Financial Bailout Package Contains International Tax Provisions

Excerpt from Practical US/International Tax Strategies by Lilo Hester, Ken Wood, Karen Jacobs, Eric Oman, Staci A. Scott and Carlos Probus (Ernst & Young LLP)

Earlier this month, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (Division A), the Energy Improvement and Extension Act of 2008 (Division B), and the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (Division C) (H.R.1424), herein collectively referred to as the Act. The Act was passed by the Senate on October 1, 2008, and by the House of Representatives on October 3, 2008. The Act has been widely publicized as the “bailout bill” because it provides the U.S. government with authority to purchase up to $700 billion in “troubled,” illiquid assets owned by various financial institutions.

International tax provisions of the Act include:

• Elimination of the distinction between foreign oil and gas extraction income (FOGEI) and foreign oil related income (FORI) and the combination of FOGEI and FORI into one foreign oil basket, applying the existing FOGEI limitation.

• Extension for an additional tax year (through December 31, 2009) of the controlled foreign corporation (CFC) look-through provision of Section 954(c)(6).

• Extension for an additional tax year (through December 31, 2009) of the exception to treatment as foreign personal holding company income for income derived in the active conduct of a banking, finance, or similar business.

• Extension for an additional tax year (through December 31, 2009) of the exception to treatment of certain insurance income as subpart F income.

Read more on international tax provisions with respect to individuals