effect is to treat any domestic corporation as a United States shareholder within the meaning of section 984 (a), or to treat a foreign corporation as a controlled foreign corporation under section 984 (b), except that—

"(1) In applying subparagraphs (A), (B), and (C) of section 318 (a) (2), 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 of the stock entitled to vote.

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

"Sec. 986. Exclusion from gross income of previously taxed earnings and profits "(a) Exclusion From Gross Income.-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 983 (a) shall not, when such amounts are distributed directly, or indirectly through a chain of ownership described under section 985 (a), to—

“(1) such shareholder (or any domestic corporation which 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), or

"(2) a trust (other than a foreign trust) of which such shareholder is a beneficiary,

be again included in the gross income of such United States shareholder (or of such domestic corporation or of such trust).

"(b) Exclusion From Gross Income of Certain Foreign Subsidiaries.-For purposes of section 983 (a), the earnings and profits for a taxable year of a controlled foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 983 (a), shall not, when distributed through a chain of ownership described under section 985 (a), be also included in the gross income of another controlled foreign corporation in such chain for purposes of the application of section 983 (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 such 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 983 (a), and

"(2) then to other earnings and profits.

"(d) Distributions Excluded from Gross Income Not To Be Treated as Dividends. 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. 987. Adjustments to basis of stock in controlled foreign corporations and

of other property

"(a) Increase in Basis.-Under regulations prescribed by the Secretary or his delegate, the basis of a United States shareholder's stock in a controlled foreign corporation, and the basis of property of a United States shareholder by reason of which it is considered under section 985 (a) (2) as owning stock of a controlled foreign corporation, shall be increased by the amount required to be included in its gross income under section 983 (a) with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such United States shareholder.

"(b) Reduction in Basis.

"(1) In General.-Under regulations prescribed by the Secretary or his delegate, the adjusted basis of stock or other property with respect to which a United States shareholder or a United States person receives an amount which is excluded from gross income under section 986 (a) shall be reduced by the amount so excluded.

"(2) Amount in Excess of Basis.-To the extent that an amount excluded from gross income under section 986 (a) exceeds the adjusted basis of the stock or other property with respect to which it is received, the amount shall be treated as gain from the sale or exchange of property.

"Sec. 988. Records and accounts of United States shareholders

"(a) Records and Accounts To Be Maintained.-The Secretary or his delegate may by regulations require each person who is, or has been, a United States shareholder of a controlled foreign corporation to maintain such records and accounts as may be prescribed by such regulations as necessary to carry out the provisions of this subpart.

"(b) Two or More Persons Required To Maintain or Furnish the Same Records and Accounts With Respect to the Same Foreign Corporation.-Where, but for this subsection, two or more persons would be required to maintain or furnish the same records and accounts as may by regulations be required under subsection (a) with respect to the same controlled foreign corporation for the same period, the Secretary or his delegate may by regulations provide that the maintenance or furnishing of such records and accounts by only one such person shall satisfy the requirements of subsection (a) for such other persons." (b) Technical and Conforming Amendment.

(1) Section 864(c) (4) (D) is amended to read as follows:

"(D) No income from sources without the United States shall be treated as effectively connected with the conduct of a trade or business within the United States if it consists of dividends, interest, or royalties paid by a foreign corporation in which the taxpayer owns (within the meaning of section 985(a)), or is considered as owning (by applying the ownership rules of section 958 (b)), more than 50 percent of the total combined voting power of all classes of stock entitled to vote.'

(2) Section 951 is amended by adding at the end thereof the following: "(e) Taxable Years Ending Before December 31, 1973.-No amount shall be required to be included in the gross income of a United States shareholder under subsection (a) (other than paragraph (1)(A)(ii) of such subsection) with respect to a taxable year of a controlled foreign corporation ending after December 31, 1973."

(3) Section 1016 (a) (20) is amended by striking out "section 961" and inserting in lieu thereof "sections 961 and 987."

(4) Section 1246(a) (2) (B) is amended by inserting "or 983" after "section 951" and by inserting "or 986" after "section 959."

(5) Section 1248 is amended

(A) by striking out subsection (b);

(B) by revising subsection (d) (1) to read as follows:

"(1) Amounts Included in Gross Income Under Section 951 or 983.-Earnings and profits of the foreign corporation attributable to any amount previously included in the gross income of such person under section 951 or 983, with respect to the stock sold or exchanged, but only to the extent the inclusion of such amount did not result in an exclusion of an amount from gross income under section 959 or 986.";

(C) by striking out in subsection (d) (3) "section 902(d)" and inserting in lieu thereof "subsection (h)", and by adding at the end of such subsection. "No amount shall be excluded from the earnings and profits of a foreign corporation under this paragraph with respect to any United States person which is a domestic corporation for any taxable year of such foreign corporation ending after December 31, 1973."; and

(D) by adding at the end thereof the following:

"(h) Less Developed Country Corporation Defined.-For purposes of this section, the term 'less developed country corporation' means—

"(1) a foreign corporation which, for its taxable year, is a less developed country corporation within the meaning of section 955 (c) (1) or (2), and "(2) a foreign corporation which owns 10 percent or more of the total combined voting power of all classes of stock entitled to vote of a foreign corporation which is a less developed country corporation within the meaning of section 955 (c) (1), and—

"(A) 80 percent or more of the gross income of which for its taxable year meets the requirement of section 955 (c) (1) (A); and

"(B) 80 percent or more in value of the assets of which on each day of such year consists of property described in section 955 (c) (1) (B).”

