (Federal Republic), Hong Kong, Italy, Japan, Liechtenstein, Luxembourg, Monaco, Netherlands, New Zealand, Norway, San Marino, Sweden, Switzerland, Union of South Africa, United Kingdom.

"(b) Foreign Base Company Income.For purposes of section 952(a) (2), the term 'foreign base company income' means for any taxable year the sum of

"(1) the foreign personal holding company income for the taxable year (determined under subsection (d)),

"(2) the foreign base company sales income for the taxable year (determined under subsection (e)), and

"(3) the foreign base company services income for the taxable year (determined under subsection (f)).

"(c) Exclusions and Special Rules."(1) Certain dividends and interest from less developed country corporations excluded.-For purposes of subsection (b), foreign base company income does not include dividends and interest received during the taxable year by a controlled foreign corporation from qualified investments in less developed country corporations (as defined in section 954 (d)), to the extent that such dividends and interest do not exceed the increase for the taxable year in qualified investments in less developed country corporations of the controlled foreign corporation (as determined under subsection (g)).

"Exception for foreign corporations not availed of to reduce taxes.-For purposes of subsection (b), foreign base company income does not include any item of income received by a controlled foreign corporation if it is established to the satisfaction of the Secretary or his delegate with respect to such item that the creation or organization of the controlled foreign corporation receiving such item under the laws of the foreign country in which it is incorporated does not have the effect of substantial reduction of income, war profits, excess profits, or similar taxes.

"(3) Items of income to be included only once. If an item of income would, but for the provisions of this paragraph, be includible as an item of income under more than one paragraph of subsection (b), such item shall be included under the paragraph specified by regulations prescribed by the Secretary or his delegate.

"(d) Foreign Personal Holding Company Income.—

"(1) In general.-For purposes of subsection (b) (1), the term "foreign personal holding company income" means the foreign personal holding company income (as defined in section 553), modified and adjusted as provided in paragraphs (2), (3), and (4).

"(2) Rents included without regard to 50 percent limitation.-For purposes of paragraph (1), all rents shall be included in foreign personal holding company income without regard to whether or not such rents constitute more than 50 percent of gross income.

"(3) Certain income derived in active conduct of trade or business.-For purposes of paragraph (1), foreign personal holding company income does not include dividends, interest, rents, and royalties which

"(A) are derived in the active conduct of a trade or business; and

"(B) are received from a person other than a related person (within the meaning of subsection (e) (3)).

"(4) Certain income received from related persons.-For purposes of paragraph (1), foreign personal holding company income does not include

"(A) dividends and interest received from a related person which (i) is organized under the laws of the same foreign country under the laws of which the controlled foreign corporation is created or organized, and (ii)

has a substantial part of its assets used in its trade, or business located in such same foreign country; or

"(B) rents, royalties, and similar amounts received from a related person for the use of, or the privilege of using, property within the country under the laws of which the controlled foreign corporation is created or organized.

"(e) Foreign Base Company Sales In

come.

"(1) In general.-For purposes of subsection (b) (2), the term 'foreign base company sales income' means income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with the purchase of personal property from a related person and its sale to any person, the sale of personal property to any person on behalf of a related person, the purchase of personal property from any person and its sale to a related person, or the purchase of personal property from any person on behalf of a related person, where—

"(A) the property which is purchased (or in the case of property sold on behalf of a related person, the property which is sold) is manufactured, produced, grown, or extracted outside the country under the laws of which the controlled foreign corporation is created or organized, and

"(B) the property is sold for use, consumption, or disposition outside such foreign country, or, in the case of property purchased on behalf of a related person, is purchased for use, consumption, or disposition outside such foreign country.

"(2) Certain branch income.-For purposes of determining foreign base company sales income (within the terms of paragraph (1)), in situations in which the carrying on of activities by a controlled foreign corporation through a branch or similar establishment outside the country of incorporation of the controlled foreign corporation has substantially the same effect as if such branch or similar establishment were a wholly owned subsidiary corporation deriving such income, then, under regulations prescribed by the Secretary or his delegate, the income attributable to the carrying on of such activities of such branch or similar establishment shall be treated as income derived by a wholly owned subsidiary of the controlled foreign corporation and shall constitute foreign base company sales income of the controlled foreign corporation.

