102 STAT. 3496 PUBLIC LAW 100-647—NOV. 10, 1988

interest where necessary to prevent avoidance of
the purposes of this subparagraph, and

"(II) a tax shall not be treated as a withholding
tax or other tax imposed on a gross basis if such
tax is in the nature of a prepayment of a tax
imposed on a net basis."

(9) Clause (ii) of section 904(d)(2XD of the 1986 Code is
amended by striking out "except to the extent that" and all that
follows down through "and" at the end thereof and inserting in
lieu thereof the following:

"except that—

"CO such taxes shall be treated as paid or accrued
with respect to shipping income to the extent the
taxpayer establishes to the satisfaction of the Sec-
retary that such taxes were paid or accrued with
respect to such income,

(II) in the case of a person described in subpara-
graph (CXi), such taxes shall be treated as paid or
accrued with respect to financial services income to
the extent the taxpayer establishes to the satisfac-
tion of the Secretary that such taxes were paid or
accrued with respect to such income, and

"(III) such taxes shall be treated as paid or ac-
crued with respect to high withholding tax interest
to the extent the taxpayer establishes to the satis-
faction of the Secretary that such taxes were paid
or accrued with respect to such income, and".

(10) Clause (i) of section 904(dX2)(E) of the 1986 Code is
amended by striking out "during which it was a controlled
foreign corporation" and inserting in lieu thereof "during which
it was a controlled foreign corporation and except as provided in
regulations, the taxpayer was a United States shareholder in
such corporation".

(11) Subparagraph (E) of section 904(d)(l) of the 1986 Code is
amended by striking out "dividends" and inserting in lieu
thereof "in the case of a corporation, dividends".

(b) AMENDMENT RELATED TO SECTION 1202 OF THE REFORM ACT.—

(1) Paragraph (7) of section 902(c) of the 1986 Code is
amended—

(A) by striking out "secton 960" and inserting in lieu
thereof "section 960", and

(B) by striking out "this section" the second place it
appears and inserting in lieu thereof "this section and
section 960".

(2) Paragraph (1) of section 902(c) of the 1986 Code is amended
by striking out "sections 964 and 986" and inserting in lieu
thereof "sections 964(a) and 986".

26 USC 902 note. ^ (3) For purposes of sections 902 and 960 of the 1986 Code, the
increase in earnings and profits of any foreign corporation
under section 1023(eX3XC) of the Reform Act shall be taken into
account ratably over the 10-year period beginning with the
corporation's first taxable year beginning after December 31,
1986.

(4) Paragraph (3) of section 404A(d) of the 1986 Code is
amended by striking out "the amount determined" and insert-
ing in lieu thereof "except as provided in regulations, the
amount determined".