100 STAT. 2586
PUBLIC LAW 99-514—OCT. 22, 1986
sin, t t "(4) C H A N G E I N FUNCTIONAL CURRENCY TREATED AS A CHANGE
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IN METHOD OF ACCOUNTING.—Any change in the functional currency shall be treated as a change in the tax p a y e r ' s method of accounting for purposes of section 481 under procedures to be established by the Secretary.
"SEC. 986. DETERMINATION OF FOREIGN CORPORATION'S EARNINGS AND PROFITS AND FOREIGN TAXES. "(a) E A R N I N G S AND PROFITS AND DISTRIBUTIONS.—For purposes of
determining the tax under this subtitle— "(1) of any shareholder of any foreign corporation, the earnings and profits of such corporation shall be determined in the corporation's functional currency, and "(2) in the case of any United States person, the earnings and profits determined under paragraph (1) (when distributed, deemed distributed, or otherwise t a k e n into account under this subtitle) shall (if necessary) be t r a n s l a t e d into dollars using the appropriate exchange r a t e. "(b) FOREIGN T A X E S. —
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"(1) IN GENERAL.—In determining the a m o u n t of foreign taxes deemed paid under section 902 or 960— "(A) any foreign income taxes paid by a foreign corporation shall be t r a n s l a t e d into dollars using the exchange r a t e s a s of the t i m e of payment, and "(B) any adjustment to the a m o u n t of foreign income taxes paid by a foreign corporation shall be t r a n s l a t e d into "^ dollars using— "(i) except a s provided in clause (ii), the appropriate exchange r a t e as of when such adjustment is made, and "(ii) in the case of any refund or credit of foreign taxes, using the exchange r a t e a s of the t i m e of original payment of such foreign income taxes. "(2) FOREIGN INCOME TAXES.—For purposes of paragraph (1),
'foreign income taxes' means any income, w a r profits, or excess profits taxes paid to any foreign country or to any possession of the United States. ft: "(c) PREVIOUSLY T A X E D E A R N I N G S AND P R OF I T S. —
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"(1) IN GENERAL.—Foreign currency gain or loss with respect to distributions of previously taxed earnings and profits (as described in section 959 or 1293(c)) a t t r i b u t a b l e to movements in exchange r a t e s between the times of deemed and actual distribution shall be recognized and t r e a t e d a s o r d i n a r y income or loss from the s a m e source a s the associated income inclusion. "(2) DISTRIBUTIONS THROUGH TIERS.—The Secretary s h a l l pre-
fa- scribe regulations with respect to the t r e a t m e n t of distributions of previously taxed e a r n i n g s and profits through tiers of foreign corporations. , v^ .; v ,> ^, "SEC. 987. BRANCH TRANSACTIONS. "In the case of any tax p a y e r having 1 or more qualified business units with a functional currency other than the dollar, taxable income of such tax p a y e r shall be determined— "(1) by computing the taxable income or loss separately for each such u n i t in its functional currency,
"(2) by t r a n s l a t i n g the income or loss s e p a r a t e l y computed under paragraph (1) a t the a p p r o p r i a t e exchange r a t e.
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