II 

117TH CONGRESS 

1ST SESSION S. 714 

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 11, 2021 

Mr. WHITEHOUSE (for himself, Mr. DURBIN, Mr. VAN HOLLEN, Ms. WARREN, Mrs. GILLIBRAND, Mr. MERKLEY, and Mr. REED) 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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE, ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘No Tax Breaks for Outsourcing Act’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 


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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 (c) TABLE OF CONTENTS.—The table of contents of 

4 this Act is as follows: 

Sec. 1. Short title, etc. 

Sec. 2. Current year inclusion of net CFC tested income. 

Sec. 3. Country-by-country application of limitation on foreign tax credit based 

on taxable units. 

Sec. 4. Limitation on deduction of interest by domestic corporations which are 

members of an international financial reporting group. 

Sec. 5. Modifications to rules relating to inverted corporations. 

Sec. 6. Treatment of foreign corporations managed and controlled in the United 

States as domestic corporations. 

5 SEC. 2. CURRENT YEAR INCLUSION OF NET CFC TESTED IN6 COME. 

7 (a) REPEAL OF TAX-FREE DEEMED RETURN ON IN8 VESTMENTS.— 

9 (1) IN GENERAL.—Section 951A(a) is amended 

10 by striking ‘‘global intangible low-taxed income’’ and 

11 inserting ‘‘net CFC tested income’’. 

12 (2) CONFORMING AMENDMENTS.— 

13 (A) Section 951A is amended by striking 

14 subsections (b) and (d). 

15 (B) Section 951A(e)(1) is amended by 

16 striking ‘‘subsections (b), (c)(1)(A), and’’ and 

17 inserting ‘‘subsections (c)(1)(A) and’’. 

18 (C) Section 951A(f) is amended by strik19 ing ‘‘global intangible low-taxed income’’ each 

20 place it appears and inserting ‘‘net CFC tested 

21 income’’. 


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1 (D) Section 960(d)(2)(A) is amended by 

2 striking ‘‘global intangible low-taxed income (as 

3 defined in section 951A(b))’’ and inserting ‘‘net 

4 CFC tested income (as defined in section 

5 951A(c))’’. 

6 (b) REPEAL OF REDUCED RATE OF TAX ON NET

7 CFC TESTED INCOME AND FOREIGN-DERIVED INTAN8 GIBLE INCOME.— 

9 (1) IN GENERAL.—Part VIII of subchapter B 

10 of chapter 1 is amended by striking section 250 (and 

11 by striking the item relating to such section in the 

12 table of sections of such part). 

13 (2) CONFORMING AMENDMENTS.— 

14 (A) Section 59A(c)(4)(B)(i) is amended by 

15 striking ‘‘section 172, 245A, or 250’’ and in16 serting ‘‘section 172 or 245A’’. 

17 (B) Section 172(d) is amended by striking 

18 paragraph (9). 

19 (C) Section 246(b)(1) is amended— 

20 (i) by striking ‘‘subsection (a) and (b) 

21 of section 245, and section 250’’ and in22 serting ‘‘and subsection (a) and (b) of sec23 tion 245’’, and 

24 (ii) by striking ‘‘subsection (a) and 

25 (b) of section 245, and 250’’ and inserting 


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1 ‘‘and subsection (a) and (b) of section 

2 245’’. 

3 (D) Section 469(i)(3)(F)(iii) is amended 

4 by striking ‘‘222, and 250’’ and inserting ‘‘and 

5 222’’. 

6 (c) REPEAL OF CERTAIN EXCLUSIONS FROM THE

7 DETERMINATION OF TESTED INCOME.—Section 

8 951A(c)(2)(A)(i) is amended— 

9 (1) by striking subclauses (III) and (V), 

10 (2) by redesignating subclause (IV) as sub11 clause (III), 

12 (3) by adding ‘‘and’’ at the end of subclause 

13 (II), and 

14 (4) by striking ‘‘and’’ at the end of subclause 

15 (III) (as so redesignated) and inserting ‘‘over’’. 

16 (d) 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 (e) REPEAL OF HIGH TAX EXCLUSION FOR FOREIGN

25 BASE COMPANY INCOME AND INSURANCE INCOME.— 


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1 (1) IN GENERAL.—Section 954(b) is amended 

2 by striking paragraph (4). 

3 (2) CONFORMING AMENDMENT.—Section 

4 904(d)(3)(E) is amended by striking the last sen5 tence. 

