What This Bill Does
This bill changes the tax treatment of foreign corporations owned by US companies. It replaces a tax benefit called "global intangible low-taxed income" with a new calculation called "net CFC tested income." The bill aims to limit tax advantages that US companies get from moving income and operations overseas.
##
Who It Affects
- US corporations that own foreign subsidiaries
- US shareholders who own stock in foreign corporations
- Domestic partnerships and their partners
- Foreign corporations engaged in US business
- Investment firms managing assets for investors
##
Key Provisions
- Replaces "global intangible low-taxed income" with "net CFC tested income" as the measure of foreign corporate earnings US companies must report (Sec. 2(a))
- Requires income from foreign corporations to be calculated separately by country instead of combined together (Sec. 2(b))
- Removes certain tax benefits and exclusions that reduced the amount of foreign income US companies had to report (Sec. 2(e))
- Limits how much interest (borrowing costs) large multinational corporations can deduct on their taxes based on their consolidated financial statements (Sec. 4(a))
- Treats certain foreign corporations as US corporations for tax purposes if managed and controlled primarily in the United States (Sec. 6(a))
##
What Changes
The bill eliminates preferential tax rates that applied to certain foreign corporate income. It requires companies to report foreign subsidiary income by country rather than lumped together. Large multinational businesses will face new limits on deducting interest expenses based on their worldwide financial statements. Foreign corporations managed from the US will now be taxed as domestic corporations. Companies can no longer use "carryback" to apply excess foreign tax credits to prior years—only forward to future years.
##
Important Definitions
- **CFC (Controlled Foreign Corporation)**: A foreign corporation where US persons own more than 50% of the stock
- **Net CFC tested income**: Income earned by foreign subsidiaries after deducting losses
- **International financial reporting group**: Companies that prepare consolidated financial statements together and have average annual revenue exceeding $100,000,000
- **EBITDA**: Earnings before interest, taxes, depreciation and amortization
- **Management and control**: Where executive officers and senior management make day-to-day business decisions
- **Tax resident**: A person or entity subject to income tax as a resident in a country
- **Branch**: A taxable presence in a country other than where the entity is organized
##
Effective Date
Most changes apply to taxable years of foreign corporations beginning after December 31, 2022 (Sec. 2(k)(1)). The rules treating foreign corporations as domestic apply to taxable years beginning 2 years after the bill becomes law (Sec. 6(b)).
II
118TH CONGRESS
1ST SESSION
S. 357
To amend the Internal Revenue Code of 1986 to provide for current year
inclusion of net CFC tested income, and for other purposes.
IN THE SENATE OF THE UNITED STATES
FEBRUARY 9, 2023
Mr. WHITEHOUSE (for himself, Mr. DURBIN, Mr. VAN HOLLEN, Ms.
DUCKWORTH, Ms. HIRONO, Mr. BOOKER, Ms. WARREN, Mr. REED, Mr.
HEINRICH, Mr. BLUMENTHAL, Mr. MURPHY, Ms. BALDWIN, Mr. MAR-
KEY, Mr. CASEY, Mr. MERKLEY, and Mr. SCHATZ) introduced the fol-
lowing bill; which was read twice and referred to the Committee on Fi-
nance
A BILL
To amend the Internal Revenue Code of 1986 to provide
for current year inclusion of net CFC tested income,
and for other purposes.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE, ETC.
3
(a) SHORT TITLE.—This Act may be cited as the
4
‘‘No Tax Breaks for Outsourcing Act’’.
5
(b) AMENDMENT OF 1986 CODE.—Except as other-
6
wise expressly provided, whenever in this Act an amend-
7
ment or repeal is expressed in terms of an amendment
8
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to, or repeal of, a section or other provision, the reference
1
shall be considered to be made to a section or other provi-
2
sion of the Internal Revenue Code of 1986.
3
(c) TABLE OF CONTENTS.—The table of contents of
4
this Act is as follows:
5
Sec. 1. Short title, etc.
Sec. 2. Current year inclusion of net CFC tested income.
Sec. 3. Country-by-country application of limitation on foreign tax credit based
on taxable units.
Sec. 4. Limitation on deduction of interest by domestic corporations which are
members of an international financial reporting group.
Sec. 5. Modifications to rules relating to inverted corporations.
Sec. 6. Treatment of foreign corporations managed and controlled in the United
States as domestic corporations.
