FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (P.L. 106-519)
FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (P.L. 106-519)
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H.R. 4986, Enrolled Bill
H.R.4986
One Hundred Sixth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Monday, the twenty-fourth day of January, two thousand
An Act
To amend the Internal Revenue Code of 1986 to repeal the provisions relating to foreign sales corporations (FSCs) and to exclude extraterritorial income from gross income.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) SHORT TITLE.--This Act may be cited as the 'FSC Repeal and Extraterritorial Income Exclusion Act of 2000'.
(b) AMENDMENT OF 1986 CODE.--Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
SEC. 2. REPEAL OF FOREIGN SALES CORPORATION RULES.
Subpart C of part III of subchapter N of chapter 1 (relating to taxation of foreign sales corporations) is hereby repealed.
SEC. 3. TREATMENT OF EXTRATERRITORIAL INCOME.
(a) IN GENERAL.--Part III of subchapter B of chapter 1 (relating to items specifically excluded from gross income) is amended by inserting before section 115 the following new section:
'SEC. 114. EXTRATERRITORIAL INCOME.
'(a) EXCLUSION.--Gross income does not include extraterritorial income.
'(b) EXCEPTION.--Subsection (a) shall not apply to extraterritorial income which is not qualifying foreign trade income as determined under subpart E of part III of subchapter N.
'(c) DISALLOWANCE OF DEDUCTIONS.--
'(1) IN GENERAL.--Any deduction of a taxpayer allocated under paragraph (2) to extraterritorial income of the taxpayer excluded from gross income under subsection (a) shall not be allowed.
'(2) ALLOCATION.--Any deduction of the taxpayer properly apportioned and allocated to the extraterritorial income derived by the taxpayer from any transaction shall be allocated on a proportionate basis between--
'(A) the extraterritorial income derived from such transaction which is excluded from gross income under subsection (a), and
'(B) the extraterritorial income derived from such transaction which is not so excluded.
'(e) EXTRATERRITORIAL INCOME.--For purposes of this section, the term 'extraterritorial income' means the gross income of the taxpayer attributable to foreign trading gross receipts (as defined in section 942) of the taxpayer.'.
(b) QUALIFYING FOREIGN TRADE INCOME.--Part III of subchapter N of chapter 1 is amended by inserting after subpart D the following new subpart:
'Subpart E--Qualifying Foreign Trade Income
'Sec. 941. Qualifying foreign trade income.
'Sec. 942. Foreign trading gross receipts.
'Sec. 943. Other definitions and special rules.
'SEC. 941. QUALIFYING FOREIGN TRADE INCOME.
'(a) QUALIFYING FOREIGN TRADE INCOME.--For purposes of this subpart and section 114--
'(1) IN GENERAL.--The term 'qualifying foreign trade income' means, with respect to any transaction, the amount of gross income which, if excluded, will result in a reduction of the taxable income of the taxpayer from such transaction equal to the greatest of--
'(A) 30 percent of the foreign sale and leasing income derived by the taxpayer from such transaction,
'(B) 1.2 percent of the foreign trading gross receipts derived by the taxpayer from the transaction, or
'(C) 15 percent of the foreign trade income derived by the taxpayer from the transaction.
In no event shall the amount determined under subparagraph (B) exceed 200 percent of the amount determined under subparagraph (C).
'(2) ALTERNATIVE COMPUTATION.--A taxpayer may compute its qualifying foreign trade income under a subparagraph of paragraph (1) other than the subparagraph which results in the greatest amount of such income.
'(3) LIMITATION ON USE OF FOREIGN TRADING GROSS RECEIPTS METHOD.--If any person computes its qualifying foreign trade income from any transaction with respect to any property under paragraph (1)(B), the qualifying foreign trade income of such person (or any related person) with respect to any other transaction involving such property shall be zero.
'(4) RULES FOR MARGINAL COSTING.--The Secretary shall prescribe regulations setting forth rules for the allocation of expenditures in computing foreign trade income under paragraph (1)(C) in those cases where a taxpayer is seeking to establish or maintain a market for qualifying foreign trade property.
