No Tax Breaks for Outsourcing Act

II 116TH CONGRESS 1ST SESSION S. 780 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 13, 2019 Mr. WHITEHOUSE (for himself and Mr. VAN HOLLEN) 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 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 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 2 •S 780 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. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group. Sec. 4. Modifications to rules relating to inverted corporations. Sec. 5. 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 to read as 18 follows: 19 ‘‘(f) TREATMENT AS SUBPART F INCOME FOR CER- 20 TAIN PURPOSES.— 21 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 3 •S 780 IS ‘‘(1) IN GENERAL.—Except as provided in para- 1 graph (2), any net CFC tested income included in 2 gross income under subsection (a) shall be treated in 3 the same manner as an amount included under sec- 4 tion 951(a)(1)(A) for purposes of applying sections 5 168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 6 961, 962, 993(a)(1)(E), 996(f)(1), 1248(b)(1), 7 1248(d)(1), 6501(e)(1)(C), 6654(d)(2)(D), and 8 6655(e)(4). 9 ‘‘(2) EXCEPTION.—The Secretary shall provide 10 rules for the application of paragraph (1) to other 11 provisions of this title in any case in which the de- 12 termination of subpart F income is required to be 13 made at the level of the controlled foreign corpora- 14 tion.’’. 15 (D) Section 960(d)(2)(A) is amended by 16 striking ‘‘global intangible low-taxed income (as 17 defined in section 951A(b))’’ and inserting ‘‘net 18 CFC tested income (as defined in section 19 951A(c))’’. 20 (b) REPEAL OF REDUCED RATE OF TAX ON NET 21 CFC TESTED INCOME.— 22 (1) IN GENERAL.—Part VIII of subchapter B 23 of chapter 1 is amended by striking section 250 (and 24 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 4 •S 780 IS by striking the item relating to such section in the 1 table of sections of such part). 2 (2) CONFORMING AMENDMENTS.— 3 (A) Section 59A(c)(4)(B)(i) is amended by 4 striking ‘‘section 172, 245A, or 250’’ and in- 5 serting ‘‘section 172 or 245A’’. 6 (B) Section 172(d) is amended by striking 7 paragraph (9). 8 (C) Section 246(b)(1) is amended— 9 (i) by striking ‘‘subsection (a) and (b) 10 of section 245, and section 250’’ and in- 11 serting ‘‘and subsection (a) and (b) of sec- 12 tion 245’’; and 13 (ii) by striking ‘‘subsection (a) and 14 (b) of section 245, and 250’’ and inserting 15 ‘‘and subsection (a) and (b) of section 16 245’’. 17 (D) Section 469(i)(3)(F)(iii) is amended 18 by striking ‘‘222, and 250’’ and inserting ‘‘and 19 222’’. 20 (c) NET CFC TESTED INCOME DETERMINED WITH- 21 OUT REGARD TO HIGH TAX FOREIGN INCOME.—Section 22 951A(c)(2)(A)(i) is amended by redesignating subclauses 23 (IV) and (V) as subclauses (V) and (VI), respectively, and 24 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 5 •S 780 IS by inserting after subclause (III) the following new sub- 1 clause: 2 ‘‘(IV) any item of income subject 3 to an effective rate of income tax im- 4 posed by a foreign country greater 5 than the maximum rate of tax speci- 6 fied in section 11,’’. 7 (d) REPEAL OF EXCLUSION OF FOREIGN OIL AND 8 GAS EXTRACTION INCOME FROM THE DETERMINATION 9 OF TESTED INCOME.—Section 951A(c)(2)(A)(i), as 10 amended by subsection (c) is amended— 11 (1) by adding ‘‘and’’ at the end of subclause 12 (IV); 13 (2) by striking ‘‘and’’ at the end of subclause 14 (V) and inserting ‘‘over’’; and 15 (3) by striking subclause (VI). 16 (e) INCREASE IN DEEMED PAID CREDIT FOR TAXES 17 PROPERLY ATTRIBUTABLE TO TESTED INCOME.— 18 (1) IN GENERAL.—Section 960(d) is amended 19 by striking ‘‘80 percent of’’. 20 (2) CONFORMING AMENDMENT.—Section 78 is 21 amended by striking ‘‘(determined without regard to 22 the phrase ‘‘80 percent of’’ in subsection (d)(1) 23 thereof)’’. 24 (f) EFFECTIVE DATE.— 25 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 6 •S 780 IS (1) IN GENERAL.