SEC. 2. CURRENT YEAR INCLUSION OF NET CFC TESTED IN-
6
COME.
7
(a) REPEAL OF TAX-FREE DEEMED RETURN ON IN-
8
VESTMENTS.—
9
(1) IN GENERAL.—Section 951A(a) is amended
10
by striking ‘‘global intangible low-taxed income’’ and
11
inserting ‘‘net CFC tested income’’.
12
(2) CONFORMING AMENDMENTS.—
13
(A) Section 951A is amended by striking
14
subsections (b) and (d).
15
(B) Section 951A(e)(1) is amended by
16
striking ‘‘subsections (b), (c)(1)(A), and’’ and
17
inserting ‘‘subsections (c)(1)(A) and’’.
18
(C) Section 951A(f) is amended by strik-
19
ing ‘‘global intangible low-taxed income’’ each
20
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•S 357 IS
place it appears and inserting ‘‘net CFC tested
1
income’’.
2
(D) Section 960(d)(2)(A) is amended by
3
striking ‘‘global intangible low-taxed income (as
4
defined in section 951A(b))’’ and inserting ‘‘net
5
CFC tested income (as defined in section
6
951A(c))’’.
7
(b) COUNTRY-BY-COUNTRY APPLICATION
OF SEC-
8
TION BASED ON CFC TAXABLE UNITS.—Section 951A is
9
amended by adding at the end the following new sub-
10
section:
11
‘‘(g) COUNTRY-BY-COUNTRY APPLICATION OF SEC-
12
TION BASED ON CFC TAXABLE UNITS.—
13
‘‘(1) IN GENERAL.—If any CFC taxable unit of
14
a United States shareholder is a tax resident of (or,
15
in the case of a branch, is located in) a country
16
which is different from the country with respect to
17
which any other CFC taxable unit of such United
18
States shareholder is a tax resident (or, in the case
19
of a branch, is located in)—
20
‘‘(A) such shareholder’s net CFC tested in-
21
come for purposes of subsection (a) shall be the
22
sum of the amounts of net CFC tested income
23
determined separately with respect to each such
24
country, and
25
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‘‘(B) for purposes of determining such sep-
1
arate amounts of net CFC tested income—
2
‘‘(i) except as otherwise provided by
3
the Secretary, any reference in subsection
4
(c) to a controlled foreign corporation of
5
such shareholder shall be treated as ref-
6
erence to a CFC taxable unit of such
7
shareholder, and
8
‘‘(ii) net CFC tested income and such
9
other items and amounts as the Secretary
10
may provide, shall be determined sepa-
11
rately with respect to each such country by
12
determining such amounts with respect to
13
the CFC taxable units of such shareholder
14
which are a tax resident of such country.
15
‘‘(2) DEFINITIONS.—For purposes of this sub-
16
section—
17
‘‘(A) CFC
TAXABLE
UNIT.—The term
18
‘CFC taxable unit’ means any taxable unit de-
19
scribed in clause (ii), (iii), or (iv) of section
20
904(e)(2)(B), determined—
21
‘‘(i) by substituting ‘controlled foreign
22
corporation’ for ‘foreign corporation’ each
23
place it appears in such clauses, and
24
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‘‘(ii) without regard to the references
1
to the taxpayer in clauses (iii) and (iv) of
2
such section.
3
‘‘(B) APPLICATION
OF
OTHER
DEFINI-
4
TIONS.—Terms used in this subsection which
5
are also used in section 904(e) shall have the
6
same meaning as when used in section 904(e).
7
‘‘(3) SPECIAL
RULES.—For purposes of this
8
subsection—
9
‘‘(A) APPLICATION OF CERTAIN RULES.—
10
Except as otherwise provided by the Secretary,
11
rules similar to the rules of section 904(e) shall
12
apply.
13
‘‘(B) ALLOCATION
OF
NET
CFC
TESTED
14
INCOME TO CONTROLLED FOREIGN CORPORA-
15
TIONS.—Except as otherwise provided by the
16
Secretary, subsection (f)(2) shall be applied
17
separately with respect to each CFC taxable
18
unit.’’.