'(5) PARTICIPATION IN INTERNATIONAL BOYCOTTS, ETC.--Under regulations prescribed by the Secretary, the qualifying foreign trade income of a taxpayer for any taxable year shall be reduced (but not below zero) by the sum of--
'(A) an amount equal to such income multiplied by the international boycott factor determined under section 999, and
'(B) any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) paid by or on behalf of the taxpayer directly or indirectly to an official, employee, or agent in fact of a government.
'(1) IN GENERAL.--The term 'foreign trade income' means the taxable income of the taxpayer attributable to foreign trading gross receipts of the taxpayer.
'(2) SPECIAL RULE FOR COOPERATIVES.--In any case in which an organization to which part I of subchapter T applies which is engaged in the marketing of agricultural or horticultural products sells qualifying foreign trade property, in computing the taxable income of such cooperative, there shall not be taken into account any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).
'(c) FOREIGN SALE AND LEASING INCOME.--For purposes of this section--
'(1) IN GENERAL.--The term 'foreign sale and leasing income' means, with respect to any transaction--
'(A) foreign trade income properly allocable to activities which--
'(i) are described in paragraph (2)(A)(i) or (3) of section 942(b), and
'(ii) are performed by the taxpayer (or any person acting under a contract with such taxpayer) outside the United States, or
'(B) foreign trade income derived by the taxpayer in connection with the lease or rental of qualifying foreign trade property for use by the lessee outside the United States.
'(2) SPECIAL RULES FOR LEASED PROPERTY.--
'(A) SALES INCOME.--The term 'foreign sale and leasing income' includes any foreign trade income derived by the taxpayer from the sale of property described in paragraph (1)(B).
'(B) LIMITATION IN CERTAIN CASES.--Except as provided in regulations, in the case of property which--
'(i) was manufactured, produced, grown, or extracted by the taxpayer, or
'(ii) was acquired by the taxpayer from a related person for a price which was not determined in accordance with the rules of section 482,
the amount of foreign trade income which may be treated as foreign sale and leasing income under paragraph (1)(B) or subparagraph (A) of this paragraph with respect to any transaction involving such property shall not exceed the amount which would have been determined if the taxpayer had acquired such property for the price determined in accordance with the rules of section 482.
'(3) SPECIAL RULES.--
'(A) EXCLUDED PROPERTY.--Foreign sale and leasing income shall not include any income properly allocable to excluded property described in subparagraph (B) of section 943(a)(3) (relating to intangibles).
'(B) ONLY DIRECT EXPENSES TAKEN INTO ACCOUNT.--For purposes of this subsection, any expense other than a directly allocable expense shall not be taken into account in computing foreign trade income.
'(a) FOREIGN TRADING GROSS RECEIPTS.--
'(1) IN GENERAL.--Except as otherwise provided in this section, for purposes of this subpart, the term 'foreign trading gross receipts' means the gross receipts of the taxpayer which are--
'(A) from the sale, exchange, or other disposition of qualifying foreign trade property,
'(B) from the lease or rental of qualifying foreign trade property for use by the lessee outside the United States,
'(C) for services which are related and subsidiary to--
'(i) any sale, exchange, or other disposition of qualifying foreign trade property by such taxpayer, or
'(ii) any lease or rental of qualifying foreign trade property described in subparagraph (B) by such taxpayer,
'(D) for engineering or architectural services for construction projects located (or proposed for location) outside the United States, or
'(E) for the performance of managerial services for a person other than a related person in furtherance of the production of foreign trading gross receipts described in subparagraph (A), (B), or (C).
Subparagraph (E) shall not apply to a taxpayer for any taxable year unless at least 50 percent of its foreign trading gross receipts (determined without regard to this sentence) for such taxable year is derived from activities described in subparagraph (A), (B), or (C).