6 (f) ELIMINATION OF CARRYBACK OF FOREIGN TAX

7 CREDIT.—Section 904(c) is amended— 

8 (1) by striking ‘‘in the first preceding taxable 

9 year, and in any of the first 10 succeeding taxable 

10 years, in that order’’ and inserting ‘‘in any of the 

11 first 10 succeeding taxable years, in order’’, 

12 (2) by striking ‘‘preceding or’’ each place it ap13 pears, and 

14 (3) by striking ‘‘CARRYBACK AND’’ in the head15 ing thereof. 

16 (g) TREATMENT OF FOREIGN BASE COMPANY OIL

17 RELATED INCOME AS SUBPART F INCOME.— 

18 (1) IN GENERAL.—Section 954(a) is amended 

19 by striking ‘‘and’’ at the end of paragraph (2), by 

20 striking the period at the end of paragraph (3) and 

21 inserting ‘‘, and’’, and by adding at the end the fol22 lowing new paragraph: 

23 ‘‘(4) the foreign base company oil related in24 come for the taxable year (determined under subVerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714

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1 section (g) and reduced as provided in subsection 

2 (b)(5)).’’. 

3 (2) FOREIGN BASE COMPANY OIL RELATED IN4 COME.—Section 954 is amended by inserting after 

5 subsection (e) the following new subsection: 

6 ‘‘(g) FOREIGN BASE COMPANY OIL RELATED IN7 COME.—For purposes of this section, the term ‘foreign 

8 base company oil related income’ means foreign oil related 

9 income (within the meaning of paragraphs (2) and (3) of 

10 section 907(c)) other than income derived from a source 

11 within a foreign country in connection with— 

12 ‘‘(1) oil or gas which was extracted from an oil 

13 or gas well located in such foreign country, or 

14 ‘‘(2) oil, gas, or a primary product of oil or gas 

15 which is sold by the foreign corporation or a related 

16 person for use or consumption within such country 

17 or is loaded in such country on a vessel or aircraft 

18 as fuel for such vessel or aircraft. 

19 Such term shall not include any foreign personal holding 

20 company income (as defined in subsection (c)).’’. 

21 (3) CONFORMING AMENDMENTS.— 

22 (A) Section 952(c)(1)(B)(iii) is amended 

23 by redesignating subclauses (III) and (IV) as 

24 subclauses (IV) and (V), respectively, and by 


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1 inserting after subclause (II) the following new 

2 subclause: 

3 ‘‘(III) foreign base company oil 

4 related income.’’. 

5 (B) Section 954(b) is amended— 

6 (i) by striking ‘‘and the foreign base 

7 company services income’’ in paragraph 

8 (5) and inserting ‘‘the foreign base com9 pany services income, and the foreign base 

10 company oil related income’’, and 

11 (ii) by adding at the end the following 

12 new paragraph: 

13 ‘‘(6) FOREIGN BASE COMPANY OIL RELATED IN14 COME NOT TREATED AS ANOTHER KIND OF FOREIGN

15 BASE COMPANY INCOME.—Income of a corporation 

16 which is foreign base company oil related income 

17 shall not be considered foreign base company income 

18 of such corporation under paragraph (2) or (3) of 

19 subsection (a).’’. 

20 (h) EFFECTIVE DATES.— 

21 (1) IN GENERAL.—Except as otherwise pro22 vided in this subsection, the amendments made by 

23 this section shall apply to taxable years of foreign 

24 corporations beginning after December 31, 2020, 

25 and to taxable years of United States shareholders 


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1 in which or with which such taxable years of foreign 

2 corporations end. 

3 (2) REPEAL OF REDUCED RATE OF TAX; IN4 CREASE IN DEEMED PAID CREDIT.—The amend5 ments made by subsection (b) and (d) shall apply to 

6 taxable years beginning after December 31, 2020. 

7 (3) REPEAL OF HIGH TAX EXCLUSION FOR

8 FOREIGN BASE COMPANY INCOME AND INSURANCE

9 INCOME.—The amendment made by subsection (e) 

10 shall apply to taxable years of foreign corporations 

11 beginning after December 31, 2020, and to taxable 

12 years of United States shareholders in which or with 

13 which such taxable years of foreign corporations 

14 end. 

15 (4) ELIMINATION OF CARRYBACK OF FOREIGN

16 TAX CREDIT.—The amendment made by subsection 

17 (f) shall apply to credits arising in taxable years be18 ginning after December 31, 2020. 

