Stop Corporate Inversions Act of 2021

II 117TH CONGRESS 1ST SESSION S. 1501 To amend the Internal Revenue Code of 1986 to modify the rules relating to inverted corporations. IN THE SENATE OF THE UNITED STATES APRIL 29, 2021 Mr. DURBIN (for himself, Mr. REED, Ms. HIRONO, Mr. BLUMENTHAL, Ms. DUCKWORTH, Mr. BROWN, Mr. WHITEHOUSE, Ms. WARREN, Mrs. FEIN- STEIN, Mr. LEAHY, Mr. VAN HOLLEN, and Mr. SANDERS) 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 modify the rules relating to inverted corporations. 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 ‘‘Stop Corporate Inver- 4 sions Act of 2021’’. 5 VerDate Sep 11 2014 01:32 May 25, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1501.IS S1501 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1501 IS SEC. 2. MODIFICATIONS TO RULES RELATING TO IN- 1 VERTED CORPORATIONS. 2 (a) IN GENERAL.—Subsection (b) of section 7874 of 3 the Internal Revenue Code of 1986 is amended to read 4 as follows: 5 ‘‘(b) INVERTED CORPORATIONS TREATED AS DO- 6 MESTIC CORPORATIONS.— 7 ‘‘(1) IN GENERAL.—Notwithstanding section 8 7701(a)(4), a foreign corporation shall be treated for 9 purposes of this title as a domestic corporation if— 10 ‘‘(A) such corporation would be a surro- 11 gate foreign corporation if subsection (a)(2) 12 were applied by substituting ‘80 percent’ for 13 ‘60 percent’, or 14 ‘‘(B) such corporation is an inverted do- 15 mestic corporation. 16 ‘‘(2) INVERTED DOMESTIC CORPORATION.—For 17 purposes of this subsection, a foreign corporation 18 shall be treated as an inverted domestic corporation 19 if, pursuant to a plan (or a series of related trans- 20 actions)— 21 ‘‘(A) the entity completes after May 8, 22 2014, the direct or indirect acquisition of— 23 ‘‘(i) substantially all of the properties 24 held directly or indirectly by a domestic 25 corporation, or 26 VerDate Sep 11 2014 01:32 May 25, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1501.IS S1501 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1501 IS ‘‘(ii) substantially all of the assets of, 1 or substantially all of the properties consti- 2 tuting a trade or business of, a domestic 3 partnership, and 4 ‘‘(B) after the acquisition, either— 5 ‘‘(i) more than 50 percent of the stock 6 (by vote or value) of the entity is held— 7 ‘‘(I) in the case of an acquisition 8 with respect to a domestic corpora- 9 tion, by former shareholders of the 10 domestic corporation by reason of 11 holding stock in the domestic corpora- 12 tion, or 13 ‘‘(II) in the case of an acquisition 14 with respect to a domestic partner- 15 ship, by former partners of the do- 16 mestic partnership by reason of hold- 17 ing a capital or profits interest in the 18 domestic partnership, or 19 ‘‘(ii) the management and control of 20 the expanded affiliated group which in- 21 cludes the entity occurs, directly or indi- 22 rectly, primarily within the United States, 23 and such expanded affiliated group has 24 significant domestic business activities. 25 VerDate Sep 11 2014 01:32 May 25, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1501.IS S1501 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1501 IS ‘‘(3) EXCEPTION FOR CORPORATIONS WITH 1 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN 2 COUNTRY OF ORGANIZATION.—A foreign corporation 3 described in paragraph (2) shall not be treated as an 4 inverted domestic corporation if after the acquisition 5 the expanded affiliated group which includes the en- 6 tity has substantial business activities in the foreign 7 country in which or under the law of which the enti- 8 ty is created or organized when compared to the 9 total business activities of such expanded affiliated 10 group. For purposes of subsection (a)(2)(B)(iii) and 11 the preceding sentence, the term ‘substantial busi- 12 ness activities’ shall have the meaning given such 13 term under regulations in effect on January 18, 14 2017, except that the Secretary may issue regula- 15 tions increasing the threshold percent in any of the 16 tests under such regulations for determining if busi- 17 ness activities constitute substantial business activi- 18 ties for purposes of this paragraph. 