II 117TH CONGRESS 1ST SESSION S. 991 To amend the Internal Revenue Code of 1986 to modify the treatment of foreign corporations, and for other purposes. IN THE SENATE OF THE UNITED STATES MARCH 25, 2021 Mr. SANDERS introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to modify the treatment of foreign corporations, 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. 3 This Act may be cited as the ‘‘Corporate Tax Dodg- 4 ing Prevention Act’’. 5 SEC. 2. RESTORATION OF PROGRESSIVE CORPORATE TAX 6 RATE. 7 (a) IN GENERAL.—Section 11(b) of the Internal Rev- 8 enue Code of 1986 is amended to read as follows: 9 ‘‘(b) AMOUNT OF TAX.— 10 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 2 •S 991 IS ‘‘(1) IN GENERAL.—The amount of the tax im- 1 posed by subsection (a) shall be the sum of— 2 ‘‘(A) 15 percent of so much of the taxable 3 income as does not exceed $50,000, 4 ‘‘(B) 25 percent of so much of the taxable 5 income as exceeds $50,000 but does not exceed 6 $75,000, 7 ‘‘(C) 34 percent of so much of the taxable 8 income as exceeds $75,000 but does not exceed 9 $10,000,000, and 10 ‘‘(D) 35 percent of so much of the taxable 11 income as exceeds $10,000,000. 12 In the case of a corporation which has taxable in- 13 come in excess of $100,000 for any taxable year, the 14 amount of tax determined under the preceding sen- 15 tence for such taxable year shall be increased by the 16 lesser of (i) 5 percent of such excess, or (ii) $11,750. 17 In the case of a corporation which has taxable in- 18 come in excess of $15,000,000, the amount of the 19 tax determined under the foregoing provisions of 20 this paragraph shall be increased by an additional 21 amount equal to the lesser of (i) 3 percent of such 22 excess, or (ii) $100,000. 23 ‘‘(2) CERTAIN PERSONAL SERVICE CORPORA- 24 TIONS NOT ELIGIBLE FOR GRADUATED RATES.— 25 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 3 •S 991 IS Notwithstanding paragraph (1), the amount of the 1 tax imposed by subsection (a) on the taxable income 2 of a qualified personal service corporation (as de- 3 fined in section 448(d)(2)) shall be equal to 35 per- 4 cent of the taxable income.’’. 5 (b) EFFECTIVE DATE.—The amendment made by 6 this section shall apply to taxable years beginning after 7 December 31, 2021. 8 SEC. 3. EQUALIZATION OF TAX RATES ON DOMESTIC AND 9 FOREIGN INCOME. 10 (a) IN GENERAL.—Section 952 of the Internal Rev- 11 enue Code of 1986 is amended by adding at the end the 12 following new subsection: 13 ‘‘(e) SPECIAL APPLICATION OF SUBPART.— 14 ‘‘(1) IN GENERAL.—For taxable years begin- 15 ning after December 31, 2021, notwithstanding any 16 other provision of this subpart, the term ‘subpart F 17 income’ means, in the case of any controlled foreign 18 corporation, the income of such corporation derived 19 from any foreign country. 20 ‘‘(2) APPLICABLE RULES.—Rules similar to the 21 rules under the last sentence of subsection (a) and 22 subsection (d) shall apply to this subsection.’’. 23 (b) TREATMENT OF PREVIOUSLY DEFERRED FOR- 24 EIGN INCOME.— 25 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 4 •S 991 IS (1) TREATMENT OF INTEREST.—Section 965(h) 1 of the Internal Revenue Code of 1986 is amended by 2 adding at the end the following new paragraph: 3 ‘‘(7) RULES RELATING TO INTEREST.—In the 4 case of any amount of the net tax liability prorated 5 to an installment under this subsection which has 6 not been paid before the date of the enactment of 7 this paragraph, the last date prescribed for payment 8 of any such installment for purposes of section 6601 9 shall be the earlier of such last date (determined 10 without regard to this paragraph) or such date of 11 enactment.’’. 12 (2) RULES FOR S CORPORATIONS.—Section 13 965(i)(2)(A) of such Code is amended by adding at 14 the end the following new clause: 15 ‘‘(iv) The date of the enactment of the 16 Corporate Tax Dodging Prevention Act.’’. 17 (c) EFFECTIVE DATE.—The amendments made by 18 this section shall apply to taxable years of foreign corpora- 19 tions beginning after December 31, 2021, and to taxable 20 years of United States shareholders in which or with which 21 such taxable years of foreign corporations end. 22 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 5 •S 991 IS SEC. 4. COUNTRY-BY-COUNTRY APPLICATION OF LIMITA- 1 TION ON FOREIGN TAX CREDIT BASED ON 2 TAXABLE UNITS. 3 (a) IN GENERAL.—Section 904 is amended by insert- 4 ing after subsection (d) the following new subsection: 5 ‘‘(e) COUNTRY-BY-COUNTRY APPLICATION OF SEC- 6 TION BASED ON TAXABLE UNITS.