(c) Effective Dates.

(1) Except as provided in paragraph (2), the amendments made by this section shall apply with respect to taxable years of foreign corporations ending after December 31, 1973, and to taxable years of United States shareholders within which or with which such taxable years of such foreign corporations end.

(2) The amendments made by subsection (b) (4) shall apply with respect to sales or exchanges occurring in taxable years beginning after December 31, 1973. SEC. 103. Repeal of Foreign Tax Credit Allowed Corporations.

(a) In General.-Section 901 (relating to taxes of foreign countries and of possessions of the United States) is amended

(1) by revising subsection (a) to read as follows:

"(a) Allowance of Credit. In the case of a taxpayer other than a corporation, who chooses to have the benefits of this subpart, the tax imposed by this chapter shall, subject to the applicable limitation of section 904, be credited with the amounts provided in the applicable paragraph of subsection (b). Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. The credit shall not be allowed against the tax imposed by section 56 (relating to minimum tax for tax preferences).";

(2) by revising subsection (b) (1) to read as follows:

"(1) Citizens. In the case of a citizen of the United States, the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and";

(3) by revising subsection (b) (4) to read as follows:

"(4) Nonresident Alien Individuals. In the case of any nonresident alien individual not described in section 876, the amount determined pursuant to section 906; and"; and

(4) by striking out subsections (d) and (e).

(b) Technical and Conforming Amendments.

(1) Section 78 is repealed.

(2) Section 535 (b) (1) is amended by striking out "and income, war profits, and excess profits taxes of foreign countries and possessions of the United States (to the extent not allowable as a deduction under section 275 (a) (4)), accrued during the taxable year or deemed to be paid by a domestic corporation under section 902 (a) (1) or 960 (a) (1) (C) for the taxable year," and by inserting in lieu thereof "accrued during the taxable year,".

(3) Section 545 (b) (1) is amended by striking out "and income, war profits, and excess profits taxes of foreign countries and possessions of the United States (to the extent not allowable as a deduction under section 275 (a) (4), accrued during the taxable year or deemed to be paid by a domestic corporation under section 902 (a) (1) or 960(a) (1) (C) for the taxable year," and by inserting in lieu thereof "accrued during the taxable year,".

(4) Section 841 is repealed.

(5) Section 882 (c) is amended by striking out paragraph (3).

(6) Section 884 is amended by striking out paragraph (4).

(7) Section 902 is repealed.

(8) Section 906 is amended

(A) by striking out "and foreign corporations" in the heading thereof; (B) by striking out in subsection (a) “or a foreign corporation” and “(or deemed, under section 902, paid or accrued during the taxable year)";

(C) by striking out in subsection (b) (3) "or 881 (relating to income of foreign corporations not connected with United States business)"; and (D) by striking out subsection (b)(4).

(9) Section 904 (g) is repealed.

(10) Section 960 is repealed.

(11) Section 1503 is amended to read as follows:

"Sec. 1503. Computation and Payment of Taxes

"In any case in which a consolidated return is made or is required to be made. the tax shall be determined, computed, assessed, collected. and adjusted in accordance with the regualtions under section 1502 prescribed before the last day prescribed by law for the filing of such return."

(c) Effective Date.-The amendments made by this section shall apply with respect to taxable years beginning after December 31, 1973.

Sec. 104. Depreciation of Foreign Assets

(a) Earnings and Profits of Foreign Corporations.-Section 312 (m) (relating to effect of depreciation on earnings and profits) is amended by striking out paragraph (3) and inserting in lieu thereof the following:

"(3) Foreign Corporations.-In applying paragraph (1) or (2) for purposes of computing the earnings and profits of a foreign corporation, the amount of depreciation which would be allowable for the taxable year with respect to any property shall be determined on the basis of the useful life of such property in the hands of such foreign corporation."

(b) Depreciation of Property Located Outside the United States.-Section 167 (relating to depreciation) is amended by redesignating subsection (n) as subsection (o) and by inserting immediately after subsection (m) the following:

"(n) Depreciation on Property Located Outside the United States.-In the case of any property which either is located outside the United States or is used predominantly outside the United States (other than property described in section 48(a) (2) (B) (i) (ii), (iii), (iv), (v), or (vi)), subsection (b) shall not apply and the term 'reasonable allowance' as used in subsection (a) shall be an allowance computed under the straight line method on the basis of the useful life of the property in the hands of the taxpayer.”

(c) Effective Dates.-The amendments made by this section shall apply with respect to taxable years beginning after December 31, 1973.

Sec. 105. Transfers of Patents, Etc., to Foreign Corporations

(a) Recognition of Gain.-Section 367 (relating to foreign corporations) is amended by adding at the end thereof the following:

"(e) Transfers of Patents, Etc., to Foreign Corporations.