'(2) CERTAIN RECEIPTS EXCLUDED ON BASIS OF USE; SUBSIDIZED RECEIPTS EXCLUDED.--The term 'foreign trading gross receipts' shall not include receipts of a taxpayer from a transaction if--
'(A) the qualifying foreign trade property or services--
'(i) are for ultimate use in the United States, or
'(ii) are for use by the United States or any instrumentality thereof and such use of qualifying foreign trade property or services is required by law or regulation, or
'(B) such transaction is accomplished by a subsidy granted by the government (or any instrumentality thereof) of the country or possession in which the property is manufactured, produced, grown, or extracted.
'(3) ELECTION TO EXCLUDE CERTAIN RECEIPTS.--The term 'foreign trading gross receipts' shall not include gross receipts of a taxpayer from a transaction if the taxpayer elects not to have such receipts taken into account for purposes of this subpart.
'(b) FOREIGN ECONOMIC PROCESS REQUIREMENTS.--
'(1) IN GENERAL.--Except as provided in subsection (c), a taxpayer shall be treated as having foreign trading gross receipts from any transaction only if economic processes with respect to such transaction take place outside the United States as required by paragraph (2).
'(2) REQUIREMENT.--
'(A) IN GENERAL.--The requirements of this paragraph are met with respect to the gross receipts of a taxpayer derived from any transaction if--
'(i) such taxpayer (or any person acting under a contract with such taxpayer) has participated outside the United States in the solicitation (other than advertising), the negotiation, or the making of the contract relating to such transaction, and
'(ii) the foreign direct costs incurred by the taxpayer attributable to the transaction equal or exceed 50 percent of the total direct costs attributable to the transaction.
'(B) ALTERNATIVE 85-PERCENT TEST.--A taxpayer shall be treated as satisfying the requirements of subparagraph (A)(ii) with respect to any transaction if, with respect to each of at least two subparagraphs of paragraph (3), the foreign direct costs incurred by such taxpayer attributable to activities described in such subparagraph equal or exceed 85 percent of the total direct costs attributable to activities described in such subparagraph.
'(C) DEFINITIONS.--For purposes of this paragraph--
'(i) TOTAL DIRECT COSTS.--The term 'total direct costs' means, with respect to any transaction, the total direct costs incurred by the taxpayer attributable to activities described in paragraph (3) performed at any location by the taxpayer or any person acting under a contract with such taxpayer.
'(ii) FOREIGN DIRECT COSTS.--The term 'foreign direct costs' means, with respect to any transaction, the portion of the total direct costs which are attributable to activities performed outside the United States.
'(A) advertising and sales promotion,
'(B) the processing of customer orders and the arranging for delivery,
'(C) transportation outside the United States in connection with delivery to the customer,
'(D) the determination and transmittal of a final invoice or statement of account or the receipt of payment, and
'(E) the assumption of credit risk.
'(4) ECONOMIC PROCESSES PERFORMED BY RELATED PERSONS.--A taxpayer shall be treated as meeting the requirements of this subsection with respect to any sales transaction involving any property if any related person has met such requirements in such transaction or any other sales transaction involving such property.
'(c) EXCEPTION FROM FOREIGN ECONOMIC PROCESS REQUIREMENT.--
'(1) IN GENERAL.--The requirements of subsection (b) shall be treated as met for any taxable year if the foreign trading gross receipts of the taxpayer for such year do not exceed $5,000,000.
'(2) RECEIPTS OF RELATED PERSONS AGGREGATED.--All related persons shall be treated as one person for purposes of paragraph (1), and the limitation under paragraph (1) shall be allocated among such persons in a manner provided in regulations prescribed by the Secretary.
'(3) SPECIAL RULE FOR PASS-THRU ENTITIES.--In the case of a partnership, S corporation, or other pass-thru entity, the limitation under paragraph (1) shall apply with respect to the partnership, S corporation, or entity and with respect to each partner, shareholder, or other owner.