19 SEC. 3. COUNTRY-BY-COUNTRY APPLICATION OF LIMITA20 TION ON FOREIGN TAX CREDIT BASED ON 

21 TAXABLE UNITS. 

22 (a) IN GENERAL.—Section 904 is amended by insert23 ing after subsection (d) the following new subsection: 

24 ‘‘(e) COUNTRY-BY-COUNTRY APPLICATION OF SEC25 TION BASED ON TAXABLE UNITS.— 


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1 ‘‘(1) IN GENERAL.—The provisions of sub2 sections (a), (b), (c), and (d) and sections 907 and 

3 960 shall be applied separately with respect to each 

4 country and possession by taking into account the 

5 aggregate items properly attributable or otherwise 

6 allocable to a taxable unit of the taxpayer which is 

7 a tax resident of such country or possession. 

8 ‘‘(2) TAXABLE UNITS.— 

9 ‘‘(A) IN GENERAL.—Unless otherwise pro10 vided by the Secretary, to the extent an item 

11 may be properly attributable or otherwise allo12 cable to more than one taxable unit under para13 graph (1), such item shall be treated as prop14 erly attributable or otherwise allocable to the 

15 lowest-tier taxable unit of the taxpayer to which 

16 such item may be properly attributable or oth17 erwise allocable. No item shall be attributable 

18 or otherwise allocable to more than one taxable 

19 unit of the taxpayer. 

20 ‘‘(B) DETERMINATION OF TAXABLE

21 UNITS.—Except as otherwise provided by the 

22 Secretary, the taxable units of a taxpayer are 

23 as follows: 

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1 erwise described in a separate clause of 

2 this subparagraph. 

3 ‘‘(ii) FOREIGN BRANCHES.—Each for4 eign branch the activities of which are car5 ried on directly or indirectly (through one 

6 or more pass-through entities) by the tax7 payer. 

8 ‘‘(iii) CONTROLLED FOREIGN COR9 PORATIONS.—Each controlled foreign cor10 poration with respect to which the tax11 payer is a United States shareholder. 

12 ‘‘(iv) BRANCHES OF CONTROLLED

13 FOREIGN CORPORATIONS.—Each branch 

14 the activities of which are carried on di15 rectly or indirectly (through one or more 

16 pass-through entities) by a controlled for17 eign corporation referred to in clause (iii). 

18 ‘‘(v) INTERESTS IN PASS-THROUGH

19 ENTITIES.— 

20 ‘‘(I) IN GENERAL.—Each interest 

21 in a pass-through entity held directly 

22 or indirectly by the taxpayer or a con23 trolled foreign corporation referred to 

24 in clause (iii) if such entity is a tax 

25 resident of a foreign country. 


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1 ‘‘(II) CERTAIN INTERESTS HELD

2 BY CONTROLLED FOREIGN CORPORA3 TIONS.—Each interest in a pass4 through entity held directly or indi5 rectly by a controlled foreign corpora6 tion referred to in clause (iii) if such 

7 entity is a tax resident of a foreign 

8 country or such entity is treated as a 

9 corporation (or other entity that is 

10 not fiscally transparent) for purposes 

11 of the tax law of a foreign country in 

12 which such controlled foreign corpora13 tion is a tax resident. 

14 ‘‘(3) TAX RESIDENT.—For purposes of this 

15 subsection, a taxable unit shall be treated as a tax 

16 resident of a country or possession if such taxable 

17 unit is liable to tax under the tax law of such coun18 try or possession as a resident. 

19 ‘‘(4) PASS-THROUGH ENTITY.—For purposes of 

20 this subsection, the term ‘pass-through entity’ means 

21 any partnership and any other type of entity (other 

22 than a corporation) identified by the Secretary as a 

23 pass-through entity for purposes of this subsection. 

24 ‘‘(5) REGULATIONS.—The Secretary shall issue 

25 such regulations or other guidance as the Secretary 


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1 determines necessary or appropriate to carry out the 

2 purposes of this subsection, including regulations or 

3 other guidance— 

4 ‘‘(A) for determining the country or pos5 session with respect to which any taxable unit 

6 is a tax resident, including— 

7 ‘‘(i) determining such country or pos8 session on the basis of location if such tax9 able unit would not otherwise be a tax resi10 dent of any country or possession, and 

11 ‘‘(ii) ensuring that such taxable unit 

12 is a tax resident of not more than 1 coun13 try or possession, 

14 ‘‘(B) applying this section to hybrid enti15 ties, passive foreign investment companies, 

16 tiered structures, and branches, including 

17 branches that do not give rise to a taxable pres18 ence under the tax law of the country where the 

19 branch is located, and 

20 ‘‘(C) determining whether any entity is not 

21 fiscally transparent within the meaning of para22 graph (2)(B)(v)(II).’’. 

