The Limited, Inc., and Consolidated Subsidiaries - Page 27

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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             
               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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