II 117TH CONGRESS 1ST SESSION S. 714 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 MARCH 11, 2021 Mr. WHITEHOUSE (for himself, Mr. DURBIN, Mr. VAN HOLLEN, Ms. WAR- REN, Mrs. GILLIBRAND, Mr. MERKLEY, and Mr. REED) introduced the following 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 to, or repeal of, a section or other provision, the reference 9 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 714 IS shall be considered to be made to a section or other provi- 1 sion of the Internal Revenue Code of 1986. 2 (c) TABLE OF CONTENTS.—The table of contents of 3 this Act is as follows: 4 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- 5 COME. 6 (a) REPEAL OF TAX-FREE DEEMED RETURN ON IN- 7 VESTMENTS.— 8 (1) IN GENERAL.—Section 951A(a) is amended 9 by striking ‘‘global intangible low-taxed income’’ and 10 inserting ‘‘net CFC tested income’’. 11 (2) CONFORMING AMENDMENTS.— 12 (A) Section 951A is amended by striking 13 subsections (b) and (d). 14 (B) Section 951A(e)(1) is amended by 15 striking ‘‘subsections (b), (c)(1)(A), and’’ and 16 inserting ‘‘subsections (c)(1)(A) and’’. 17 (C) Section 951A(f) is amended by strik- 18 ing ‘‘global intangible low-taxed income’’ each 19 place it appears and inserting ‘‘net CFC tested 20 income’’. 21 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 714 IS (D) Section 960(d)(2)(A) is amended by 1 striking ‘‘global intangible low-taxed income (as 2 defined in section 951A(b))’’ and inserting ‘‘net 3 CFC tested income (as defined in section 4 951A(c))’’. 5 (b) REPEAL OF REDUCED RATE OF TAX ON NET 6 CFC TESTED INCOME AND FOREIGN-DERIVED INTAN- 7 GIBLE INCOME.— 8 (1) IN GENERAL.—Part VIII of subchapter B 9 of chapter 1 is amended by striking section 250 (and 10 by striking the item relating to such section in the 11 table of sections of such part). 12 (2) CONFORMING AMENDMENTS.— 13 (A) Section 59A(c)(4)(B)(i) is amended by 14 striking ‘‘section 172, 245A, or 250’’ and in- 15 serting ‘‘section 172 or 245A’’. 16 (B) Section 172(d) is amended by striking 17 paragraph (9). 18 (C) Section 246(b)(1) is amended— 19 (i) by striking ‘‘subsection (a) and (b) 20 of section 245, and section 250’’ and in- 21 serting ‘‘and subsection (a) and (b) of sec- 22 tion 245’’, and 23 (ii) by striking ‘‘subsection (a) and 24 (b) of section 245, and 250’’ and inserting 25 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 714 IS ‘‘and subsection (a) and (b) of section 1 245’’. 2 (D) Section 469(i)(3)(F)(iii) is amended 3 by striking ‘‘222, and 250’’ and inserting ‘‘and 4 222’’. 5 (c) REPEAL OF CERTAIN EXCLUSIONS FROM THE 6 DETERMINATION OF TESTED INCOME.—Section 7 951A(c)(2)(A)(i) is amended— 8 (1) by striking subclauses (III) and (V), 9 (2) by redesignating subclause (IV) as sub- 10 clause (III), 11 (3) by adding ‘‘and’’ at the end of subclause 12 (II), and 13 (4) by striking ‘‘and’’ at the end of subclause 14 (III) (as so redesignated) and inserting ‘‘over’’. 15 (d) INCREASE IN DEEMED PAID CREDIT FOR TAXES 16 PROPERLY ATTRIBUTABLE TO TESTED INCOME.— 17 (1) IN GENERAL.—Section 960(d) is amended 18 by striking ‘‘80 percent of’’. 19 (2) CONFORMING AMENDMENT.—Section 78 is 20 amended by striking ‘‘(determined without regard to 21 the phrase ‘‘80 percent of’’ in subsection (d)(1) 22 thereof)’’. 23 (e) REPEAL OF HIGH TAX EXCLUSION FOR FOREIGN 24 BASE COMPANY INCOME AND INSURANCE INCOME.— 25 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 714 IS (1) IN GENERAL.—Section 954(b) is amended 1 by striking paragraph (4). 2 (2) CONFORMING AMENDMENT.—Section 3 904(d)(3)(E) is amended by striking the last sen- 4 tence. 5 (f) ELIMINATION OF CARRYBACK OF FOREIGN TAX 6 CREDIT.—Section 904(c) is amended— 7 (1) by striking ‘‘in the first preceding taxable 8 year, and in any of the first 10 succeeding taxable 9 years, in that order’’ and inserting ‘‘in any of the 10 first 10 succeeding taxable years, in order’’, 11 (2) by striking ‘‘preceding or’’ each place it ap- 12 pears, and 13 (3) by striking ‘‘CARRYBACK AND’’ in the head- 14 ing thereof. 15 (g) TREATMENT OF FOREIGN BASE COMPANY OIL 16 RELATED INCOME AS SUBPART F INCOME.— 17 (1) IN GENERAL.