23 (b) APPLICATION OF FOREIGN TAX CREDIT LIMITA24 TION WITH RESPECT TO FOREIGN BRANCHES.—Section 

25 904(d)(2)(J)(i) is amended— 


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1 (1) by striking ‘‘qualified business units (as de2 fined in section 989(a)) in 1 or more foreign coun3 tries’’ and inserting ‘‘foreign branches described in 

4 section 904(e)(2)(B)(ii)’’, and 

5 (2) by striking ‘‘a qualified business unit’’ and 

6 inserting ‘‘a foreign branch’’. 

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years beginning after 

9 December 31, 2020. 

10 SEC. 4. LIMITATION ON DEDUCTION OF INTEREST BY DO11 MESTIC CORPORATIONS WHICH ARE MEM12 BERS OF AN INTERNATIONAL FINANCIAL RE13 PORTING GROUP. 

14 (a) IN GENERAL.—Section 163 is amended by redes15 ignating subsection (n) as subsection (p) and by inserting 

16 after subsection (m) the following new subsection: 

17 ‘‘(n) LIMITATION ON DEDUCTION OF INTEREST BY

18 DOMESTIC CORPORATIONS IN INTERNATIONAL FINAN19 CIAL REPORTING GROUPS.— 

20 ‘‘(1) IN GENERAL.—In the case of any domestic 

21 corporation which is a member of any international 

22 financial reporting group, the deduction under this 

23 chapter for interest paid or accrued during the tax24 able year shall not exceed the sum of— 


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1 ‘‘(A) the allowable percentage of 110 per2 cent of the excess (if any) of— 

3 ‘‘(i) the amount of such interest so 

4 paid or accrued, over 

5 ‘‘(ii) the amount described in subpara6 graph (B), plus 

7 ‘‘(B) the amount of interest includible in 

8 gross income of such corporation for such tax9 able year. 

10 ‘‘(2) INTERNATIONAL FINANCIAL REPORTING

11 GROUP.— 

12 ‘‘(A) For purposes of this subsection, the 

13 term ‘international financial reporting group’ 

14 means, with respect to any reporting year, any 

15 group of entities which— 

16 ‘‘(i) includes— 

17 ‘‘(I) at least one foreign corpora18 tion engaged in a trade or business 

19 within the United States, or 

20 ‘‘(II) at least one domestic cor21 poration and one foreign corporation, 

22 ‘‘(ii) prepares consolidated financial 

23 statements with respect to such year, and 

24 ‘‘(iii) reports in such statements aver25 age annual gross receipts (determined in 


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1 the aggregate with respect to all entities 

2 which are part of such group) for the 3-re3 porting-year period ending with such re4 porting year in excess of $100,000,000. 

5 ‘‘(B) RULES RELATING TO DETERMINA6 TION OF AVERAGE GROSS RECEIPTS.—For pur7 poses of subparagraph (A)(iii), rules similar to 

8 the rules of section 448(c)(3) shall apply. 

9 ‘‘(3) ALLOWABLE PERCENTAGE.—For purposes 

10 of this subsection— 

11 ‘‘(A) IN GENERAL.—The term ‘allowable 

12 percentage’ means, with respect to any domestic 

13 corporation for any taxable year, the ratio (ex14 pressed as a percentage and not greater than 

15 100 percent) of— 

16 ‘‘(i) such corporation’s allocable share 

17 of the international financial reporting 

18 group’s reported net interest expense for 

19 the reporting year of such group which 

20 ends in or with such taxable year of such 

21 corporation, over 

22 ‘‘(ii) such corporation’s reported net 

23 interest expense for such reporting year of 

24 such group. 


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1 ‘‘(B) REPORTED NET INTEREST EX2 PENSE.—The term ‘reported net interest ex3 pense’ means— 

4 ‘‘(i) with respect to any international 

5 financial reporting group for any reporting 

6 year, the excess of— 

7 ‘‘(I) the aggregate amount of in8 terest expense reported in such 

9 group’s consolidated financial state10 ments for such taxable year, over 

11 ‘‘(II) the aggregate amount of in12 terest income reported in such group’s 

13 consolidated financial statements for 

14 such taxable year, and 

15 ‘‘(ii) with respect to any domestic cor16 poration for any reporting year, the excess 

17 of— 

18 ‘‘(I) the amount of interest ex19 pense of such corporation reported in 

20 the books and records of the inter21 national financial reporting group 

22 which are used in preparing such 

23 group’s consolidated financial state24 ments for such taxable year, over 


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1 ‘‘(II) the amount of interest in2 come of such corporation reported in 

3 such books and records. 

