Page:United States Statutes at Large Volume 100 Part 3.djvu/733

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2541

from the transmission of communications or data from the United States to any foreign country or from any foreign country to the United States." (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1986. SEC. 1214. LIMITATIONS ON SPECIAL TREATMENT OF 80-20 CORPORATIONS. (a) INTEREST PAYMENTS.—

(1) IN GENERAL.—Subparagraph (B) of section 861(a)(1) (relating to interest) is amended to read as follows: "(B) interest from a resident alien individual or domestic corporation, if such individual or corporation meets the 80percent foreign business requirements of subsection (c)(1),". (2) FOREIGN BUSINESS REQUIREMENTS.—Subsection (c) of section 861 is amended to read as follows: "(c) FOREIGN BUSINESS REQUIREMENTS.— "(1) FOREIGN BUSINESS REQUIREMENTS.—

"(A) IN GENERAL.—An individual or corporation meets the 80-percent foreign business requirements of this paragraph if it is shown to the satisfaction of the Secretary that at least 80 percent of the gross income frpm all sources of such individual or corporation for the Resting period is active foreign business income. "(B) ACTIVE FOREIGN BUSINESS INCOME.—For purposes of

subparagraph (A), the term 'active foreign business income' means gross income which— "(i) is derived from sources outside the United States (as determined under this subchapter), and ^'' '^ "(ii) is attributable to the active conduct of a trade or business in a foreign country or possession of the >n; United States by the individual or corporation (or by a subsidiary or chain of subsidiaries of such corporation). "(C) TESTING PERIOD.—For purposes of this subsection, the term 'testing period' means the 3-year period ending with the close of the taxable year of the individual or corporation preceding the payment (or such part of such period as may be applicable). If the individual or corporation has no gross income for such 3-year period (or part thereof), the testing period shall be the taxable year in which the payment is made. "(2) LOOK-THRU WHERE RELATED PERSON RECEIVES INTEREST.—



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"(A) IN GENERAL.—In the case of interest received by a related person from a resident alien individual or domestic corporation meeting the 80-percent foreign business requirements of paragraph (1), subsection (a)(l)(A) shall apply only to a percentage of such interest equal to the percentage which— "(i) the gross income of such individual or corporation for the testing period from sources outside the United States (as determined under this subchapter), is of ' ' "(ii) the total gross income of such individual or corporation for the testing period. "(B) RELATED PERSON.—For purposes of this paragraph, the term 'related person' has the meaning given such term by section 954(d)(3), except that—

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