"(3) Related person defined.-For purposes of this section, a person is a related person with respect to a controlled foreign corporation, if

"(A) such person is an individual, partnership, trust, or estate which controls the controlled foreign corporation;

"(B) such person is a corporation which controls, or is controlled by, the controlled foreign corporation; or

"(C) such person is a corporation which is controlled by the same person or persons which control the controlled foreign corporation.

For purposes of the preceding sentence, control means the ownership, directly or indirectly, of stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote. For purposes of this paragraph, the rules for determining ownership of stock prescribed by section 957 shall apply.

"(f) Foreign Base Company Services Income-For purposes of subsection (b) (c), the term 'foreign base company services income' means income (whether in the form of compensation, commissions, fees, or otherwise) derived in connection with the performance or furnishing of technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial, or like services which are—

"(1) performed or furnished for or on behalf of any related person (within the meaning of subsection (e) (3)), and

“(2) are performed or furnished for or in connection with business activities carried on by such related person outside the country under the laws of which the controlled foreign corporation is created or organized.

"(g) Increase in Qualified Investments in Less Developed Country Corporations. For purposes of subsection (c) (1), the increase for any taxable year in qualified investments in less developed country corporations of any controlled foreign corporation is the amount by which

“(1) the qualified investments in less developed country corporations (as defined in section 954(b)) of the controlled foreign corporation at the close of the taxable year, exceeds

"(2) the qualified investments in less developed country corporations (as so defined) of the controlled foreign corporation at the close of the preceding taxable year.

"Sec. 954. Withdrawal of previously ex

cluded foreign base company income from qualified investment. "(a) General Rules.

“(1) Amount withdrawn.—For purposes of this subpart, the amount of previously excluded foreign base company income of any controlled corporation withdrawn from investment in less developed country corporations for any taxable year is an amount equal to the decrease in the amount of qualified investments in less developed country corporations of the controlled foreign corporation for such year, but only to the extent that the amount of such decrease does not exceed an amount equal to—

"(A) the sum of the amounts excluded under section 953(b) (1) from the foreign base company income of such corporation for all prior taxable years, reduced by

"(B) the sum of the amounts previously excluded from foreign base company income withdrawn from investment in less developed country corporations of such corporation determined under this subsection for all prior taxable years.

"(2) Decrease in qualified investments. For purposes of paragraph (1),

the amount of the decrease in qualified investments in less developed country corporations of any controlled foreign corporation for any taxable year is the amount by which—

"(A) the amount of qualified investments in less developed country corporations of the controlled foreign corporation at the close of the preceding taxable year, exceeds

"(B) the amount of qualified in vestments in less developed country corporations of the controlled foreign corporation at the close of the taxable year, to the extent the amount of such decrease does not exceed the sum of the earnings and profits for the taxable year and the earnings and profits accumulated for prior taxable years beginning after December 31, 1962. For purposes of this paragraph, if qualified investments in less developed country corporations are disposed of by the controlled foreign corporation during the taxable year, the amount of the decrease in qualified investments in less developed country corporations of such controlled foreign corporation for such year shall be reduced by an amount equal to the amount (if any) by which the losses on such dispositions during such year exceed the gains on such dispositions during such year.

"(3) Pro rata share of amount withdrawn.—In the case of any United States shareholder the pro rata share of the amount of previously excluded foreign base company income of any controlled foreign corporation withdrawn from investment in less developed country corporation for any taxable year is his pro rata share of the amount determined under paragraph (1).

"(b) Qualified Investments in Less Developed Country Corporations.—

"(1) In general.-For purposes of this subpart, the term 'qualified investments in less developed country corporations' means property acquired after December 31, 1962, which is—

"(A) stock of a less developed country corporation held by the controlled foreign corporation, but only if the controlled foreign corporation owns 10 percent or more of the total combined voting power of all classes of stock, or of the total value of shares of all classes of stock, of such less developed country corporation; or

"(B) an obligation of a less developed country corporation held by the controlled foreign corporation, which, at the time of its acquisition by the controlled foreign corporation, has a maturity of 5 years or more, but only if the controlled foreign corporation owns 10 percent or more of the total combined voting power of all classes of stock, or of the total value of shares of all classes of stock, of such less developed country corporation.