4 ‘‘(C) ALLOCABLE SHARE OF REPORTED

5 NET INTEREST EXPENSE.—With respect to any 

6 domestic corporation which is a member of any 

7 international financial reporting group, such 

8 corporation’s allocable share of such group’s re9 ported net interest expense for any reporting 

10 year is the portion of such expense which bears 

11 the same ratio to such expense as— 

12 ‘‘(i) the EBITDA of such corporation 

13 for such reporting year, bears to 

14 ‘‘(ii) the EBITDA of such group for 

15 such reporting year. 

16 ‘‘(D) EBITDA.— 

17 ‘‘(i) IN GENERAL.—The term 

18 ‘EBITDA’ means, with respect to any re19 porting year, earnings before interest, 

20 taxes, depreciation, and amortization— 

21 ‘‘(I) as determined in the inter22 national financial reporting group’s 

23 consolidated financial statements for 

24 such year, or 


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1 ‘‘(II) for purposes of subpara2 graph (A)(i), as determined in the 

3 books and records of the international 

4 financial reporting group which are 

5 used in preparing such statements if 

6 not determined in such statements. 

7 ‘‘(ii) TREATMENT OF DISREGARDED

8 ENTITIES.—The EBITDA of any domestic 

9 corporation shall not fail to include the 

10 EBITDA of any entity which is dis11 regarded for purposes of this chapter. 

12 ‘‘(iii) TREATMENT OF INTRA-GROUP

13 DISTRIBUTIONS.—The EBITDA of any do14 mestic corporation shall be determined 

15 without regard to any distribution received 

16 by such corporation from any other mem17 ber of the international financial reporting 

18 group. 

19 ‘‘(E) SPECIAL RULES FOR NON-POSITIVE

20 EBITDA.— 

21 ‘‘(i) NON-POSITIVE GROUP EBITDA.— 

22 In the case of any international financial 

23 reporting group the EBITDA of which is 

24 zero or less, paragraph (1) shall not apply 


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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 mem5 ber the EBITDA of which is zero or less, 

6 paragraph (1) shall be applied without re7 gard to subparagraph (A) thereof. 

8 ‘‘(4) CONSOLIDATED FINANCIAL STATEMENT.— 

9 For purposes of this subsection, the term ‘consoli10 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 cer14 tified as being prepared in accordance with gen15 erally accepted accounting principles, inter16 national financial reporting standards, or any 

17 other comparable method of accounting identi18 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 Securi22 ties and Exchange Commission, 

23 ‘‘(ii) an audited financial statement 

24 which is used for— 

25 ‘‘(I) credit purposes, 


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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 subpara15 graph (A)(ii), or 

16 ‘‘(ii) filed with any regulatory or gov17 ernmental body (whether domestic or for18 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 re23 spect to any international financial reporting group, 

24 the year with respect to which the consolidated fi25 nancial statements are prepared. 


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1 ‘‘(6) APPLICATION TO CERTAIN ENTITIES.— 

2 ‘‘(A) PARTNERSHIPS.—Except as other3 wise provided by the Secretary in paragraph 

4 (7), this subsection and subsection (o) shall 

5 apply to any partnership which is a member of 

6 any international financial reporting group 

7 under rules similar to the rules of section 

8 163(j)(4). 

9 ‘‘(B) FOREIGN CORPORATIONS ENGAGED

10 IN TRADE OR BUSINESS WITHIN THE UNITED

11 STATES.—Except as otherwise provided by the 

12 Secretary in paragraph (7), any deduction for 

13 interest paid or accrued by a foreign corpora14 tion engaged in a trade or business within the 

15 United States shall be limited in a manner con16 sistent with the principles of this subsection. 

17 ‘‘(C) CONSOLIDATED GROUPS.—For pur18 poses of this subsection, the members of any 

19 group that file (or are required to file) a con20 solidated return with respect to the tax imposed 

21 by chapter 1 for a taxable year shall be treated 

22 as a single corporation. 

23 ‘‘(7) REGULATIONS.—The Secretary may issue 

24 such regulations or other guidance as are necessary 


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1 or appropriate to carry out the purposes of this sub2 section.’’. 