'(a) QUALIFYING FOREIGN TRADE PROPERTY.--For purposes of this subpart--
'(1) IN GENERAL.--The term 'qualifying foreign trade property' means property--
'(A) manufactured, produced, grown, or extracted within or outside the United States,
'(B) held primarily for sale, lease, or rental, in the ordinary course of trade or business for direct use, consumption, or disposition outside the United States, and
'(C) not more than 50 percent of the fair market value of which is attributable to--
'(i) articles manufactured, produced, grown, or extracted outside the United States, and
'(ii) direct costs for labor (determined under the principles of section 263A) performed outside the United States.
'(2) U.S. TAXATION TO ENSURE CONSISTENT TREATMENT.--Property which (without regard to this paragraph) is qualifying foreign trade property and which is manufactured, produced, grown, or extracted outside the United States shall be treated as qualifying foreign trade property only if it is manufactured, produced, grown, or extracted by--
'(A) a domestic corporation,
'(B) an individual who is a citizen or resident of the United States,
'(C) a foreign corporation with respect to which an election under subsection (e) (relating to foreign corporations electing to be subject to United States taxation) is in effect, or
'(D) a partnership or other pass-thru entity all of the partners or owners of which are described in subparagraph (A), (B), or (C).
Except as otherwise provided by the Secretary, tiered partnerships or pass-thru entities shall be treated as described in subparagraph (D) if each of the partnerships or entities is directly or indirectly wholly owned by persons described in subparagraph (A), (B), or (C).
'(3) EXCLUDED PROPERTY.--The term 'qualifying foreign trade property' shall not include--
'(A) property leased or rented by the taxpayer for use by any related person,
'(B) patents, inventions, models, designs, formulas, or processes whether or not patented, copyrights (other than films, tapes, records, or similar reproductions, and other than computer software (whether or not patented), for commercial or home use), goodwill, trademarks, trade brands, franchises, or other like property,
'(C) oil or gas (or any primary product thereof),
'(D) products the transfer of which is prohibited or curtailed to effectuate the policy set forth in paragraph (2)(C) of section 3 of Public Law 96-72, or
'(E) any unprocessed timber which is a softwood.
For purposes of subparagraph (E), the term 'unprocessed timber' means any log, cant, or similar form of timber.
'(4) PROPERTY IN SHORT SUPPLY.--If the President determines that the supply of any property described in paragraph (1) is insufficient to meet the requirements of the domestic economy, the President may by Executive order designate the property as in short supply. Any property so designated shall not be treated as qualifying foreign trade property during the period beginning with the date specified in the Executive order and ending with the date specified in an Executive order setting forth the President's determination that the property is no longer in short supply.
'(b) OTHER DEFINITIONS AND RULES.--For purposes of this subpart--
'(1) TRANSACTION.--
'(A) IN GENERAL.--The term 'transaction' means--
'(i) any sale, exchange, or other disposition,
'(ii) any lease or rental, and
'(iii) any furnishing of services.
'(B) GROUPING OF TRANSACTIONS.--To the extent provided in regulations, any provision of this subpart which, but for this subparagraph, would be applied on a transaction-by-transaction basis may be applied by the taxpayer on the basis of groups of transactions based on product lines or recognized industry or trade usage. Such regulations may permit different groupings for different purposes.
'(2) UNITED STATES DEFINED.--The term 'United States' includes the Commonwealth of Puerto Rico. The preceding sentence shall not apply for purposes of determining whether a corporation is a domestic corporation.
'(3) RELATED PERSON.--A person shall be related to another person if such persons are treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without regard to section 1563(b).
'(4) GROSS AND TAXABLE INCOME.--Section 114 shall not be taken into account in determining the amount of gross income or foreign trade income from any transaction.