Notwithstanding

any other provision of this subtitle, any gain realize on a transfer of a patent, an invention, model, or design (whether or not patented), a copyright, a secret formula or process, or any other similar property right to any foreign corporation in an exchange to which this section is applicable shall be recognized.”

(b) Effective Date.-The amendments made by this section shall apply with respect to transfers of property made after the date of enactment of this Act. Sec. 106. Exclusion for earned income from sources without the United States (a) Limitation of Exclusion.-Section 911 (c) (relating to special rules) is amended by adding at the end thereof the following:

"(8) Certain Compensation Not Excludable.-No amount received for services performed

"(A) for a domestic corporation or a domestic partnership, or

66

'(B) for a controlled foreign corporation (within the meaning of section 984 (b)), may be excluded under subsection (a).”

(b) Effective Date.-The amendment made by this section shall apply with respect to amounts received for services performed after the date of enactment of this Act.

Sec. 107. Submission of report on international tax compliance

Not later than December 31, 1974, the Treasury Department shall submit to the Congress a report on the administration of the income tax imposed by the Internal Revenue Code of 1954 as it applies to business activities carried on outside the United States by United States corporations, whether directly or through foreign entities. Such report shall include, but not be limited to, a discussion and analysis of the enforcement and compliance problems encountered by the Treasury Department in such administration.

TITLE II-UNITED STATES FOREIGN TRADE BOARD

Sec. 201. Organization of the board membership

(a) The United States Foreign Trade Board (referred to in this title as the "Board") shall be composed of ten members to be hereafter appointed by the President by and with the advice and consent of the Senate. No person shall be eligible for appointment as a member unless he is a citizen of the United States, and, in the judgment of the President, is possessed of qualifications requisite for developing expert knowledge of foreign trade and investment problems and efficiency in administering the functions and duties of the Board. Not more than six of the members shall be members of the same political party. Two members of the Board shall represent the public interest, two shall

represent labor interests, two shall represent industrial interests, two shall represent consumer interests, and two shall represent agricultural interests. (b) Terms of office of the members first taking office shall expire, as designated by the President at the time of nomination, two at the end of every second year following July 1, 1973. The term of office of a successor to any such member shall expire 6 years from the date of the expiration of the term for which his predecessr was appointed, except that any member appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed, shall be appointed for the remainder of such term. (c) The President shall annually designate one of the members as Chairman and one as Vice Chairman of the Board, except that, at any time, a member representing labor interests shall be designated either as Chairman or Vice Chairman. The Vice Chairman shall act as Chairman in case of the absence or disability of the Chairman. A majority of the members in office shall constitute a quorum, but the Board may function notwithstanding vacancies. No member shall actively engage in any other business, vocation, or employment than that of serving as a member.

(d) (1) Whenever, in any case calling for findings of the Board in connection with any authority conferred upon the President by law to make changes in tariffs or import restrictions, a majority of the members voting are unable to agree upon findings or recommendations, the findings (and recommendations, if any) of any one of the members may be considered by the President as the findings and recommendations of the Board.

(2) Whenever, in any case in which the Board is authorized to make an investigation upon its own motion, upon complaint, or upon application of any interested party, one-half of the number of members voting agree that the investigation should be made, such investigation shall thereupon be carried out in accordance with the statutory authority covering the mater in question. Whenever the Board is authorized to hold hearings in the course of any investigation and one-half of the number of members voting agree that hearings should be held, such hearings shall thereupon be held in accordance with the statutory authority covering the matter in question.

TITLE III-AGREEMENTS TO ESTABLISH QUANTITATIVE RESTRAINTS ON IMPORTS Sec. 301. Arrangements or agreements regulating imports

(a) In addition to any other authority conferred on him by law with respect to negotiating foreign trade arrangements or agreements, the President is authorized to conclude bilateral or multilateral arrangements or agreements with governments of foreign countries regulating, by category, the quantities of articles produced in such foreign countries which may be exported to the United States or entered and to issue regulations necessary to carry out the terms of such arrangements or agreements. In concluding any arrangement or agreement under this subsection, the President shall take into account conditions in the United States market, the need to avoid disruption of that market, and such other factors as he deems appropriate to protect the national interest.

(b) Whenever a multilateral arrangement or agreement concluded under subsection (a) is in effect among the countries, including the United States, which account for a significant part of world trade in the article concerned and such arrangement or agreement contemplates the establishment of limitations on the trade in the article produced in countries not parties to such arrangement or agreement, the United States Foreign Trade Board (hereafter referred to in this title as the "Board") may by regulation prescribe the total quantity of the article produced in each country not a party to such arrangement or agreement which may be entered.

(c) There shall be promulgated as a part of the appendix to the Tariff Schedules of the United States, Annotated, all quantitative limitations and exemptions established pursuant to any arrangement or agreement entered into under this title.

(d) One year after the enactment of this Act, and by July 1 of each succeeding year, the Board shall publish a report to the Congress reviewing actions taken by it under this title during that year.

Sec. 302. Definitions

As used in this title

(1) The term "category" means a grouping of goods as determined by the Board, for the purposes of this title, using the five-digit and seven-digit item num