3 (b) CARRYFORWARD OF DISALLOWED INTEREST.— 

4 (1) IN GENERAL.—Section 163 is amended by 

5 inserting after subsection (n), as added by sub6 section (a), the following new subsection: 

7 ‘‘(o) CARRYFORWARD OF CERTAIN DISALLOWED IN8 TEREST.—The amount of any interest not allowed as a 

9 deduction for any taxable year by reason of subsection 

10 (j)(1) or (n)(1) (whichever imposes the lower limitation 

11 with respect to such taxable year) shall be treated as inter12 est (and as business interest for purposes of subsection 

13 (j)(1)) paid or accrued in the succeeding taxable year. In14 terest paid or accrued in any taxable year (determined 

15 without regard to the preceding sentence) shall not be car16 ried past the fifth taxable year following such taxable year, 

17 determined by treating interest as allowed as a deduction 

18 on a first-in, first-out basis.’’. 

19 (2) CONFORMING AMENDMENTS.— 

20 (A) Section 163(j)(2) is amended to read 

21 as follows: 

22 ‘‘(2) CARRYFORWARD CROSS-REFERENCE.—For 

23 carryforward treatment, see subsection (o).’’. 


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1 (B) Section 163(j)(4)(B)(i)(I) is amended 

2 by striking ‘‘paragraph (2)’’ and inserting ‘‘sub3 section (o)’’. 

4 (C) Section 381(c)(20) is amended to read 

5 as follows: 

6 ‘‘(20) CARRYFORWARD OF DISALLOWED INTER7 EST.—The carryover of disallowed interest described 

8 in section 163(o) to taxable years ending after the 

9 date of distribution or transfer.’’. 

10 (D) Section 382(d)(3) is amended to read 

11 as follows: 

12 ‘‘(3) APPLICATION TO CARRYFORWARD OF DIS13 ALLOWED INTEREST.—The term ‘pre-change loss’ 

14 shall include any carryover of disallowed interest de15 scribed in section 163(o) under rules similar to the 

16 rules of paragraph (1).’’. 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2020. 

20 SEC. 5. MODIFICATIONS TO RULES RELATING TO IN21 VERTED CORPORATIONS. 

22 (a) IN GENERAL.—Subsection (b) of section 7874 is 

23 amended to read as follows: 

24 ‘‘(b) INVERTED CORPORATIONS TREATED AS DO25 MESTIC CORPORATIONS.— 


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1 ‘‘(1) IN GENERAL.—Notwithstanding section 

2 7701(a)(4), a foreign corporation shall be treated for 

3 purposes of this title as a domestic corporation if— 

4 ‘‘(A) such corporation would be a surro5 gate foreign corporation if subsection (a)(2) 

6 were applied by substituting ‘80 percent’ for 

7 ‘60 percent’, or 

8 ‘‘(B) such corporation is an inverted do9 mestic corporation. 

10 ‘‘(2) INVERTED DOMESTIC CORPORATION.—For 

11 purposes of this subsection, a foreign corporation 

12 shall be treated as an inverted domestic corporation 

13 if, pursuant to a plan (or a series of related trans14 actions)— 

15 ‘‘(A) the entity completes after December 

16 22, 2017, the direct or indirect acquisition of— 

17 ‘‘(i) substantially all of the properties 

18 held directly or indirectly by a domestic 

19 corporation, or 

20 ‘‘(ii) substantially all of the assets of, 

21 or substantially all of the properties consti22 tuting a trade or business of, a domestic 

23 partnership, and 

24 ‘‘(B) after the acquisition, either— 


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1 ‘‘(i) more than 50 percent of the stock 

2 (by vote or value) of the entity is held— 

3 ‘‘(I) in the case of an acquisition 

4 with respect to a domestic corpora5 tion, by former shareholders of the 

6 domestic corporation by reason of 

7 holding stock in the domestic corpora8 tion, or 

9 ‘‘(II) in the case of an acquisition 

10 with respect to a domestic partner11 ship, by former partners of the do12 mestic partnership by reason of hold13 ing a capital or profits interest in the 

14 domestic partnership, or 

15 ‘‘(ii) the management and control of 

16 the expanded affiliated group which in17 cludes the entity occurs, directly or indi18 rectly, primarily within the United States, 

19 and such expanded affiliated group has 

20 significant domestic business activities. 