19 ‘‘(4) MANAGEMENT AND CONTROL.—For pur- 20 poses of paragraph (2)(B)(ii)— 21 ‘‘(A) IN GENERAL.—The Secretary shall 22 prescribe regulations for purposes of deter- 23 mining cases in which the management and 24 control of an expanded affiliated group is to be 25 VerDate Sep 11 2014 01:32 May 25, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1501.IS S1501 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1501 IS treated as occurring, directly or indirectly, pri- 1 marily within the United States. The regula- 2 tions prescribed under the preceding sentence 3 shall apply to periods after May 8, 2014. 4 ‘‘(B) EXECUTIVE OFFICERS AND SENIOR 5 MANAGEMENT.—Such regulations shall provide 6 that the management and control of an ex- 7 panded affiliated group shall be treated as oc- 8 curring, directly or indirectly, primarily within 9 the United States if substantially all of the ex- 10 ecutive officers and senior management of the 11 expanded affiliated group who exercise day-to- 12 day responsibility for making decisions involving 13 strategic, financial, and operational policies of 14 the expanded affiliated group are based or pri- 15 marily located within the United States. Indi- 16 viduals who in fact exercise such day-to-day re- 17 sponsibilities shall be treated as executive offi- 18 cers and senior management regardless of their 19 title. 20 ‘‘(5) SIGNIFICANT DOMESTIC BUSINESS ACTIVI- 21 TIES.—For purposes of paragraph (2)(B)(ii), an ex- 22 panded affiliated group has significant domestic 23 business activities if at least 25 percent of— 24 VerDate Sep 11 2014 01:32 May 25, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1501.IS S1501 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1501 IS ‘‘(A) the employees of the group are based 1 in the United States, 2 ‘‘(B) the employee compensation incurred 3 by the group is incurred with respect to employ- 4 ees based in the United States, 5 ‘‘(C) the assets of the group are located in 6 the United States, or 7 ‘‘(D) the income of the group is derived in 8 the United States, 9 determined in the same manner as such determina- 10 tions are made for purposes of determining substan- 11 tial business activities under regulations referred to 12 in paragraph (3) as in effect on January 18, 2017, 13 but applied by treating all references in such regula- 14 tions to ‘foreign country’ and ‘relevant foreign coun- 15 try’ as references to ‘the United States’. The Sec- 16 retary may issue regulations decreasing the thresh- 17 old percent in any of the tests under such regula- 18 tions for determining if business activities constitute 19 significant domestic business activities for purposes 20 of this paragraph.’’. 21 (b) CONFORMING AMENDMENTS.— 22 (1) Clause (i) of section 7874(a)(2)(B) of such 23 Code is amended by striking ‘‘after March 4, 2003,’’ 24 VerDate Sep 11 2014 01:32 May 25, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1501.IS S1501 kjohnson on DSK79L0C42PROD with BILLS 7 •S 1501 IS and inserting ‘‘after March 4, 2003, and before May 1 8, 2014,’’. 2 (2) Subsection (c) of section 7874 of such Code 3 is amended— 4 (A) in paragraph (2)— 5 (i) by striking ‘‘subsection 6 (a)(2)(B)(ii)’’ and inserting ‘‘subsections 7 (a)(2)(B)(ii) and (b)(2)(B)(i)’’; and 8 (ii) by inserting ‘‘or (b)(2)(A)’’ after 9 ‘‘(a)(2)(B)(i)’’ in subparagraph (B); 10 (B) in paragraph (3), by inserting ‘‘or 11 (b)(2)(B)(i), as the case may be,’’ after 12 ‘‘(a)(2)(B)(ii)’’; 13 (C) in paragraph (5), by striking ‘‘sub- 14 section (a)(2)(B)(ii)’’ and inserting ‘‘sub- 15 sections (a)(2)(B)(ii) and (b)(2)(B)(i)’’; and 16 (D) in paragraph (6), by inserting ‘‘or in- 17 verted domestic corporation, as the case may 18 be,’’ after ‘‘surrogate foreign corporation’’. 19 (c) EFFECTIVE DATE.—The amendments made by 20 this section shall apply to taxable years ending after May 21 8, 2014. 22 Æ VerDate Sep 11 2014 01:32 May 25, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6301 E:\BILLS\S1501.IS S1501 kjohnson on DSK79L0C42PROD with BILLS