U.S. Innovation and Global Competitiveness Act of 2026

(B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year.

(i) Certain payments not treated as base erosion payments

(1) Exception for payments on which tax is imposed

(A) In general. An amount shall not be treated as a base erosion payment if—

(i) such amount (or any portion thereof) is includible in the gross income of any taxpayer by reason of—

(I) section 951(a),

(II) section 951A(a),

(III) section 871(b), or

(IV) section 882(a), or

(ii) the Secretary determines such amount is otherwise subject to sufficient tax under this chapter (other than by this section).

(B) Treatment of certain deductions. For purposes of subparagraph (A), tax shall be treated as imposed by this chapter without regard to any deduction allowed under part VIII of subchapter B.

(C) Application of certain rules. The amount not treated as a base erosion payment by reason of this paragraph shall be determined under rules similar to the rules of section 163(j)(5) (as in effect before the date of the enactment of Public Law 115–97).

(2) Exception for certain payments subject to sufficient foreign tax

(A) In general. An amount shall not be treated as a base erosion payment if the taxpayer establishes to the satisfaction of the Secretary that such amount was made to a foreign person which is a related party of the taxpayer that is subject to an effective rate of foreign income tax (as defined in section 954(b)(4)) which is not less than 18.9 percent.

(B) Certain payments to related parties. To the extent provided by the Secretary in regulations, an amount paid to a foreign person which is a related party of the taxpayer shall be treated as paid to another foreign person which is a related party of the taxpayer if such second foreign person is subject to an effective rate of foreign income tax (as defined in section 954(b)(4)) which is less than 18.9 percent, to the extent the amount so paid directly or indirectly funds a payment to such second foreign person.

(3) Certain payments to Exclusion for corporations located in a jurisdiction with a discriminatory tax

(A) In general. Paragraph (2) shall not apply to any payment made during any calendar year if the payment is made to a related party (as defined in section 59A(g)(1))—

(i) that is a tax resident of a jurisdiction which imposes a discriminatory tax on a domestic corporation at any time during such calendar year, or

(ii) if any 25-percent owner (as defined in section 59A(g)(2)) of such related party is a tax resident in a jurisdiction which imposes a discriminatory tax on any domestic corporation at any time during such calendar year.

(B) Discriminatory tax

(i) In general. The term discriminatory tax means—

(I) any digital services tax,

(II) to the extent provided by the Secretary, any tax imposed by a foreign country if—

(aa) such tax applies more than incidentally to items of income that would not be considered to be from sources, or effectively connected to a trade or business, within the foreign country under the rules of part I of this subchapter if such part were applied by treating such foreign country as though it were the United States,

(bb) such tax is imposed on a base other than net income and is not computed by permitting recovery of costs and expenses,

(cc) such tax is exclusively or predominantly applicable, in practice or by its terms, to nonresident individuals and foreign corporations or partnerships (determined under rules similar to paragraphs (4) and (5) of section 7701(a) by treating the foreign country as though it were the United States) because of the application of revenue thresholds, exemptions, or exclusions for taxpayers subject to such foreign country’s corporate income tax, or

(dd) such tax is not treated as an income tax under the laws of such foreign country or is otherwise treated by such foreign country as outside the scope of any agreements that are in force between such foreign country and one or more other jurisdictions for the avoidance of double taxation with respect to taxes on income, or

(III) to the extent provided by the Secretary, any other tax imposed by a foreign country enacted with a public or stated purpose indicating that the tax will be economically borne, directly or indirectly, disproportionately by United States persons.

(ii) Exceptions. Such term shall not include, except as otherwise provided by the Secretary, any tax which is a generally applicable tax which is—

(I) an income tax generally imposed on the income of citizens or residents of the foreign country, even if the computation of income includes payments that would be foreign source income under part I of this subchapter,

(II) an income tax which would be a discriminatory tax (determined without regard to this clause) solely because it is imposed on the income of nonresidents attributable to a trade or business in such foreign country,

(III) an income tax which would be a discriminatory tax (determined without regard to this clause) solely because it is imposed on citizens or residents of such foreign country by reference to the income of a corporate subsidiary of such person,

(IV) a withholding tax, or other gross basis tax, on any amount described in section 871(a)(1) or 881(a), other than any withholding tax, or other gross basis tax, imposed with respect to services performed by persons other than individuals,

(V) a value added tax, goods and services tax, sales tax, or other similar tax on consumption,

(VI) a tax imposed with respect to transactions on a per-unit or per-transaction basis rather than on an ad valorem basis,

(VII) a tax on real or personal property, an estate tax, a gift tax, other similar tax,

(VIII) a tax which would not be an extraterritorial tax or discriminatory tax (determined without regard to this clause) except by reason of consolidation or loss sharing rules that generally apply only with respect to income of tax residents of the foreign country, or

(IX) any other tax identified by the Secretary for purposes of this paragraph.

(C) Determination on basis of applicable financial statements. Except as otherwise provided by the Secretary under subparagraph (D), the effective rate of foreign income tax with respect to any amount may be established on the basis of applicable financial statements (as defined in section 451(b)(3)).

(D) Regulations. The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance providing procedures for determining the effective rate of foreign income tax to which any amount is subject. Such procedures may require that any transaction or series of transactions among multiple parties be recharacterized as one or more transactions directly among any 2 or more of such parties where the Secretary determines that such recharacterization is appropriate to carry out, or prevent avoidance of, the purposes of this section.

(4) Exception for certain amounts with respect to services. Subsections (d)(1) and (d)(2) shall not apply to so much of any amount paid or accrued by a taxpayer for services as does not exceed the total services cost of such services. The preceding sentence shall not apply unless such services meet the requirements for eligibility for use of the services cost method under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure).