Page:United States Statutes at Large Volume 100 Part 3.djvu/783

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2591

"(3) providing for the recharacterization of interest and principal payments with respect to obligations denominated in certain hyperinflationary currencies, "(4) providing for alternative adjustments to the application of section 905(c), and "(5) providing for the appropriate treatment of related party transactions (including transactions between qualified business units of the same taxpayer)."

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(b) APPLICATION OF SECTION 1092 TO FOREIGN CURRENCY.—Section

1092(d) is amended by adding at the end thereof the following new paragraph: • ''

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"(7) SPECIAL RULES FOR FOREIGN CURRENCY.— "(A) POSITION TO INCLUDE INTEREST IN CERTAIN DEBT.—For

purposes of paragraph (2), an obligor's interest in a nonfunctional currency denominated debt obligation is treated as a position in the nonfunctional currency. "(B) ACTIVELY TRADED REQUIREMENT.—For purposes of

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paragraph (1), foreign currency for which there is an active interbank market is presumed to be actively traded."

(c) REPEAL OF SPECIAL TREATMENT OF BANKS FOR HEDGING EXCEP-

TION.—Subsection (e) of section 1256 (relating to mark to market not to apply to hedging transactions) is amended by striking out paragraph (4) and by redesignating paragraph (5) as paragraph (4). (d) CLERICAL AMENDMENT.—The table of subparts for part III of subchapter N of chapter 1 is amended by adding at the end thereof the following new item: "Subpart J. Foreign currency transactions." (e) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1986. (2) S P E C I A L RULES FOR P U R P O S E S OF S E C T I O N S 902 A N D 9 6 0. — For

purposes of applying sections 902 and 960 of the Internal Revenue Code of 1986, the amendments made by this section shall apply to— ,., (A) earnings and profits of the foreign corporation for taxable years beginning after December 31, 1986, and .,;. (B) foreign taxes paid or accrued by the foreign corporation with respect to such earnings and profits.

Subtitle G—Tax Treatment of Possessions PART I—TREATMENT OF GUAM, AMERICAN SAMOA, AND THE NORTHERN MARIANA ISLANDS SEC. 1271. AUTHORITY OF GUAM, AMERICAN SAMOA, AND THE NORTHERN MARIANA ISLANDS TO ENACT REVENUE LAWS.

(a) IN GENERAL.—Except as provided in subsection (b), nothing in the laws of the United States shall prevent Guam, American Samoa, or the Northern Mariana Islands from enacting tax laws (which shall apply in lieu of the mirror system) with respect to income— (1) from sources within, or effectively connected with the conduct of a trade or business within, any such possession, or (2) received or accrued by any resident of such possession.

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