—Except as otherwise pro- 1 vided in this subsection, the amendments made by 2 this section shall apply to taxable years of foreign 3 corporations beginning after December 31, 2018, 4 and to taxable years of United States shareholders 5 in which or with which such taxable years of foreign 6 corporations end. 7 (2) REPEAL OF REDUCED RATE OF TAX; IN- 8 CREASE IN DEEMED PAID CREDIT.—The amend- 9 ments made by subsection (b) and (e) shall apply to 10 taxable years beginning after December 31, 2018. 11 SEC. 3. LIMITATION ON DEDUCTION OF INTEREST BY DO- 12 MESTIC CORPORATIONS WHICH ARE MEM- 13 BERS OF AN INTERNATIONAL FINANCIAL RE- 14 PORTING GROUP. 15 (a) IN GENERAL.—Section 163 is amended by redes- 16 ignating subsection (n) as subsection (p) and by inserting 17 after subsection (m) the following new subsection: 18 ‘‘(n) LIMITATION ON DEDUCTION OF INTEREST BY 19 DOMESTIC CORPORATIONS IN INTERNATIONAL FINAN- 20 CIAL REPORTING GROUPS.— 21 ‘‘(1) IN GENERAL.—In the case of any domestic 22 corporation which is a member of any international 23 financial reporting group, the deduction under this 24 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 7 •S 780 IS chapter for interest paid or accrued during the tax- 1 able year shall not exceed the sum of— 2 ‘‘(A) the allowable percentage of 110 per- 3 cent of the excess (if any) of— 4 ‘‘(i) the amount of such interest so 5 paid or accrued, over 6 ‘‘(ii) the amount described in subpara- 7 graph (B), plus 8 ‘‘(B) the amount of interest includible in 9 gross income of such corporation for such tax- 10 able year. 11 ‘‘(2) INTERNATIONAL FINANCIAL REPORTING 12 GROUP.— 13 ‘‘(A) For purposes of this subsection, the 14 term ‘international financial reporting group’ 15 means, with respect to any reporting year, any 16 group of entities which— 17 ‘‘(i) includes— 18 ‘‘(I) at least one foreign corpora- 19 tion engaged in a trade or business 20 within the United States, or 21 ‘‘(II) at least one domestic cor- 22 poration and one foreign corporation, 23 ‘‘(ii) prepares consolidated financial 24 statements with respect to such year, and 25 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 8 •S 780 IS ‘‘(iii) reports in such statements aver- 1 age annual gross receipts (determined in 2 the aggregate with respect to all entities 3 which are part of such group) for the 3-re- 4 porting-year period ending with such re- 5 porting year in excess of $100,000,000. 6 ‘‘(B) RULES RELATING TO DETERMINA- 7 TION OF AVERAGE GROSS RECEIPTS.—For pur- 8 poses of subparagraph (A)(iii), rules similar to 9 the rules of section 448(c)(3) shall apply. 10 ‘‘(3) ALLOWABLE PERCENTAGE.—For purposes 11 of this subsection— 12 ‘‘(A) IN GENERAL.—The term ‘allowable 13 percentage’ means, with respect to any domestic 14 corporation for any taxable year, the ratio (ex- 15 pressed as a percentage and not greater than 16 100 percent) of— 17 ‘‘(i) such corporation’s allocable share 18 of the international financial reporting 19 group’s reported net interest expense for 20 the reporting year of such group which 21 ends in or with such taxable year of such 22 corporation, over 23 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 9 •S 780 IS ‘‘(ii) such corporation’s reported net 1 interest expense for such reporting year of 2 such group. 3 ‘‘(B) REPORTED NET INTEREST EX- 4 PENSE.—The term ‘reported net interest ex- 5 pense’ means— 6 ‘‘(i) with respect to any international 7 financial reporting group for any reporting 8 year, the excess of— 9 ‘‘(I) the aggregate amount of in- 10 terest expense reported in such 11 group’s consolidated financial state- 12 ments for such taxable year, over 13 ‘‘(II) the aggregate amount of in- 14 terest income reported in such group’s 15 consolidated financial statements for 16 such taxable year, and 17 ‘‘(ii) with respect to any domestic cor- 18 poration for any reporting year, the excess 19 of— 20 ‘‘(I) the amount of interest ex- 21 pense of such corporation reported in 22 the books and records of the inter- 23 national financial reporting group 24 which are used in preparing such 25 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 10 •S 780 IS group’s consolidated financial state- 1 ments for such taxable year, over 2 ‘‘(II) the amount of interest in- 3 come of such corporation reported in 4 such books and records. 