'(c) SOURCE RULE.--Under regulations, in the case of qualifying foreign trade property manufactured, produced, grown, or extracted within the United States, the amount of income of a taxpayer from any sales transaction with respect to such property which is treated as from sources without the United States shall not exceed--
'(1) in the case of a taxpayer computing its qualifying foreign trade income under section 941(a)(1)(B), the amount of the taxpayer's foreign trade income which would (but for this subsection) be treated as from sources without the United States if the foreign trade income were reduced by an amount equal to 4 percent of the foreign trading gross receipts with respect to the transaction, and
'(2) in the case of a taxpayer computing its qualifying foreign trade income under section 941(a)(1)(C), 50 percent of the amount of the taxpayer's foreign trade income which would (but for this subsection) be treated as from sources without the United States.
'(d) TREATMENT OF WITHHOLDING TAXES.--
'(1) IN GENERAL.--For purposes of section 114(d), any withholding tax shall not be treated as paid or accrued with respect to extraterritorial income which is excluded from gross income under section 114(a). For purposes of this paragraph, the term 'withholding tax' means any tax which is imposed on a basis other than residence and for which credit is allowable under section 901 or 903.
'(2) EXCEPTION.--Paragraph (1) shall not apply to any taxpayer with respect to extraterritorial income from any transaction if the taxpayer computes its qualifying foreign trade income with respect to the transaction under section 941(a)(1)(A).
'(e) ELECTION TO BE TREATED AS DOMESTIC CORPORATION.--
'(1) IN GENERAL.--An applicable foreign corporation may elect to be treated as a domestic corporation for all purposes of this title if such corporation waives all benefits to such corporation granted by the United States under any treaty. No election under section 1362(a) may be made with respect to such corporation.
'(2) APPLICABLE FOREIGN CORPORATION.--For purposes of paragraph (1), the term 'applicable foreign corporation' means any foreign corporation if--
'(A) such corporation manufactures, produces, grows, or extracts property in the ordinary course of such corporation's trade or business, or
'(B) substantially all of the gross receipts of such corporation are foreign trading gross receipts.
'(3) PERIOD OF ELECTION.--
'(A) IN GENERAL.--Except as otherwise provided in this paragraph, an election under paragraph (1) shall apply to the taxable year for which made and all subsequent taxable years unless revoked by the taxpayer. Any revocation of such election shall apply to taxable years beginning after such revocation.
'(B) TERMINATION.--If a corporation which made an election under paragraph (1) for any taxable year fails to meet the requirements of subparagraph (A) or (B) of paragraph (2) for any subsequent taxable year, such election shall not apply to any taxable year beginning after such subsequent taxable year.
'(C) EFFECT OF REVOCATION OR TERMINATION.--If a corporation which made an election under paragraph (1) revokes such election or such election is terminated under subparagraph (B), such corporation (and any successor corporation) may not make such election for any of the 5 taxable years beginning with the first taxable year for which such election is not in effect as a result of such revocation or termination.
'(4) SPECIAL RULES.--
'(A) REQUIREMENTS.--This subsection shall not apply to an applicable foreign corporation if such corporation fails to meet the requirements (if any) which the Secretary may prescribe to ensure that the taxes imposed by this chapter on such corporation are paid.
'(B) EFFECT OF ELECTION, REVOCATION, AND TERMINATION.--
'(i) ELECTION.--For purposes of section 367, a foreign corporation making an election under this subsection shall be treated as transferring (as of the first day of the first taxable year to which the election applies) all of its assets to a domestic corporation in connection with an exchange to which section 354 applies.
'(ii) REVOCATION AND TERMINATION.--For purposes of section 367, if--
'(I) an election is made by a corporation under paragraph (1) for any taxable year, and
'(II) such election ceases to apply for any subsequent taxable year,
'(C) ELIGIBILITY FOR ELECTION.--The Secretary may by regulation designate one or more classes of corporations which may not make the election under this subsection.
'(1) IN GENERAL.--If--
'(A) a partnership maintains a separate account for transactions (to which this subpart applies) with each partner,
'(B) distributions to each partner with respect to such transactions are based on the amounts in the separate account maintained with respect to such partner, and
'(C) such partnership meets such other requirements as the Secretary may by regulations prescribe,
then such partnership shall allocate to each partner items of income, gain, loss, and deduction (including qualifying foreign trade income) from any transaction to which this subpart applies on the basis of such separate account.
