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(1975), 1976-3 C.B. (Vol. 2) 701, 908; S. Rept. 94-938 (1976),
1976-3 C.B. (Vol. 3) 57, 226. Both reports state that the
repatriation provision may have encouraged foreign corporations
to invest their profits abroad, with a detrimental effect upon
the U.S. balance of trade: “For example, a controlled foreign
corporation looking for a temporary investment for its working
capital is, by this provision, induced to purchase foreign rather
than U.S. obligations.” H. Rept. 94-658, supra, 1976-3 C.B.
(Vol.2) at 908; S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at
226.
The Committee on Finance explained:
In the committee’s view a provision which acts to
encourage, rather than prevent, the accumulation of
funds offshore should be altered to minimize any
harmful balance of payments impact while not permitting
the U.S. shareholders to use the earnings of controlled
foreign corporations without payment of tax.
In the committee’s view, since the investment by a
controlled foreign corporation in the stock or debt
obligations of a related U.S. person or its domestic
affiliates makes funds available for use by the U.S.
shareholders, it constitutes an effective repatriation
of earnings which should be taxed. The classification
of other investments in stock or debt of domestic
corporations as the equivalent of dividends is, in the
committee’s view, detrimental to the promotion of
investments in the United States. Accordingly, the
committee’s amendment provides that an investment in
U.S. property does not result when the controlled
foreign corporation invests in the stock or obligations
of unrelated U.S. persons.
S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 226; see also,
H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 908. By the Tax
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