5 ‘‘(C) ALLOCABLE SHARE OF REPORTED 6 NET INTEREST EXPENSE.—With respect to any 7 domestic corporation which is a member of any 8 international financial reporting group, such 9 corporation’s allocable share of such group’s re- 10 ported net interest expense for any reporting 11 year is the portion of such expense which bears 12 the same ratio to such expense as— 13 ‘‘(i) the EBITDA of such corporation 14 for such reporting year, bears to 15 ‘‘(ii) the EBITDA of such group for 16 such reporting year. 17 ‘‘(D) EBITDA.— 18 ‘‘(i) IN GENERAL.—The term 19 ‘EBITDA’ means, with respect to any re- 20 porting year, earnings before interest, 21 taxes, depreciation, and amortization— 22 ‘‘(I) as determined in the inter- 23 national financial reporting group’s 24 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 11 •S 780 IS consolidated financial statements for 1 such year, or 2 ‘‘(II) for purposes of subpara- 3 graph (A)(i), as determined in the 4 books and records of the international 5 financial reporting group which are 6 used in preparing such statements if 7 not determined in such statements. 8 ‘‘(ii) TREATMENT OF DISREGARDED 9 ENTITIES.—The EBITDA of any domestic 10 corporation shall not fail to include the 11 EBITDA of any entity which is dis- 12 regarded for purposes of this chapter. 13 ‘‘(iii) TREATMENT OF INTRA-GROUP 14 DISTRIBUTIONS.—The EBITDA of any do- 15 mestic corporation shall be determined 16 without regard to any distribution received 17 by such corporation from any other mem- 18 ber of the international financial reporting 19 group. 20 ‘‘(E) SPECIAL RULES FOR NON-POSITIVE 21 EBITDA.— 22 ‘‘(i) NON-POSITIVE GROUP EBITDA.— 23 In the case of any international financial 24 reporting group the EBITDA of which is 25 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 12 •S 780 IS zero or less, paragraph (1) shall not apply 1 to any member of such group the EBITDA 2 of which is above zero. 3 ‘‘(ii) NON-POSITIVE ENTITY 4 EBITDA.—In the case of any group mem- 5 ber the EBITDA of which is zero or less, 6 paragraph (1) shall be applied without re- 7 gard to subparagraph (A) thereof. 8 ‘‘(4) CONSOLIDATED FINANCIAL STATEMENT.— 9 For purposes of this subsection, the term ‘consoli- 10 dated financial statement’ means any consolidated 11 financial statement described in paragraph (2)(A)(ii) 12 if such statement is— 13 ‘‘(A) a financial statement which is cer- 14 tified as being prepared in accordance with gen- 15 erally accepted accounting principles, inter- 16 national financial reporting standards, or any 17 other comparable method of accounting identi- 18 fied by the Secretary, and which is— 19 ‘‘(i) a 10–K (or successor form), or 20 annual statement to shareholders, required 21 to be filed with the United States Securi- 22 ties and Exchange Commission, 23 ‘‘(ii) an audited financial statement 24 which is used for— 25 VerDate Sep 11 2014 04:05 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S780.IS S780 kjohnson on DSK79L0C42 with BILLS 13 •S 780 IS ‘‘(I) credit purposes, 1 ‘‘(II) reporting to shareholders, 2 partners, or other proprietors, or to 3 beneficiaries, or 4 ‘‘(III) any other substantial 5 nontax purpose, 6 but only if there is no statement described 7 in clause (i), or 8 ‘‘(iii) filed with any other Federal or 9 State agency for nontax purposes, but only 10 if there is no statement described in clause 11 (i) or (ii), or 12 ‘‘(B) a financial statement which— 13 ‘‘(i) is used for a purpose described in 14 subclause (I), (II), or (III) of subpara- 15 graph (A)(ii), or 16 ‘‘(ii) filed with any regulatory or gov- 17 ernmental body (whether domestic or for- 18 eign) specified by the Secretary, 19 but only if there is no statement described in 20 subparagraph (A). 21 ‘‘(5) REPORTING YEAR.—For purposes of this 22 subsection, the term ‘reporting year’ means, with re- 23 spe [Text truncated for display. 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