21 ‘‘(3) EXCEPTION FOR CORPORATIONS WITH

22 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN

23 COUNTRY OF ORGANIZATION.—A foreign corporation 

24 described in paragraph (2) shall not be treated as an 

25 inverted domestic corporation if after the acquisition 


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1 the expanded affiliated group which includes the en2 tity has substantial business activities in the foreign 

3 country in which or under the law of which the enti4 ty is created or organized when compared to the 

5 total business activities of such expanded affiliated 

6 group. For purposes of subsection (a)(2)(B)(iii) and 

7 the preceding sentence, the term ‘substantial busi8 ness activities’ shall have the meaning given such 

9 term under regulations in effect on December 22, 

10 2017, except that the Secretary may issue regula11 tions increasing the threshold percent in any of the 

12 tests under such regulations for determining if busi13 ness activities constitute substantial business activi14 ties for purposes of this paragraph. 

15 ‘‘(4) MANAGEMENT AND CONTROL.—For pur16 poses of paragraph (2)(B)(ii)— 

17 ‘‘(A) IN GENERAL.—The Secretary shall 

18 prescribe regulations for purposes of deter19 mining cases in which the management and 

20 control of an expanded affiliated group is to be 

21 treated as occurring, directly or indirectly, pri22 marily within the United States. The regula23 tions prescribed under the preceding sentence 

24 shall apply to periods after December 22, 2017. 


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1 ‘‘(B) EXECUTIVE OFFICERS AND SENIOR

2 MANAGEMENT.—Such regulations shall provide 

3 that the management and control of an ex4 panded affiliated group shall be treated as oc5 curring, directly or indirectly, primarily within 

6 the United States if substantially all of the ex7 ecutive officers and senior management of the 

8 expanded affiliated group who exercise day-to9 day responsibility for making decisions involving 

10 strategic, financial, and operational policies of 

11 the expanded affiliated group are based or pri12 marily located within the United States. Indi13 viduals who in fact exercise such day-to-day re14 sponsibilities shall be treated as executive offi15 cers and senior management regardless of their 

16 title. 

17 ‘‘(5) SIGNIFICANT DOMESTIC BUSINESS ACTIVI18 TIES.—For purposes of paragraph (2)(B)(ii), an ex19 panded affiliated group has significant domestic 

20 business activities if at least 25 percent of— 

21 ‘‘(A) the employees of the group are based 

22 in the United States, 

23 ‘‘(B) the employee compensation incurred 

24 by the group is incurred with respect to employ25 ees based in the United States, 


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1 ‘‘(C) the assets of the group are located in 

2 the United States, or 

3 ‘‘(D) the income of the group is derived in 

4 the United States, 

5 determined in the same manner as such determina6 tions are made for purposes of determining substan7 tial business activities under regulations referred to 

8 in paragraph (3) as in effect on December 22, 2017, 

9 but applied by treating all references in such regula10 tions to ‘foreign country’ and ‘relevant foreign coun11 try’ as references to ‘the United States’. The Sec12 retary may issue regulations decreasing the thresh13 old percent in any of the tests under such regula14 tions for determining if business activities constitute 

15 significant domestic business activities for purposes 

16 of this paragraph.’’. 

17 (b) CONFORMING AMENDMENTS.— 

18 (1) Clause (i) of section 7874(a)(2)(B) is 

19 amended by striking ‘‘after March 4, 2003,’’ and in20 serting ‘‘after March 4, 2003, and before December 

21 23, 2017,’’. 

22 (2) Subsection (c) of section 7874 is amend23 ed— 

24 (A) in paragraph (2)— 


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1 (i) by striking ‘‘subsection 

2 (a)(2)(B)(ii)’’ and inserting ‘‘subsections 

3 (a)(2)(B)(ii) and (b)(2)(B)(i)’’; and 

4 (ii) by inserting ‘‘or (b)(2)(A)’’ after 

5 ‘‘(a)(2)(B)(i)’’ in subparagraph (B); 

6 (B) in paragraph (3), by inserting ‘‘or 

7 (b)(2)(B)(i), as the case may be,’’ after 

8 ‘‘(a)(2)(B)(ii)’’; 

9 (C) in paragraph (5), by striking ‘‘sub10 section (a)(2)(B)(ii)’’ and inserting ‘‘sub11 sections (a)(2)(B)(ii) and (b)(2)(B)(i)’’; and 

12 (D) in paragraph (6), by inserting ‘‘or in13 verted domestic corporation, as the case may 

14 be,’’ after ‘‘surrogate foreign corporation’’. 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years ending after De17 cember 22, 2017. 

