PUBLIC LAW 100-647—NOV. 10, 1988
102 STAT. 3495
paragraph, none of its foreign base company income (as defined in section 954(a) without r ^ a r d to section 954(b)(5)) and none of its gross insurance income (as defined in section 954(b)(3)(C)) for such taxable year shall be treated as income in a separate cat^ory, except that this sentence shall not apply to any income which (without regard to this sentence) would be treated as financial services income.", and (B) by striking out "income (other than high withholding tax interest and dividends from a noncontroUed section 902 corporation)" and inserting in lieu thereof "passive income". (5) Paragraph (2) of section 1201(e) of the Reform Act is 26 USC 904 note. amended by adding at the end thereof the following new subparagraph: "(J) TREATMENT OF AFFILIATED GROUP FILING CONSOLIDATED RETURN.—For purposes of this paragraph, all mem-
bers of an affiliated group of corporations filing a consolidated return shall be treated as 1 corporation." (6) Subparagraph (A) of section 904(d)(2) of the 1986 Code is amended— (A) by striking out "The term" in clause (ii) and inserting in lieu thereof "Except as provided in clause (iii), the term ', and (B) by adding at the end thereof the following new clause: (iv)
CLARIFICATION OF APPLICATION OF SECTION
864 (d)(6).—In determining whether any income is of a kind which would be foreign personal holding company income, the rules of section 864(d)(6) shall apply only in the case of income of a controlled foreign corporation." (7) Subparagraph (F) of section 904(d)(3) of the 1986 Code is amended to read as follows: "(F) SEPARATE CATEGORY.—For purposes of this paragraph— "(i) IN GENERAL.—Except as provided in clause (ii), the term 'separate c a t ^ o r y ' means any category of income described in subparagraph (A), (B), (C), (D), or (E) of paragraph (1). -
"(ii) COORDINATION WITH HIGH-TAXED INCOME PROVISIONS.—
"(I) In determining whether any income of a controlled foreign corporation is in a separate category, subclause (HI) of paragraph (2)(A)(iii) shall not apply. "(II) Ajiy income of the taxpayer which is treated as income in a separate category under this paragraph shall be so treated notwithstanding any provision of paragraph (2); except that the determination of whether any amount is high-taxed income shall be made after the application of this paragraph." (8) a a u s e (iii) of section 904(d)(2)(B) of the 1986 Code is amended to read as follows: "(iii) REGULATIONS.—The Secretary may by regulations provide that— "(I) amounts (not otherwise high withholding tax interest) shall be treated as high withholding tax
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