— 7 ‘‘(1) IN GENERAL.—The provisions of sub- 8 sections (a), (b), (c), and (d) and sections 907 and 9 960 shall be applied separately with respect to each 10 country and possession by taking into account the 11 aggregate items properly attributable or otherwise 12 allocable to a taxable unit of the taxpayer which is 13 a tax resident of such country or possession. 14 ‘‘(2) TAXABLE UNITS.— 15 ‘‘(A) IN GENERAL.—Unless otherwise pro- 16 vided by the Secretary, to the extent an item 17 may be properly attributable or otherwise allo- 18 cable to more than one taxable unit under para- 19 graph (1), such item shall be treated as prop- 20 erly attributable or otherwise allocable to the 21 lowest-tier taxable unit of the taxpayer to which 22 such item may be properly attributable or oth- 23 erwise allocable. No item shall be attributable 24 or otherwise allocable to more than one taxable 25 unit of the taxpayer. 26 VerDate Sep 11 2014 20:18 Apr 22, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 6 •S 991 IS ‘‘(B) DETERMINATION OF TAXABLE 1 UNITS.—Except as otherwise provided by the 2 Secretary, the taxable units of a taxpayer are 3 as follows: 4 ‘‘(i) IN GENERAL.—The general tax- 5 able unit of the taxpayer which is not oth- 6 erwise described in a separate clause of 7 this subparagraph. 8 ‘‘(ii) FOREIGN BRANCHES.—Each for- 9 eign branch the activities of which are car- 10 ried on directly or indirectly (through one 11 or more pass-through entities) by the tax- 12 payer. 13 ‘‘(iii) CONTROLLED FOREIGN COR- 14 PORATIONS.—Each controlled foreign cor- 15 poration with respect to which the tax- 16 payer is a United States shareholder. 17 ‘‘(iv) BRANCHES OF CONTROLLED 18 FOREIGN CORPORATIONS.—Each branch 19 the activities of which are carried on di- 20 rectly or indirectly (through one or more 21 pass-through entities) by a controlled for- 22 eign corporation referred to in clause (iii). 23 ‘‘(v) INTERESTS IN PASS-THROUGH 24 ENTITIES.— 25 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 7 •S 991 IS ‘‘(I) IN GENERAL.—Each interest 1 in a pass-through entity held directly 2 or indirectly by the taxpayer or a con- 3 trolled foreign corporation referred to 4 in clause (iii) if such entity is a tax 5 resident of a foreign country. 6 ‘‘(II) CERTAIN INTERESTS HELD 7 BY CONTROLLED FOREIGN CORPORA- 8 TIONS.—Each interest in a pass- 9 through entity held directly or indi- 10 rectly by a controlled foreign corpora- 11 tion referred to in clause (iii) if such 12 entity is a tax resident of a foreign 13 country or such entity is treated as a 14 corporation (or other entity that is 15 not fiscally transparent) for purposes 16 of the tax law of a foreign country in 17 which such controlled foreign corpora- 18 tion is a tax resident. 19 ‘‘(3) TAX RESIDENT.—For purposes of this 20 subsection, a taxable unit shall be treated as a tax 21 resident of a country or possession if such taxable 22 unit is liable to tax under the tax law of such coun- 23 try or possession as a resident. 24 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 8 •S 991 IS ‘‘(4) PASS-THROUGH ENTITY.—For purposes of 1 this subsection, the term ‘pass-through entity’ means 2 any partnership and any other type of entity (other 3 than a corporation) identified by the Secretary as a 4 pass-through entity for purposes of this subsection. 5 ‘‘(5) REGULATIONS.—The Secretary shall issue 6 such regulations or other guidance as the Secretary 7 determines necessary or appropriate to carry out the 8 purposes of this subsection, including regulations or 9 other guidance— 10 ‘‘(A) for determining the country or pos- 11 session with respect to which any taxable unit 12 is a tax resident, including— 13 ‘‘(i) determining such country or pos- 14 session on the basis of location if such tax- 15 able unit would not otherwise be a tax resi- 16 dent of any country or possession, and 17 ‘‘(ii) ensuring that such taxable unit 18 is a tax resident of not more than 1 coun- 19 try or possession, 20 ‘‘(B) applying this section to hybrid enti- 21 ties, passive foreign investment companies, 22 tiered structures, and branches, including 23 branches that do not give rise to a taxable pres- 24 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 9 •S 991 IS ence under the tax law of the country where the 1 branch is located, and 2 ‘‘(C) determining whether any entity is not 3 fiscally transparent within the meaning of para- 4 graph (2)(B)(v)(II).’’. 5 (b) APPLICATION OF FOREIGN TAX CREDIT LIMITA- 6 TION WITH RESPECT TO FOREIGN BRANCHES.