18 SEC. 6. TREATMENT OF FOREIGN CORPORATIONS MAN19 AGED AND CONTROLLED IN THE UNITED 

20 STATES AS DOMESTIC CORPORATIONS. 

21 (a) IN GENERAL.—Section 7701 is amended by re22 designating subsection (p) as subsection (q) and by insert23 ing after subsection (o) the following new subsection: 


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1 ‘‘(p) CERTAIN CORPORATIONS MANAGED AND CON2 TROLLED IN THE UNITED STATES TREATED AS DOMES3 TIC FOR INCOME TAX.— 

4 ‘‘(1) IN GENERAL.—Notwithstanding subsection 

5 (a)(4), in the case of a corporation described in 

6 paragraph (2) if— 

7 ‘‘(A) the corporation would not otherwise 

8 be treated as a domestic corporation for pur9 poses of this title, but 

10 ‘‘(B) the management and control of the 

11 corporation occurs, directly or indirectly, pri12 marily within the United States, 

13 then, solely for purposes of chapter 1 (and any other 

14 provision of this title relating to chapter 1), the cor15 poration shall be treated as a domestic corporation. 

16 ‘‘(2) CORPORATION DESCRIBED.— 

17 ‘‘(A) IN GENERAL.—A corporation is de18 scribed in this paragraph if— 

19 ‘‘(i) the stock of such corporation is 

20 regularly traded on an established securi21 ties market, or 

22 ‘‘(ii) the aggregate gross assets of 

23 such corporation (or any predecessor there24 of), including assets under management 

25 for investors, whether held directly or indiVerDate Sep 11 2014 01:57 Apr 08, 2021 Jkt 019200 PO 00000 Frm 00030 Fmt 6652 Sfmt 6201 E:\BILLS\S714.IS S714

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1 rectly, at any time during the taxable year 

2 or any preceding taxable year is 

3 $50,000,000 or more. 

4 ‘‘(B) GENERAL EXCEPTION.—A corpora5 tion shall not be treated as described in this 

6 paragraph if— 

7 ‘‘(i) such corporation was treated as a 

8 corporation described in this paragraph in 

9 a preceding taxable year, 

10 ‘‘(ii) such corporation— 

11 ‘‘(I) is not regularly traded on an 

12 established securities market, and 

13 ‘‘(II) has, and is reasonably ex14 pected to continue to have, aggregate 

15 gross assets (including assets under 

16 management for investors, whether 

17 held directly or indirectly) of less than 

18 $50,000,000, and 

19 ‘‘(iii) the Secretary grants a waiver to 

20 such corporation under this subparagraph. 

21 ‘‘(3) MANAGEMENT AND CONTROL.— 

22 ‘‘(A) IN GENERAL.—The Secretary shall 

23 prescribe regulations for purposes of deter24 mining cases in which the management and 


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1 control of a corporation is to be treated as oc2 curring primarily within the United States. 

3 ‘‘(B) EXECUTIVE OFFICERS AND SENIOR

4 MANAGEMENT.—Such regulations shall provide 

5 that— 

6 ‘‘(i) the management and control of a 

7 corporation shall be treated as occurring 

8 primarily within the United States if sub9 stantially all of the executive officers and 

10 senior management of the corporation who 

11 exercise day-to-day responsibility for mak12 ing decisions involving strategic, financial, 

13 and operational policies of the corporation 

14 are located primarily within the United 

15 States, and 

16 ‘‘(ii) individuals who are not executive 

17 officers and senior management of the cor18 poration (including individuals who are of19 ficers or employees of other corporations in 

20 the same chain of corporations as the cor21 poration) shall be treated as executive offi22 cers and senior management if such indi23 viduals exercise the day-to-day responsibil24 ities of the corporation described in clause 

25 (i). 


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1 ‘‘(C) CORPORATIONS PRIMARILY HOLDING

2 INVESTMENT ASSETS.—Such regulations shall 

3 also provide that the management and control 

4 of a corporation shall be treated as occurring 

5 primarily within the United States if— 

6 ‘‘(i) the assets of such corporation (di7 rectly or indirectly) consist primarily of as8 sets being managed on behalf of investors, 

9 and 

10 ‘‘(ii) decisions about how to invest the 

11 assets are made in the United States.’’. 

12 (b) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to taxable years beginning on or 

14 after the date which is 2 years after the date of the enact15 ment of this Act, whether or not regulations are issued 

16 under section 7701(p)(3) of the Internal Revenue Code 

17 of 1986, as added by this section. 

Æ 


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