Corporate Inverters Earnings Stripping Reform Act of 2014

Summary: Corporate Inverters Earnings Stripping Reform Act of 2014 - Amends the Internal Revenue Code to impose limitations on the tax deduction for interest paid by corporations which are designated as applicable entities (i.e., members of an expanded affiliated group which includes a surrogate foreign corporation which is not treated as a domestic corporation). Prohibits such an entity from claiming a tax deduction for interest that exceeds 25% of its adjusted taxable income and from carrying forward interest which is paid or accrued during the first year in which such entity becomes an applicable entity. Requires an applicable entity to file an annual application for an approval agreement (i.e., a prefiling, advance pricing, or other agreement involving a related-party transaction) with the Internal Revenue Service (IRS) during the 10-year period after it becomes an applicable entity. 

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Corporate Inverters Earnings 
Stripping Reform Act of 2014''.

SEC. 2. ADDITIONAL RULES RELATED TO INVERTED CORPORATIONS.

    (a) In General.--Section 7874 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection:
    ``(g) Special Rules Applicable to Earnings Stripping and Related 
Party Transactions.--
            ``(1) Modifications of limitation on interest deduction.--
                    ``(A) In general.--In the case of any additional 
                limitation year of a corporation which is an applicable 
                entity, section 163(j) shall be applied with the 
                modifications described in subparagraph (B).
                    ``(B) Modifications for additional limitation 
                years.--For purposes of subparagraph (A), the 
                modifications described in this subparagraph are as 
                follows:
                            ``(i) No carryover.--No carryforward to any 
                        other taxable year shall be allowed under 
                        section 163(j)(1)(B) for interest paid or 
                        accrued during any additional limitation year 
                        with respect to which a deduction was 
                        disallowed to the corporation under section 
                        163(j).
                            ``(ii) Rules for determining whether 
                        interest limitation rules apply.--In applying 
                        section 163(j)(2) to determine whether section 
                        163(j) applies to the corporation for any 
                        additional limitation year--
                                    ``(I) subparagraph (A)(ii) shall be 
                                disregarded, and
                                    ``(II) subparagraph (B)(i)(II) 
                                shall be applied by substituting `25 
                                percent of the adjusted taxable income 
                                of the corporation' for `the sum of 50 
                                percent of the adjusted taxable income 
                                of the corporation plus any excess 
                                limitation carryforward under clause 
                                (ii)' for purposes of determining the 
                                corporation's excess interest expense 
                                for the year.
                    ``(C) Additional limitation year.--For purposes of 
                this paragraph, the term `additional limitation year' 
                means, with respect to any corporation which is an 
                applicable entity, any taxable year beginning on or 
                after the first day of the later of the corporation's--
                            ``(i) first taxable year beginning on or 
                        after the date of enactment of this 
                        subparagraph, or
                            ``(ii) first taxable year for which the 
                        corporation is an applicable entity.
            ``(2) Annual application for agreements on return 
        positions.--
                    ``(A) In general.--Each applicable entity shall 
                file with the Secretary an application for an approval 
                agreement under subparagraph (C) for each approval 
                year. Such application shall be filed at such time and 
                manner, and shall contain such information, as the 
                Secretary may prescribe.
                    ``(B) Failures to comply.--If an applicable entity 
                fails to file an application under subparagraph (A), or 
                the approval agreement does not contain the necessary 
                provisions described in subparagraph (C), for any 
                taxable year, then for such taxable year--
                            ``(i) there shall not be allowed any 
                        deduction, or addition to basis or cost of 
                        goods sold, for amounts paid or incurred, or 
                        losses incurred, by reason of a transaction 
                        between the entity and a foreign related 
                        person,
                            ``(ii) any transfer or license of 
                        intangible property (as defined in section 
                        936(h)(3)(B)) between the entity and a foreign 
                        related person shall be disregarded, and
                            ``(iii) any cost-sharing arrangement 
                        between the entity and a foreign related person 
                        shall be disregarded.
                    ``(C) Approval agreement.--For purposes of 
                subparagraph (A), the term `approval agreement' means a 
                prefiling, advance pricing, or other agreement 
                specified by the Secretary which contains such 
                provisions as the Secretary determines necessary to 
                ensure that the requirements of sections 163(j), 
                267(a)(3), 367, 482, and 845, and any other provision 
                of this title applicable to transactions between 
                related persons and specified by the Secretary, are 
                met.
                    ``(D) Approval year.--For purposes of this 
                paragraph, the term `approval year' means, with respect 
                to any applicable entity, any taxable year beginning on 
                or after the date of enactment of this subparagraph if 
                such taxable year is within the 10-taxable-year period 
                beginning with the first taxable year for which the 
                entity is an applicable entity.
            ``(3) Applicable entity.--For purposes of this subsection--
                    ``(A) In general.--The term `applicable entity' 
                means any corporation which is a member of an expanded 
                affiliated group which includes an entity which--
                            ``(i) is a surrogate foreign corporation, 
                        determined by applying subsection (a)(2)(B)--
                                    ``(I) by substituting `more than 50 
                                percent' for `at least 60 percent' in 
                                clause (ii) thereof,
                                    ``(II) by substituting `before, on, 
                                or after' for `after' in clause (i) 
                                thereof, and
                                    ``(III) by disregarding the matter 
                                following clause (iii) thereof, and
                            ``(ii) is not treated as a domestic 
                        corporation by reason of subsection (b).
                    ``(B) Special rule for inclusion of noncorporate 
                entities.--For purposes of subparagraph (A), a 
                partnership or other entity (other than a corporation) 
                shall be treated as a member of an expanded affiliated 
                group if such entity controls (as determined under 
                section 954(d)(3)), or is controlled by (as so 
                determined), members of such group (including any 
                entity treated as a member of such group by reason of 
                this sentence).''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to taxable years beginning after the date of 
enactment of this Act.