'(2) SPECIAL RULES.--For purposes of this subpart, in the case of a partnership to which paragraph (1) applies--
'(A) any partner's interest in the partnership shall not be taken into account in determining whether such partner is a related person with respect to any other partner, and
'(B) the election under section 942(a)(3) shall be made separately by each partner with respect to any transaction for which the partnership maintains separate accounts for each partner.
'(1) which is received by a person from an organization to which part I of subchapter T applies which is engaged in the marketing of agricultural or horticultural products, and
'(2) which is allocable to qualifying foreign trade income and designated as such by the organization in a written notice mailed to its patrons during the payment period described in section 1382(d),
shall be treated as qualifying foreign trade income of such person for purposes of section 114. The taxable income of the organization shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.
'(h) SPECIAL RULE FOR DISCS.--Section 114 shall not apply to any taxpayer for any taxable year if, at any time during the taxable year, the taxpayer is a member of any controlled group of corporations (as defined in section 927(d)(4), as in effect before the date of the enactment of this subsection) of which a DISC is a member.'.
SEC. 4. TECHNICAL AND CONFORMING AMENDMENTS.
(2) Section 275(a) is amended--
(A) by striking 'or' at the end of paragraph (4)(A), by striking the period at the end of paragraph (4)(B) and inserting ', or', and by adding at the end of paragraph (4) the following new subparagraph:
'(C) such taxes are paid or accrued with respect to qualifying foreign trade income (as defined in section 941).'; and
(B) by adding at the end the following the following new sentence: 'A rule similar to the rule of section 943(d) shall apply for purposes of paragraph (4)(C).'.
(3) Paragraph (3) of section 864(e) is amended--
(A) by striking 'For purposes of' and inserting:
'(A) IN GENERAL.--For purposes of'; and
(B) by adding at the end the following new subparagraph:
'(B) ASSETS PRODUCING EXEMPT EXTRATERRITORIAL INCOME.--For purposes of allocating and apportioning any interest expense, there shall not be taken into account any qualifying foreign trade property (as defined in section 943(a)) which is held by the taxpayer for lease or rental in the ordinary course of trade or business for use by the lessee outside the United States (as defined in section 943(b)(2)).'.
(4) Section 903 is amended by striking '164(a)' and inserting '114, 164(a),'.
(5) Section 999(c)(1) is amended by inserting '941(a)(5),' after '908(a),'.
(6) The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 115 the following new item:
(a) IN GENERAL.--The amendments made by this Act shall apply to transactions after September 30, 2000.
(b) NO NEW FSCs; TERMINATION OF INACTIVE FSCs.--
(1) NO NEW FSCs.--No corporation may elect after September 30, 2000, to be a FSC (as defined in section 922 of the Internal Revenue Code of 1986, as in effect before the amendments made by this Act).
(2) TERMINATION OF INACTIVE FSCs.--If a FSC has no foreign trade income (as defined in section 923(b) of such Code, as so in effect) for any period of 5 consecutive taxable years beginning after December 31, 2001, such FSC shall cease to be treated as a FSC for purposes of such Code for any taxable year beginning after such period.
(c) TRANSITION PERIOD FOR EXISTING FOREIGN SALES CORPORATIONS.--
(1) IN GENERAL.--In the case of a FSC (as so defined) in existence on September 30, 2000, and at all times thereafter, the amendments made by this Act shall not apply to any transaction in the ordinary course of trade or business involving a FSC which occurs--
(A) before January 1, 2002; or
(B) after December 31, 2001, pursuant to a binding contract--
(i) which is between the FSC (or any related person) and any person which is not a related person; and
(ii) which is in effect on September 30, 2000, and at all times thereafter.