—Section 7 904(d)(2)(J)(i) is amended— 8 (1) by striking ‘‘qualified business units (as de- 9 fined in section 989(a)) in 1 or more foreign coun- 10 tries’’ and inserting ‘‘foreign branches described in 11 section 904(e)(2)(B)(ii)’’, and 12 (2) by striking ‘‘a qualified business unit’’ and 13 inserting ‘‘a foreign branch’’. 14 (c) EFFECTIVE DATE.—The amendments made by 15 this section shall apply to taxable years beginning after 16 December 31, 2021. 17 SEC. 5. REPEAL OF CHECK-THE-BOX RULES FOR CERTAIN 18 FOREIGN ENTITIES AND CFC LOOK-THRU 19 RULES. 20 (a) CHECK-THE-BOX RULES.—Paragraph (3) of sec- 21 tion 7701(a) of the Internal Revenue Code of 1986 is 22 amended— 23 (1) by striking ‘‘and’’, and 24 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 10 •S 991 IS (2) by inserting after ‘‘insurance companies’’ 1 the following: ‘‘, and any foreign business entity that 2 has one or more owners all of which have limited li- 3 ability.’’. 4 (b) LOOK-THRU RULE.—Subparagraph (C) of sec- 5 tion 954(c)(6) of such Code is amended to read as follows: 6 ‘‘(C) TERMINATION.—Subparagraph (A) 7 shall not apply to dividends, interest, rents, and 8 royalties received or accrued after the date of 9 the enactment of the Corporate Tax Dodging 10 Prevention Act.’’. 11 (c) EFFECTIVE DATE.—The amendments made by 12 this section shall take effect on the date of the enactment 13 of this Act. 14 SEC. 6. LIMITATION ON DEDUCTION OF INTEREST BY DO- 15 MESTIC CORPORATIONS WHICH ARE MEM- 16 BERS OF AN INTERNATIONAL FINANCIAL RE- 17 PORTING GROUP. 18 (a) IN GENERAL.—Section 163 of the Internal Rev- 19 enue Code of 1986 is amended by redesignating subsection 20 (n) as subsection (o) and by inserting after subsection (m) 21 the following new subsection: 22 ‘‘(n) LIMITATION ON DEDUCTION OF INTEREST BY 23 DOMESTIC CORPORATIONS IN INTERNATIONAL FINAN- 24 CIAL REPORTING GROUPS.— 25 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 11 •S 991 IS ‘‘(1) IN GENERAL.—In the case of any domestic 1 corporation which is a member of any international 2 financial reporting group, the deduction under this 3 chapter for interest paid or accrued during the tax- 4 able year shall not exceed the sum of— 5 ‘‘(A) the allowable percentage of 105 per- 6 cent of the excess (if any) of— 7 ‘‘(i) the amount of such interest so 8 paid or accrued, over 9 ‘‘(ii) the amount described in subpara- 10 graph (B), plus 11 ‘‘(B) the amount of interest includible in 12 gross income of such corporation for such tax- 13 able year. 14 ‘‘(2) INTERNATIONAL FINANCIAL REPORTING 15 GROUP.— 16 ‘‘(A) For purposes of this subsection, the 17 term ‘international financial reporting group’ 18 means, with respect to any reporting year, any 19 group of entities which— 20 ‘‘(i) includes— 21 ‘‘(I) at least one foreign corpora- 22 tion engaged in a trade or business 23 within the United States, or 24 VerDate Sep 11 2014 20:18 Apr 22, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 12 •S 991 IS ‘‘(II) at least one domestic cor- 1 poration and one foreign corporation, 2 ‘‘(ii) prepares consolidated financial 3 statements with respect to such year, and 4 ‘‘(iii) reports in such statements aver- 5 age annual gross receipts (determined in 6 the aggregate with respect to all entities 7 which are part of such group) for the 3-re- 8 porting-year period ending with such re- 9 porting year in excess of $25,000,000. 10 ‘‘(B) RULES RELATING TO DETERMINA- 11 TION OF AVERAGE GROSS RECEIPTS.—For pur- 12 poses of subparagraph (A)(iii), rules similar to 13 the rules of section 448(c)(3) shall apply. 14 ‘‘(3) ALLOWABLE PERCENTAGE.—For purposes 15 of this subsection— 16 ‘‘(A) IN GENERAL.—The term ‘allowable 17 percentage’ means, with respect to any domestic 18 corporation for any taxable year, the ratio (ex- 19 pressed as a percentage and not greater than 20 100 percent) of— 21 ‘‘(i) such corporation’s allocable share 22 of the international financial reporting 23 group’s reported net interest expense for 24 the reporting year of such group which 25 VerDate Sep 11 2014 22:14 Apr 18, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S991.IS S991 kjohnson on DSK79L0C42PROD with BILLS 13 •S 991 IS ends in or with such taxable year of such 1 corporation, over 2 ‘‘(ii) such corporation’s reported net 3 interest expense for such reporting year of 4 such group. 5 ‘‘(B) REPORTED NET INTEREST EX- 6 PENSE.—The term ‘reported net interest ex- 7 pense’ means— 8 ‘‘(i) with respect to any international 9 f [Text truncated for display. 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