19
(c) REGULATORY AUTHORITY.—Section 951A, as
20
amended by subsection (b), is amended by adding at the
21
end the following new subsection:
22
‘‘(h) REGULATIONS.—The Secretary shall issue such
23
regulations or other guidance as may be necessary or ap-
24
propriate to carry out, or prevent the avoidance of, the
25
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•S 357 IS
purposes of this section, including regulations or guidance
1
which provide for—
2
‘‘(1) the treatment of property if such property
3
is transferred, or held, temporarily,
4
‘‘(2) the treatment of property if the avoidance
5
of the purposes of this section is a factor in the
6
transfer or holding of such property,
7
‘‘(3) appropriate adjustments to the basis of
8
stock and other ownership interests, and to earnings
9
and profits, to reflect tested losses (whether or not
10
taken into account in determining net CFC tested
11
income),
12
‘‘(4) rules similar to the rules provided under
13
the regulations or guidance issued under section
14
904(e)(4),
15
‘‘(5) other appropriate basis adjustments,
16
‘‘(6) appropriate adjustments to be made, and
17
appropriate tax attributes and records to be main-
18
tained, separately with respect to CFC taxable units,
19
and
20
‘‘(7) appropriate adjustments in determining
21
tested income or tested loss if property is trans-
22
ferred between related parties or amounts are paid
23
or accrued between related parties.’’.
24
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(d) COORDINATION WITH OTHER PROVISIONS.—Sec-
1
tion 951A(f)(1) is amended by adding at the end the fol-
2
lowing new subparagraph:
3
‘‘(C)
TREATMENT
OF
CERTAIN
REF-
4
ERENCES.—Except as otherwise provided by the
5
Secretary, references to section 951 or section
6
951(a) in sections 959, 961, 962, and such
7
other provisions as the Secretary may identify
8
shall include references to section 951A or sec-
9
tion 951A(a), respectively.’’.
10
(e) REPEAL OF REDUCED RATE OF TAX ON NET
11
CFC TESTED INCOME AND FOREIGN-DERIVED INTAN-
12
GIBLE INCOME.—
13
(1) IN GENERAL.—Part VIII of subchapter B
14
of chapter 1 is amended by striking section 250 (and
15
by striking the item relating to such section in the
16
table of sections of such part).
17
(2) CONFORMING AMENDMENTS.—
18
(A) Section 59A(c)(4)(B)(i) is amended by
19
striking ‘‘section 172, 245A, or 250’’ and in-
20
serting ‘‘section 172 or 245A’’.
21
(B) Section 172(d) is amended by striking
22
paragraph (9).
23
(C) Section 246(b)(1) is amended—
24
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•S 357 IS
(i) by striking ‘‘subsection (a) and (b)
1
of section 245, and section 250’’ and in-
2
serting ‘‘and subsection (a) and (b) of sec-
3
tion 245’’; and
4
(ii) by striking ‘‘subsection (a) and
5
(b) of section 245, and 250’’ and inserting
6
‘‘and subsection (a) and (b) of section
7
245’’.
8
(D) Section 469(i)(3)(E)(iii) is amended
9
by striking ‘‘, 221, and 250’’ and inserting
10
‘‘and 221’’.
11
(f) REPEAL OF CERTAIN EXCLUSIONS FROM THE
12
DETERMINATION
OF
TESTED
INCOME.—Section
13
951A(c)(2)(A)(i) is amended—
14
(1) by striking subclauses (III) and (V),
15
(2) by redesignating subclause (IV) as sub-
16
clause (III),
17
(3) by adding ‘‘and’’ at the end of subclause
18
(II), and
19
(4) by striking ‘‘and’’ at the end of subclause
20
(III) (as so redesignated) and inserting ‘‘over’’.
21
(g) INCREASE IN DEEMED PAID CREDIT FOR TAXES
22
PROPERLY ATTRIBUTABLE TO TESTED INCOME.—
23
(1) IN GENERAL.—Section 960(d) is amended
24
by striking ‘‘80 percent of’’.
25
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•S 357 IS
(2) CONFORMING AMENDMENT.—Section 78 is
1
amended by striking ‘‘(determined without regard to
2
the phrase ‘‘80 percent of’’ in subsection (d)(1)
3
thereof)’’.
4
(h) REPEAL OF HIGH TAX EXCLUSION FOR FOREIGN
5
BASE COMPANY INCOME AND INSURANCE INCOME.—
6
(1) IN GENERAL.—Section 954(b) is amended
7
by striking paragraph (4).
8
(2)
CONFORMING
AMENDMENT.—Section
9
904(d)(3)(E) is amended by striking the last sen-
10
tence.