"(2) Country ceases to be less developed country.—For purposes of this subpart, property which would be a qualified investment in less developed country corporations, but for the fact that a foreign country has, after the acquisition

of such property by the controlled foreign corporation, ceased to be a less developed country, shall be treated as a qualified investment in less developed country corporations.

"(3) Investments after close of year.For purposes of this subpart, a controlled foreign corporation may, under regulations prescribed by the Secretary or his delegate, elect to treat property described in paragraph (1) or (2) which was acquired after the close of a taxable year and on or before the close of the following taxable year, or on or before such day after the close of the following taxable year as such regulations may prescribe, as having been acquired on the last day of such year.

"(4) Amount attributable to property. The amount taken into account under this subpart with respect to any property described in paragraph (1) or (2) shall be its adjusted basis, reduced by any liability to which such property is subject.

"Sec. 955. Investment of earnings in United States Property.

"(a) General Rules. For purposes of this subpart

"(1) Amount of investment.-The amount of earnings of a controlled foreign corporation invested in United States property at the close of any taxable year is the aggregate amount of such property held, directly or indirectly, by the controlled foreign corporation at the close of the taxable year, to the extent such amount would have constituted a dividend (determined after the application of section 954(a)) if it had been distributed.

"(2) Pro rata share of increase for year. In the case of any United States shareholder, the pro rata share of the increase for any taxable year in the earnings of a controlled foreign corporation invested in United States property is the amount determined by subtracting-

"(A) his pro rata share of the amount determined under paragraph (1) for the close of the preceding taxable year, reduced by amounts paid during the taxable year to which section 958 (c) (1) applies, from

"(B) his pro rata share of the amount determined under paragraph (1) for the close of the taxable year.

"(3) Amount attributable to property. The amount taken into account under paragraph (1) or (2) with respect to any property shall be its adjusted basis, reduced by any liability to which the property is subject.

"(b) United States Property Defined.

"(1) In general.-For purposes of subsection (a), the term 'United States property' means any property acquired after December 31, 1962, which is

"(A) tangible property located in the United States;

"(B) stock of a domestic corporation; or

"(C) an obligation of a United States person.

"(2) Exceptions.-For purposes of subsection (a), the term 'United States property' does not include

"(A) money, or deposits with persons carrying on the banking business, located in the United States;

"(B) property located in the United States which is purchased in the United States for export to, or use in, foreign countries;

"(C) any obligation of a United States person arising in connection with the sale of property if the amount of such obligation outstanding at no time during the taxable year exceeds the amount which would be ordinary and necessary to carry on the trade or business of both the other party to the sale transaction and the United States person had the sale been made between unrelated persons;

"(D) any aircraft, railroad rolling stock, vessel, motor vehicle, or container used in the transportation of persons or property in foreign commerce and used predominantly outside the United States; or

"(E) the amount of assets of an insurance company equivalent to the unearned premiums on outstanding business with respect to resinsurance contracts or insurance or annuity contracts

"(i) in connection with property or liability arising out of activity in, or in connection with the lives or health of residents of, the United States, or

"(ii) in connection with property not included in subdivision (i) as the result of any arrangement whereby another corporation receives a substantially equal amount of premiums or other consideration in respect of any reinsurance or the issuing of any insurance or annuity contract in connection with property or liability arising out of activity in, or in connection with the lives or health of residents of, the United States.

"(c) Pledges and Guarantees.-For purposes of subsection (a), a controlled foreign corporation shall, under regulations prescribed by the Secretary or his delegate, be considered as holding an obligation of a United States person if it is a pledgor or guarantor of such obligation.

"Sec. 956. Controlled foreign corporations.

"(a) General Rule.-For purposes of this subpart, the term 'controlled foreign corporation' means any foreign corporation of which more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned (within the meaning of section 957 (a), or is considered as owned by applying the rules of ownership of section 957(b), by United States shareholders on any day during the taxable year by such foreign corporation.

"(b) Corporations Organized in United States Possessions.-For purposes of this subpart, the term 'controlled foreign corporation' does not include any corpora

tion created or organized in the Commonwealth of Puerto Rico or a possession of the United States or under the law of the Commonwealth of Puerto Rico or a possession of the United States if—

"(1) 80 percent or more of the gross income of such corporation (computed without regard to section 931) for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within the Commonwealth of Puerto Rico or a possession of the United States; and

"(2) 50 percent or more of the gross income of such corporation (computed without regard to section 931) for such period, or for such part thereof, was derived from the active conduct within the Commonwealth of Puerto Rico or a possession of the United States of any trades or businesses constituting the manufacture or processing of goods, ware, merchandise, or other tangible personal property; the processing of agricultural or horticultural products or commodities (including but not limited to livestock, poultry or fur-bearing animals); the catching or taking of any kind of fish or mining or extraction of natural resources, or any other manufacturing or processing of any products or commodities obtained from such activities; or the ownership or operation of hotels. For purposes of paragraphs (1) and (2), the determination as to whether income was derived from sources within the Commonwealth of Puerto Rico or a possession of the United States and was derived from the active conduct of a described trade or business within the Commonwealth of Puerto Rico or a possession of the United States shall be made under regulations prescribed by the Secretary or his delegate. "Sec. 957. Rules for determining stock ownership.

"(a) Direct and Indirect Ownership.— "(1) General rule.-For purposes of this subpart (other than sections 954(b) (1) (A) and (B)), stock owned means"(A) stock owned directly, and "(B) stock owned with the application of paragraph (2).

"(2) Stock ownership through foreign entities. For purposes of subparagraph (B) of paragraph (1), stock owned, directly or indirectly, by or for a foreign corporation, foreign partnership, or foreign trust or foreign estate (within the meaning of section 7701(a) (31)) shall be considered as being owned proportionately by its shareholders, partners, or beneficiaries. Stock considered to be owned by a person by reason of the application of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person.

"(3) Special rule for mutual insurance companies.-For purposes of applying paragraph (1) in the case of a foreign mutual insurance company, the term 'stock' shall include any certificate

entitling the holder to voting power in the corporation.

"(b) Constructive Ownership.—For purposes of section 951(b), 953(e)(3), and 956, section 318(a) (relating to constructive ownership of stock) shall apply to the extent that the effect is to treat any United States persons as a United States shareholder within the meaning of section 953 (e) (3), or to treat a foreign corporation as a controlled foreign corporation under section 956, except

"(1) In applying paragraph (1)(A) of section 318(a), stock owned by a nonresident alien individual (other than a foreign trust or foreign estate) shall not be considered as owned by citizen or by a resident alien individual.

"(2) In applying the first sentence of subparagraphs (A) and (B), and in applying clause (i) of subparagraph (C), of section 318(a) (2)—

“(A) if a partnership, estate, trust, or corporation owns, directly or indirectly, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of a corporation, it shall be considered as owning all the stock entitled to vote, and

"(B) if a partnership, estate, trust, or corporation owns, directly or indirectly, more than 50 percent of the total value of shares of all classes of stock of a corporation, it shall be considered as owning the total value of all of the outstanding stock of such corporation. The application of this subparagraph shall not have the effect of increasing voting power of a partner, beneficiary, or shareholder, for purposes of subparagraph (A).

"(3) Stock owned by a partnership, estate, trust, or corporation, by reason of the application of the second sentence of subparagraphs (A) and (B), and the application of clause (it) of subparagraph (C), of section 318(a) (2), shall not be considered as owned by such partnership, estate, trust, or corporation, for the purposes of applying the first sentence of subparagraphs (A) and (B), and in applying clause (i) of subparagraph (C), of section 318(a)(2).

“(4) In applying clause (i) of subparagraph (C) of section 318(a)(2), the phrase '10 percent' shall be substituted for the phrase '50 percent' used in subparagraph (C),

"Sec. 958. Exclusion from gross income of previously taxed earnings and profits.