(2) ELECTION TO HAVE AMENDMENTS APPLY EARLIER.--A taxpayer may elect to have the amendments made by this Act apply to any transaction by a FSC or any related person to which such amendments would apply but for the application of paragraph (1). Such election shall be effective for the taxable year for which made and all subsequent taxable years, and, once made, may be revoked only with the consent of the Secretary of the Treasury.
(3) EXCEPTION FOR OLD EARNINGS AND PROFITS OF CERTAIN CORPORATIONS.--
(A) IN GENERAL.--In the case of a foreign corporation to which this paragraph applies--
(i) earnings and profits of such corporation accumulated in taxable years ending before October 1, 2000, shall not be included in the gross income of the persons holding stock in such corporation by reason of section 943(e)(4)(B)(i); and
(ii) rules similar to the rules of clauses (ii), (iii), and (iv) of section 953(d)(4)(B) shall apply with respect to such earnings and profits.
The preceding sentence shall not apply to earnings and profits acquired in a transaction after September 30, 2000, to which section 381 applies unless the distributor or transferor corporation was immediately before the transaction a foreign corporation to which this paragraph applies.
(B) EXISTING FSCs.--This paragraph shall apply to any controlled foreign corporation (as defined in section 957) if--
(i) such corporation is a FSC (as so defined) in existence on September 30, 2000;
(ii) such corporation is eligible to make the election under section 943(e) by reason of being described in paragraph (2)(B) of such section; and
(iii) such corporation makes such election not later than for its first taxable year beginning after December 31, 2001.
(C) OTHER CORPORATIONS.--This paragraph shall apply to any controlled foreign corporation (as defined in section 957), and such corporation shall (notwithstanding any provision of section 943(e)) be treated as an applicable foreign corporation for purposes of section 943(e), if--
(i) such corporation is in existence on September 30, 2000;
(ii) as of such date, such corporation is wholly owned (directly or indirectly) by a domestic corporation (determined without regard to any election under section 943(e));
(iii) for each of the 3 taxable years preceding the first taxable year to which the election under section 943(e) by such controlled foreign corporation applies--
(I) all of the gross income of such corporation is subpart F income (as defined in section 952), including by reason of section 954(b)(3)(B); and
(II) in the ordinary course of such corporation's trade or business, such corporation regularly sold (or paid commissions) to a FSC which on September 30, 2000, was a related person to such corporation;
(iv) such corporation has never made an election under section 922(a)(2) (as in effect before the date of the enactment of this paragraph) to be treated as a FSC; and
(v) such corporation makes the election under section 943(e) not later than for its first taxable year beginning after December 31, 2001.
(4) RELATED PERSON.--For purposes of this subsection, the term 'related person' has the meaning given to such term by section 943(b)(3).
(5) SECTION REFERENCES.--Except as otherwise expressly provided, any reference in this subsection to a section or other provision shall be considered to be a reference to a section or other provision of the Internal Revenue Code of 1986, as amended by this Act.
(d) SPECIAL RULES RELATING TO LEASING TRANSACTIONS.--
(1) SALES INCOME.--If foreign trade income in connection with the lease or rental of property described in section 927(a)(1)(B) of such Code (as in effect before the amendments made by this Act) is treated as exempt foreign trade income for purposes of section 921(a) of such Code (as so in effect), such property shall be treated as property described in section 941(c)(1)(B) of such Code (as added by this Act) for purposes of applying section 941(c)(2) of such Code (as so added) to any subsequent transaction involving such property to which the amendments made by this Act apply.
(2) LIMITATION ON USE OF GROSS RECEIPTS METHOD.--If any person computed its foreign trade income from any transaction with respect to any property on the basis of a transfer price determined under the method described in section 925(a)(1) of such Code (as in effect before the amendments made by this Act), then the qualifying foreign trade income (as defined in section 941(a) of such Code, as in effect after such amendment) of such person (or any related person) with respect to any other transaction involving such property (and to which the amendments made by this Act apply) shall be zero.
Vice President of the United States and President of the Senate.
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