—Section 954(a) is amended 18 by striking ‘‘and’’ at the end of paragraph (2), by 19 striking the period at the end of paragraph (3) and 20 inserting ‘‘, and’’, and by adding at the end the fol- 21 lowing new paragraph: 22 ‘‘(4) the foreign base company oil related in- 23 come for the taxable year (determined under sub- 24 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 714 IS section (g) and reduced as provided in subsection 1 (b)(5)).’’. 2 (2) FOREIGN BASE COMPANY OIL RELATED IN- 3 COME.—Section 954 is amended by inserting after 4 subsection (e) the following new subsection: 5 ‘‘(g) FOREIGN BASE COMPANY OIL RELATED IN- 6 COME.—For purposes of this section, the term ‘foreign 7 base company oil related income’ means foreign oil related 8 income (within the meaning of paragraphs (2) and (3) of 9 section 907(c)) other than income derived from a source 10 within a foreign country in connection with— 11 ‘‘(1) oil or gas which was extracted from an oil 12 or gas well located in such foreign country, or 13 ‘‘(2) oil, gas, or a primary product of oil or gas 14 which is sold by the foreign corporation or a related 15 person for use or consumption within such country 16 or is loaded in such country on a vessel or aircraft 17 as fuel for such vessel or aircraft. 18 Such term shall not include any foreign personal holding 19 company income (as defined in subsection (c)).’’. 20 (3) CONFORMING AMENDMENTS.— 21 (A) Section 952(c)(1)(B)(iii) is amended 22 by redesignating subclauses (III) and (IV) as 23 subclauses (IV) and (V), respectively, and by 24 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 714 IS inserting after subclause (II) the following new 1 subclause: 2 ‘‘(III) foreign base company oil 3 related income.’’. 4 (B) Section 954(b) is amended— 5 (i) by striking ‘‘and the foreign base 6 company services income’’ in paragraph 7 (5) and inserting ‘‘the foreign base com- 8 pany services income, and the foreign base 9 company oil related income’’, and 10 (ii) by adding at the end the following 11 new paragraph: 12 ‘‘(6) FOREIGN BASE COMPANY OIL RELATED IN- 13 COME NOT TREATED AS ANOTHER KIND OF FOREIGN 14 BASE COMPANY INCOME.—Income of a corporation 15 which is foreign base company oil related income 16 shall not be considered foreign base company income 17 of such corporation under paragraph (2) or (3) of 18 subsection (a).’’. 19 (h) EFFECTIVE DATES.— 20 (1) IN GENERAL.—Except as otherwise pro- 21 vided in this subsection, the amendments made by 22 this section shall apply to taxable years of foreign 23 corporations beginning after December 31, 2020, 24 and to taxable years of United States shareholders 25 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 714 IS in which or with which such taxable years of foreign 1 corporations end. 2 (2) REPEAL OF REDUCED RATE OF TAX; IN- 3 CREASE IN DEEMED PAID CREDIT.—The amend- 4 ments made by subsection (b) and (d) shall apply to 5 taxable years beginning after December 31, 2020. 6 (3) REPEAL OF HIGH TAX EXCLUSION FOR 7 FOREIGN BASE COMPANY INCOME AND INSURANCE 8 INCOME.—The amendment made by subsection (e) 9 shall apply to taxable years of foreign corporations 10 beginning after December 31, 2020, and to taxable 11 years of United States shareholders in which or with 12 which such taxable years of foreign corporations 13 end. 14 (4) ELIMINATION OF CARRYBACK OF FOREIGN 15 TAX CREDIT.—The amendment made by subsection 16 (f) shall apply to credits arising in taxable years be- 17 ginning after December 31, 2020. 18 SEC. 3. COUNTRY-BY-COUNTRY APPLICATION OF LIMITA- 19 TION ON FOREIGN TAX CREDIT BASED ON 20 TAXABLE UNITS. 21 (a) IN GENERAL.—Section 904 is amended by insert- 22 ing after subsection (d) the following new subsection: 23 ‘‘(e) COUNTRY-BY-COUNTRY APPLICATION OF SEC- 24 TION BASED ON TAXABLE UNITS.— 25 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 714 IS ‘‘(1) IN GENERAL.—The provisions of sub- 1 sections (a), (b), (c), and (d) and sections 907 and 2 960 shall be applied separately with respect to each 3 country and possession by taking into account the 4 aggregate items properly attributable or otherwise 5 allocable to a taxable unit of the taxpayer which is 6 a tax resident of such country or possession. 