11
(i) ELIMINATION OF CARRYBACK OF FOREIGN TAX
12
CREDIT.—
13
(1) IN GENERAL.—Section 904(c) is amended—
14
(A) by striking ‘‘in the first preceding tax-
15
able year, and in any of the first 10 succeeding
16
taxable years, in that order’’ and inserting ‘‘in
17
any of the first 10 succeeding taxable years, in
18
order’’,
19
(B) by striking ‘‘preceding or’’ each place
20
it appears, and
21
(C) by striking ‘‘CARRYBACK AND’’ in the
22
heading thereof.
23
(2) APPLICATION TO LIMITATION ON FOREIGN
24
OIL AND GAS TAXES.—Section 907(f) is amended—
25
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•S 357 IS
(A) in paragraph (1), by striking ‘‘in the
1
first preceding taxable year and’’,
2
(B) in paragraph (2), by striking ‘‘pre-
3
ceding or’’ in the matter preceding subpara-
4
graph (A),
5
(C) in paragraph (3)(B)—
6
(i) by striking ‘‘in a preceding or suc-
7
ceeding’’ and inserting ‘‘in a succeeding’’,
8
and
9
(ii) by striking ‘‘in such preceding or
10
succeeding’’ both places it appears and in-
11
serting ‘‘in such succeeding’’, and
12
(D)
in
the
heading,
by
striking
13
‘‘CARRYBACK AND’’.
14
(j) TREATMENT OF FOREIGN BASE COMPANY OIL
15
RELATED INCOME AS SUBPART F INCOME.—
16
(1) IN GENERAL.—Section 954(a) is amended
17
by striking ‘‘and’’ at the end of paragraph (2), by
18
striking the period at the end of paragraph (3) and
19
inserting ‘‘, and’’, and by adding at the end the fol-
20
lowing new paragraph:
21
‘‘(4) the foreign base company oil related in-
22
come for the taxable year (determined under sub-
23
section (f) and reduced as provided in subsection
24
(b)(5)).’’.
25
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•S 357 IS
(2) FOREIGN BASE COMPANY OIL RELATED IN-
1
COME.—Section 954 is amended by inserting after
2
subsection (e) the following new subsection:
3
‘‘(f) FOREIGN BASE COMPANY OIL RELATED IN-
4
COME.—For purposes of this section, the term ‘foreign
5
base company oil related income’ means foreign oil related
6
income (within the meaning of paragraphs (2) and (3) of
7
section 907(c)) other than income derived from a source
8
within a foreign country in connection with—
9
‘‘(1) oil or gas which was extracted from an oil
10
or gas well located in such foreign country, or
11
‘‘(2) oil, gas, or a primary product of oil or gas
12
which is sold by the foreign corporation or a related
13
person for use or consumption within such country
14
or is loaded in such country on a vessel or aircraft
15
as fuel for such vessel or aircraft.
16
Such term shall not include any foreign personal holding
17
company income (as defined in subsection (c)).’’.
18
(3) CONFORMING AMENDMENTS.—
19
(A) Section 952(c)(1)(B)(iii) is amended
20
by redesignating subclauses (III) and (IV) as
21
subclauses (IV) and (V), respectively, and by
22
inserting after subclause (II) the following new
23
subclause:
24
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‘‘(III) foreign base company oil
1
related income.’’.
2
(B) Section 954(b) is amended—
3
(i) by striking ‘‘and the foreign base
4
company services income’’ in paragraph
5
(5) and inserting ‘‘the foreign base com-
6
pany services income, and the foreign base
7
company oil related income’’, and
8
(ii) by adding at the end the following
9
new paragraph:
10
‘‘(6) FOREIGN BASE COMPANY OIL RELATED IN-
11
COME NOT TREATED AS ANOTHER KIND OF FOREIGN
12
BASE COMPANY INCOME.—Income of a corporation
13
which is foreign base company oil related income
14
shall not be considered foreign base company income
15
of such corporation under paragraph (2) or (3) of
16
subsection (a).’’.
17
(k) EFFECTIVE DATES.—
18
(1) IN
GENERAL.—Except as otherwise pro-
19
vided in this subsection, the amendments made by
20
this section shall apply to taxable years of foreign
21
corporations beginning after December 31, 2022,
22
and to taxable years of United States shareholders
23
in which or with which such taxable years of foreign
24
corporations end.
25
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(2) REGULATORY AUTHORITY AND COORDINA-
1
TI
[Text truncated for display. Full text available on Congress.gov.]