Protecting the U.S. Corporate Tax Base Act of 2016

Summary: Protecting the U.S. Corporate Tax Base Act of 2016  This bill amends the Internal Revenue Code to revise the rules for taxing the earnings and determining the stock ownership of certain controlled foreign corporations (CFCs).  The bill provides that, in the case of certain CFCs, subpart F income (income of a CFC earned outside the United States that is not tax deferred) includes a U.S. shareholder's pro rata share of any increase in the CFC's investment of earnings in certain foreign property.  The bill also revises the rules for determining stock ownership to prohibit a CFC from transferring stock to a foreign affiliate to reduce the portion of stock owned by U.S. shareholders below the level required to be considered a CFC.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Protecting the U.S. Corporate Tax 
Base Act of 2016''.

SEC. 2. INCLUSION IN SUBPART F INCOME OF INVESTMENTS BY CONTROLLED 
              FOREIGN CORPORATIONS WITH RESPECT TO MEMBERS OF FOREIGN 
              GROUP WHICH INCLUDES UNITED STATES SHAREHOLDER.

    (a) In General.--Section 956(a)(1)(A) of the Internal Revenue Code 
of 1986 is amended to read as follows:
                    ``(A) such shareholder's pro rata share of the sum 
                of--
                            ``(i) the average of the amounts of United 
                        States property held (directly or indirectly) 
                        by the controlled foreign corporation as of the 
                        close of each quarter of such taxable year, and
                            ``(ii) in the case of a controlled foreign 
                        corporation which is a member of an expanded 
                        affiliated group the common parent of which is 
                        not a domestic corporation, the average of the 
                        amounts of foreign group property held 
                        (directly or indirectly) by the controlled 
                        foreign corporation as of the close of each 
                        quarter of such taxable year, over''.
    (b) Foreign Group Property.--Section 956 of such Code is amended by 
redesignating subsections (d) and (e) as subsections (e) and (f), 
respectively, and by inserting after subsection (c) the following new 
subsection:
    ``(d) Foreign Group Property; Expanded Affiliated Group.--For 
purposes of this section--
            ``(1) Foreign group property.--
                    ``(A) In general.--The term `foreign group 
                property' means any stock or obligation of any foreign 
                person which is not a controlled foreign corporation.
                    ``(B) Exceptions.--Such term shall not include--
                            ``(i) the stock or obligation of any entity 
                        if less than 25 percent of the total combined 
                        voting power of such entity, immediately after 
                        the acquisition of any stock in such entity by 
                        the controlled foreign corporation, is owned 
                        (directly or indirectly) by the common parent 
                        referred to in subsection (a)(1)(A)(ii), and
                            ``(ii) property described in subparagraph 
                        (C), (I), (J), (K) or (L) of subsection (c)(2), 
                        applied--
                                    ``(I) by substituting `foreign 
                                person' for `United States person' in 
                                such subparagraphs (C), (J), and (L),
                                    ``(II) by substituting `foreign 
                                corporation' for `domestic corporation' 
                                in subsection (c)(2)(L)(i), and
                                    ``(III) by treating a foreign 
                                person as a United States shareholder 
                                described in subsection 
                                (c)(2)(L)(ii)(I) if such foreign person 
                                would be so described if such person 
                                were a United States person.
                    ``(C) Limitation on treatment as a controlled 
                foreign corporation.--A foreign corporation shall not 
                be treated as a controlled foreign corporation for 
                purposes of subparagraph (A) unless more than 50 
                percent of the total combined voting power of all 
                classes of stock of such corporation entitled to vote, 
                and more than 50 percent of the total value of the 
                stock of such corporation, is owned (directly or 
                indirectly) by United States persons described in 
                subparagraph (A) or (C) of section 7701(a)(30).
                    ``(D) Foreign person.--For purposes of this 
                paragraph, the term `foreign person' means any person 
                who is not a United States person (as defined in 
                section 7701(a)(30)).
            ``(2) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined in 
        section 1504(a), determined--
                    ``(A) by substituting `more than 50 percent' for 
                `at least 80 percent' each place it appears, and
                    ``(B) without regard to paragraphs (2) and (3) of 
                section 1504(b).
        A partnership or any 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).
            ``(3) Application to non-corporate entities.--In the case 
        of any entity which is not a corporation--
                    ``(A) any reference in this subsection to stock 
                shall be treated as a reference to any equity or 
                profits interest in such entity, and
                    ``(B) except as otherwise provided by the 
                Secretary, paragraph (1)(B)(i) shall be applied by 
                substituting `25 percent (by value) of the beneficial 
                interests in such entity' for `25 percent of the total 
                combined voting power of such entity'.''.
    (c) Application of Rules for Pledges and Guarantees.--Section 
956(e) of such Code, as so redesignated, is amended to read as follows:
    ``(e) Pledges and Guarantees.--For purposes of subsection (a), a 
controlled foreign corporation shall, under regulations prescribed by 
the Secretary, be considered as holding--
            ``(1) an obligation of a United States person if such 
        controlled foreign corporation is a pledgor or guarantor of 
        such obligation, and
            ``(2) an obligation of a foreign person if such controlled 
        foreign corporation or, to the extent provided under such 
        regulations, any United States shareholder of such controlled 
        foreign corporation, is a pledgor or guarantor of such 
        obligation.''.
    (d) Termination of Rule Which Permits Use of Related-Party 
Transactions To Avoid Treatment as a Controlled Foreign Corporation.--
Section 958(b)(4) of such Code is amended by inserting ``if such stock 
was acquired by such person on or before May 17, 2016'' before the 
period at the end.
    (e) Application of Limitation on Amount of Foreign Taxes Deemed 
Paid With Respect to Section 956 Inclusions.--Notwithstanding section 
214(b) of Public Law 111-226, section 960(c) of the Internal Revenue 
Code of 1986 shall apply to acquisitions of foreign group property (as 
defined in 956(d) of such Code, as amended by this section) after 
December 31, 2010, in addition to acquisitions of United States 
property (as defined in section 956(c) of such Code) after such date.
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years of 
        controlled foreign corporations ending after the date of the 
        enactment of this Act and to taxable years of United States 
        shareholders in which or with which such taxable years of 
        controlled foreign corporations end.
            (2) Termination of rule which permits use of related-party 
        transactions to avoid treatment as a controlled foreign 
        corporation.--The amendment made by subsection (d) shall apply 
        to taxable years of controlled foreign corporations ending on 
        or after May 17, 2016, and to taxable years of United States 
        shareholders in which or with which such taxable years of 
        controlled foreign corporations end.