"(a) Exclusion From Gross Income of United States Persons.-For purposes of this chapter, the earnings and profits for a taxable year of a foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a) shall not, when

"(1) such amounts are distributed to, or

"(2) such amounts would, but for this subsection, be included under section 951 (a) (1) (B) in the gross income of,

such shareholder (or any other United States person who acquires from any person any portion of the interest of such United States shareholder in such foreign corporation, but only to the extent of such portion, and subject to such proof of the identity of such interest as the Secretary or his delegate may by regulations prescribe) directly, or indirectly through a chain of ownership described under section 957 (a), be again included in the gross income of such United States shareholder (or of such other United States person).

to

"(b) Exclusion From Gross Income of Certain Foreign Subsidiaries.-For purposes of section 951(a), the earnings and profits for a taxable year of a controlled foreign corporation attributable amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a), shall not, when distributed through a chain of ownership described under section 957(a), be also included in the gross income of another controlled foreign corporation in such chain for purposes of the application of section 951 (a) to such other controlled foreign corporation with respect to such United States shareholder (or to any other United States shareholder who acquires from any person any portion of the interest of suck United States shareholder in the controlled foreign corporation, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary or his delegate may prescribe by regulations).

"(c) Allocation of Distributions. For purposes of subsections (a) and (b), section 316(a) shall be applied by applying paragraph (2) thereof, and then paragraph (1) thereof

"(1) first to earnings and profits attributable to amounts included in gross income under section 951 (a) (1) (B) (or which would have been included except for subsection (a) (2).

"(2) then to earnings and profits attributable to amounts included in gross income under section 951 (a) (1) (A) but reduced by amounts not included under section 951(a) (1) (B) because of the exclusion in subsection (a)(2), and

"(3) then to other earnings and profits.

"(d) Distributions Excluded From Gross Income Not To Be Treated as Dividends-Except as provided in section 959 (a) (3), any distribution excluded from gross income under subsection (a) shall be treated, for purposes of this chapter, as a distribution which is not a

dividend.

"Sec. (a) 959. Special rules for foreign tax credit.

"(a) Taxes Paid by a Foreign Corporation.

"(1) General rule.-For purposes of subpart A of this part, if there is in

cluded, under section 951(a), in the gross income of a domestic corporation any amount attributable to earnings and profits

“A) of a foreign corporation at least 10 percent of the roting stock of which is directly owned by such domestic corporation, or

"B of a foreign corporation at least 50 percent of the roting stock of which is directly owned by a foreign corporation at least 10 percent of the roting stock of which is in turn directly owned by such domestic corporation.

then, under regulations prescribed by the Secretary or his delegate, such domestic corporation shall be deemed to have paid the same proportion of the total income, war profits, and excess profits taxes paid (or deemed paid, if paragraph (4) applies by such foreign corporation to a foreign country or possession of the United States for the taxable year which the amount of earnings and profits of such foreign corporation so included in gross income of the domestic corporation bears to the entire amount of the total earnings and profits of such foreign corporation for such taxable year.

"(2) Tazes previously deemed paid by domestic corporation.—If a domestic corporation receives a distribution from a foreign corporation, any portion of which is excluded from gross income under section 958, the income, war profits, and excess profits tazes paid or deemed paid by such foreign corporation to any foreign country or to any possession of

the United States in connection with the earnings and profits of such foreign corporation from which such distribution is made shall not be taken into account for purposes of section 902, to the extent such taxes were deemed paid by such domestic corporation under paragraph (1) for any prior taxable year.

"(3) Tazes paid by foreign corporation and not previously deemed paid by domestic corporation.—Any portion of a distribution from a foreign corporation received by a domestic corporation which is excluded from gross income under section 958 a) shall be treated by the domestic corporation as a dividend, solely for purposes of taking into account under section 902 any income, war profits, or excess profits taxes paid to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such foreign corporation from which such distribution is made, which were not deemed paid by the domestic corporation under paragraph (1) for any prior taxable year.

"(4) Taxes paid by a foreign subsidiary-11 subparagraph (A) of paragraph (1) applies with respect to an amount included in gross income under section 951(a) for a taxable year, then such amount shall be considered a dividend for purpose of the application of section 902(b).

**(5) Inclusion in gross income.—