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107 STAT. 496 PUBLIC LAW 103-66—AUG. 10, 1993 (b) AMOUNT OF INCLUSION.—Subpart F of part III of subchapter N of chapter 1 is amended by mserting after section 956 the following new section: 'nSEC.MeA. EARNINGS INVESTED IN EXCESS PASSIVE ASSETS. '"(a) GENERAL RULE.—^In the case of any controlled foreign cor- poration, the amount determined under this section with respect to any United States shareholder for any taxable year is the lesser of— "(1) the excess (if any) of— "(A) such shareholder's pro rata share of the amount of the controlled foreign corporation's excess passive assets for such taxable year, over "(B) the amount of earnings and profits described in section 959(cXlXB) with respect to such shareholder, or "(2) such shareholder's pro rata share of the applicable earnings of such controlled foreign corporation determined after the application of section 951(aXlXB). "(b) APPLICABLE EARNINGS.—^For purposes of this section, the term 'applicable earnings' means, with respect to any controlled foreign corporation, the sum of— "(1) the amount referred to in section 316(aXl) to the extent such amount was accumulated in taxable years begin- ning after September 30,1993, and "(2) the amount referred to in section 316(aX2), but reduced by distributions made during the taxable year and reduced by the earnings and jprofits described in section 959(cXl) to the extent that the earmngs and profits so described were accumulated in taxable years beginning after September 30, 1993. ''(c) EXCESS PASSIVE ASSETS.—For purposes of this section— "(1) IN GENERAL.—^The excess passive assets of any con- trolled foreign corporation for any taxable year is the excess (if any) of— "(A) the average of the amounts of passive assets held by such corporation as of the close of each quarter of such taxable year, over "(B) 25 percent of the average of the amounts of total assets held by such corporation as of the close of each quarter of such taxable year. For purposes of the preceding sentence, the amount taken into account with respect to any asset shall be its adjusted basis as determined for purposes of computing earnings and profits. "(2) PASSIVE ASSET.— "(A) IN GENERAL.—^Except as otherwise provided in this section, the term 'passive asset' means any asset held b^ the controlled foreim corporation which produces pas- sive income (as defined in section 1296(b)) or is held for the production of such income. "(B) COORDINATION WITH SECTION 966.—The term 'pas- sive asset' shall not include any United States property (as defined in section 956). "(3) CERTAIN RULES TO APPLY.—For purposes of this sub- section, the rules of the following provisions shall apply: "(A) Section 1296(c) (relating to look-thru nues). "(B) Section 1297(d) (relating to leasing rules). "(C) Section 1297(e) (relating to intangible property).