118 STAT. 1496 PUBLIC LAW 108–357—OCT. 22, 2004 (1) Clause (iii) of section 904(d)(2)(B) (relating to exceptions from passive income), as so redesignated, is amended by striking subclause (I) and by redesignating subclauses (II) and (III) as subclauses (I) and (II), respectively. (2) Clause (i) of section 904(d)(2)(D) (defining financial services income), as so redesignated, is amended by adding ‘‘or’’ at the end of subclause (I) and by striking subclauses (II) and (III) and inserting the following new subclause: ‘‘(II) passive income (determined without regard to subparagraph (B)(iii)(II)).’’. (3) Section 904(d)(2)(D) (defining financial services income), as so redesignated and amended by section 404(b)(3), is amended by striking clause (iii). (4) Paragraph (3) of section 904(d) is amended to read as follows: ‘‘(3) LOOK THRU IN CASE OF CONTROLLED FOREIGN CORPORA TIONS.— ‘‘(A) IN GENERAL.—Except as otherwise provided in this paragraph, dividends, interest, rents, and royalties received or accrued by the taxpayer from a controlled for eign corporation in which the taxpayer is a United States shareholder shall not be treated as passive category income. ‘‘(B) SUBPART F INCLUSIONS.—Any amount included in gross income under section 951(a)(1)(A) shall be treated as passive category income to the extent the amount so included is attributable to passive category income. ‘‘(C) INTEREST, RENTS, AND ROYALTIES.—Any interest, rent, or royalty which is received or accrued from a con trolled foreign corporation in which the taxpayer is a United States shareholder shall be treated as passive cat egory income to the extent it is properly allocable (under regulations prescribed by the Secretary) to passive category income of the controlled foreign corporation. ‘‘(D) DIVIDENDS.—Any dividend paid out of the earnings and profits of any controlled foreign corporation in which the taxpayer is a United States shareholder shall be treated as passive category income in proportion to the ratio of— ‘‘(i) the portion of the earnings and profits attrib utable to passive category income, to ‘‘(ii) the total amount of earnings and profits. ‘‘(E) LOOK THRU APPLIES ONLY WHERE SUBPART F APPLIES.—If a controlled foreign corporation meets the requirements of section 954(b)(3)(A) (relating to de minimis rule) for any taxable year, for purposes of this paragraph, none of its foreign base company income (as defined in section 954(a) without regard 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 pas sive category income, except that this sentence shall not apply to any income which (without regard to this sentence) would be treated as financial services income. Solely for purposes of applying subparagraph (D), passive income of a controlled foreign corporation shall not be treated as passive category income if the requirements of section 954(b)(4) are met with respect to such income. ‘‘(F) COORDINATION WITH HIGH TAXED INCOME PROVI SIONS.— Regulations.
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