118 STAT. 1511 PUBLIC LAW 108–357—OCT. 22, 2004 ‘‘(C) REGULATIONS.—The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of paragraph (1)(C) in the case of transactions involving related parties.’’. (c) MODIFICATION OF EXCEPTION FOR DEALERS.—Clause (i) of section 954(c)(2)(C) is amended by inserting ‘‘and transactions involving physical settlement’’ after ‘‘(including hedging trans actions’’. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to transactions entered into after December 31, 2004. SEC. 415. MODIFICATIONS TO TREATMENT OF AIRCRAFT LEASING AND SHIPPING INCOME. (a) ELIMINATION OF FOREIGN BASE COMPANY SHIPPING INCOME.—Section 954 (relating to foreign base company income) is amended— (1) by striking paragraph (4) of subsection (a) (relating to foreign base company shipping income), and (2) by striking subsection (f) (relating to foreign base com pany shipping income). (b) SAFE HARBOR FOR CERTAIN LEASING ACTIVITIES.—Subpara graph (A) of section 954(c)(2) is amended by adding at the end the following new sentence: ‘‘For purposes of the preceding sentence, rents derived from leasing an aircraft or vessel in foreign commerce shall not fail to be treated as derived in the active conduct of a trade or business if, as determined under regulations prescribed by the Secretary, the active leasing expenses are not less than 10 percent of the profit on the lease.’’. (c) CONFORMING AMENDMENTS.— (1) Section 952(c)(1)(B)(iii) is amended by striking subclause (I) and redesignating subclauses (II) through (VI) as subclauses (I) through (V), respectively. (2) Subsection (b) of section 954 is amended— (A) by striking ‘‘the foreign base company shipping income,’’ in paragraph (5), (B) by striking paragraphs (6) and (7), and (C) by redesignating paragraph (8) as paragraph (6). (d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2004, and to taxable years of United States share holders with or within which such taxable years of foreign corpora tions end. SEC. 416. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE FINANCING. (a) IN GENERAL.—Section 954(h)(3) is amended by adding at the end the following: ‘‘(E) DIRECT CONDUCT OF ACTIVITIES.—For purposes of subparagraph (A)(ii)(II), an activity shall be treated as conducted directly by an eligible controlled foreign corpora tion or qualified business unit in its home country if the activity is performed by employees of a related person and— ‘‘(i) the related person is an eligible controlled for eign corporation the home country of which is the same as the home country of the corporation or unit to which subparagraph (A)(ii)(II) is being applied, 26 USC 952 note. 26 USC 954 note.
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