The House of Representatives passed, and the President signed into law, H.R. 1586, the “FAA Air Transportation Modernization and Safety Improvement Act,” which curiously became the chosen vehicle for Congress and the Administration to provide assistance to states with budget shortfalls while paying for that assistance with changes in a number of international tax provisions. Text of the final bill is available here; pdf is here. See here for our prior summary of the relevant international tax provisions.
Although the changes are largely similar to what was proposed in earlier legislation, it appears that Congress eliminated a number of earlier proposals from the final bill, including the limitation on distributions in leveraged spin-offs and the repeal of the “boot dividend” rule. Of particular note, Congress eliminated the new sourcing rule that would have treated guarantee fees as U.S.-source income. Earlier this year, the Tax Court held that guarantee fees paid by a U.S. company to its Mexican parent were properly treated as non-U.S. source income and therefore not subject to U.S. withholding taxes. Container Corp. v. Comm’r, 134 T.C. No. 5 (2010). Our prior discussion of the Tax Court opinion is here, with additional commentary here. It remains to be seen whether the removal of this provision reflects a permanent abandonment of the proposal or whether it will reappear in one of the several other legislative vehicles floating through Congress.