7 ‘‘(2) TAXABLE UNITS.— 8 ‘‘(A) IN GENERAL.—Unless otherwise pro- 9 vided by the Secretary, to the extent an item 10 may be properly attributable or otherwise allo- 11 cable to more than one taxable unit under para- 12 graph (1), such item shall be treated as prop- 13 erly attributable or otherwise allocable to the 14 lowest-tier taxable unit of the taxpayer to which 15 such item may be properly attributable or oth- 16 erwise allocable. No item shall be attributable 17 or otherwise allocable to more than one taxable 18 unit of the taxpayer. 19 ‘‘(B) DETERMINATION OF TAXABLE 20 UNITS.—Except as otherwise provided by the 21 Secretary, the taxable units of a taxpayer are 22 as follows: 23 ‘‘(i) IN GENERAL.—The general tax- 24 able unit of the taxpayer which is not oth- 25 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 714 IS erwise described in a separate clause of 1 this subparagraph. 2 ‘‘(ii) FOREIGN BRANCHES.—Each for- 3 eign branch the activities of which are car- 4 ried on directly or indirectly (through one 5 or more pass-through entities) by the tax- 6 payer. 7 ‘‘(iii) CONTROLLED FOREIGN COR- 8 PORATIONS.—Each controlled foreign cor- 9 poration with respect to which the tax- 10 payer is a United States shareholder. 11 ‘‘(iv) BRANCHES OF CONTROLLED 12 FOREIGN CORPORATIONS.—Each branch 13 the activities of which are carried on di- 14 rectly or indirectly (through one or more 15 pass-through entities) by a controlled for- 16 eign corporation referred to in clause (iii). 17 ‘‘(v) INTERESTS IN PASS-THROUGH 18 ENTITIES.— 19 ‘‘(I) IN GENERAL.—Each interest 20 in a pass-through entity held directly 21 or indirectly by the taxpayer or a con- 22 trolled foreign corporation referred to 23 in clause (iii) if such entity is a tax 24 resident of a foreign country. 25 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 714 IS ‘‘(II) CERTAIN INTERESTS HELD 1 BY CONTROLLED FOREIGN CORPORA- 2 TIONS.—Each interest in a pass- 3 through entity held directly or indi- 4 rectly by a controlled foreign corpora- 5 tion referred to in clause (iii) if such 6 entity is a tax resident of a foreign 7 country or such entity is treated as a 8 corporation (or other entity that is 9 not fiscally transparent) for purposes 10 of the tax law of a foreign country in 11 which such controlled foreign corpora- 12 tion is a tax resident. 13 ‘‘(3) TAX RESIDENT.—For purposes of this 14 subsection, a taxable unit shall be treated as a tax 15 resident of a country or possession if such taxable 16 unit is liable to tax under the tax law of such coun- 17 try or possession as a resident. 18 ‘‘(4) PASS-THROUGH ENTITY.—For purposes of 19 this subsection, the term ‘pass-through entity’ means 20 any partnership and any other type of entity (other 21 than a corporation) identified by the Secretary as a 22 pass-through entity for purposes of this subsection. 23 ‘‘(5) REGULATIONS.—The Secretary shall issue 24 such regulations or other guidance as the Secretary 25 VerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 714 IS determines necessary or appropriate to carry out the 1 purposes of this subsection, including regulations or 2 other guidance— 3 ‘‘(A) for determining the country or pos- 4 session with respect to which any taxable unit 5 is a tax resident, including— 6 ‘‘(i) determining such country or pos- 7 session on the basis of location if such tax- 8 able unit would not otherwise be a tax resi- 9 dent of any country or possession, and 10 ‘‘(ii) ensuring that such taxable unit 11 is a tax resident of not more than 1 coun- 12 try or possession, 13 ‘‘(B) applying this section to hybrid enti- 14 ties, passive foreign investment companies, 15 tiered structures, and branches, including 16 branches that do not give rise to a taxable pres- 17 ence under the tax law of the country where the 18 branch is located, and 19 ‘‘(C) determining whether any entity is not 20 fiscally transparent within the meaning of para- 21 graph (2)(B)(v)(II).’’. 22 (b) APPLICATION OF FOREIGN TAX CREDIT LIMITA- 23 TION WITH RESPECT TO FOREIGN BRANCHES.—Section 24 904(d)(2)(J)(i) is amended— 25 Ve [Text truncated for display. 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