II 

115TH CONGRESS 

1ST SESSION S. 586 

To amend the Internal Revenue Code of 1986 to modify the treatment 

of foreign corporations, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MARCH 9, 2017 

Mr. SANDERS (for himself and Mr. SCHATZ) 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 modify 

the treatment of foreign corporations, 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. 

4 This Act may be cited as the ‘‘Corporate Tax Dodg5 ing Prevention Act’’. 

6 SEC. 2. DEFERRAL OF ACTIVE INCOME OF CONTROLLED 

7 FOREIGN CORPORATIONS. 

8 (a) IN GENERAL.—Section 952 of the Internal Rev9 enue Code of 1986 is amended by adding at the end the 

10 following new subsection: 


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1 ‘‘(e) SPECIAL APPLICATION OF SUBPART.— 

2 ‘‘(1) IN GENERAL.—For taxable years begin3 ning after December 31, 2017, notwithstanding any 

4 other provision of this subpart, the term ‘subpart F 

5 income’ means, in the case of any controlled foreign 

6 corporation, the income of such corporation derived 

7 from any foreign country. 

8 ‘‘(2) APPLICABLE RULES.—Rules similar to the 

9 rules under the last sentence of subsection (a) and 

10 subsection (d) shall apply to this subsection.’’. 

11 (b) TREATMENT OF PREVIOUSLY DEFERRED FOR12 EIGN INCOME.— 

13 (1) IN GENERAL.—Section 965 of the Internal 

14 Revenue Code of 1986 is amended to read as fol15 lows: 

16 ‘‘SEC. 965. INCLUSION OF PREVIOUSLY DEFERRED FOR17 EIGN INCOME. 

18 ‘‘(a) INCLUSION AS SUBPART F INCOME.—The sub19 part F income (determined under section 952 without re20 gard to this section) of a controlled foreign corporation 

21 for its last taxable year beginning before January 1, 2018, 

22 shall be increased by the accumulated deferred foreign in23 come of the corporation. 

24 ‘‘(b) ACCUMULATED DEFERRED FOREIGN IN25 COME.—For purposes of this section— 


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1 ‘‘(1) IN GENERAL.—The term ‘accumulated de2 ferred foreign income’ means the excess of— 

3 ‘‘(A) the undistributed earnings of the con4 trolled foreign corporation, over 

5 ‘‘(B) the undistributed U.S. earnings of 

6 such controlled foreign corporation. 

7 ‘‘(2) UNDISTRIBUTED EARNINGS.— 

8 ‘‘(A) IN GENERAL.—The term ‘undistrib9 uted earnings’ means the earnings and profits 

10 of the controlled foreign corporation described 

11 in section 959(c)(3), determined— 

12 ‘‘(i) as of the close of the taxable year 

13 described in subsection (a)(1), 

14 ‘‘(ii) without diminution by reason of 

15 distributions made during such taxable 

16 year, and 

17 ‘‘(iii) without regard to this section. 

18 ‘‘(B) SPECIAL RULE FOR CURRENT YEAR

19 DISTRIBUTIONS.—For purposes of this chapter, 

20 any determination with respect to the treatment 

21 of distributions described in subparagraph 

22 (A)(ii) shall be made after the application of 

23 this section to the earnings and profits de24 scribed in subparagraph (A). 


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1 ‘‘(3) UNDISTRIBUTED U.S. EARNINGS.—The 

2 term ‘undistributed U.S. earnings’ has the meaning 

3 given the term ‘post-1986 undistributed U.S. earn4 ings’ in section 245(a)(5) (as in effect for taxable 

5 years beginning before 2018), determined— 

6 ‘‘(A) without regard to ‘post-1986’ each 

7 place it appears in the matter before subpara8 graph (A), and 

9 ‘‘(B) without regard to the last sentence 

10 thereof. 

11 ‘‘(c) ELECTION TO PAY LIABILITY IN INSTALL12 MENTS.— 

13 ‘‘(1) IN GENERAL.—In the case of a United 

14 States shareholder with respect to one or more con15 trolled foreign corporations to which subsection (a) 

16 applies, such United States shareholder may elect to 

17 pay the net tax liability under this section in 2 or 

18 more (but not exceeding 8) equal installments. 

19 ‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.— 

20 If an election is made under paragraph (1), the due 

21 date for the first installment shall be the due date 

22 (determined without regard to any extension of time 

23 for filing the return) for the return of tax for the 

24 taxable year of such United States shareholder in 

25 which the increase in subpart F income under subVerDate Sep 11 2014 02:40 Mar 15, 2017 Jkt 069200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S586.IS S586

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1 section (a) is included in such shareholder’s gross in2 come under section 951(a)(1) and the due date for 

3 each succeeding installment shall be the due date (as 

4 so determined) for the return of tax for the taxable 

5 year following the taxable year with respect to which 

6 the preceding installment was made. 

7 ‘‘(3) ACCELERATION OF PAYMENT.—If there 

8 is— 

9 ‘‘(A) an assessment of an addition to tax 

10 for failure to pay timely with respect to any in11 stallment required under this subsection, 

12 ‘‘(B) a liquidation or sale of substantially 

13 all the assets of the taxpayer (including in a 

14 title 11 or similar case), 

15 ‘‘(C) a cessation of business by the tax16 payer, or 

17 ‘‘(D) any similar circumstance, 

18 then the unpaid portion of all remaining installments 

19 shall be due on the date of such event (or in the case 

20 of a title 11 or similar case, the day before the peti21 tion is filed). 

22 ‘‘(4) PRORATION OF DEFICIENCY TO INSTALL23 MENTS.—If an election is made under paragraph (1) 

24 to pay the net tax liability under this section in in25 stallments and a deficiency has been assessed, the 


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1 deficiency shall be prorated to the installments pay2 able under paragraph (1). The part of the deficiency 

3 so prorated to any installment the date for payment 

4 of which has not arrived shall be collected at the 

5 same time as, and as a part of, such installment. 

6 The part of the deficiency so prorated to any install7 ment the date for payment of which has arrived 

8 shall be paid upon notice and demand from the Sec9 retary. This paragraph shall not apply if the defi10 ciency is due to negligence, to intentional disregard 

11 of rules and regulations, or to fraud with intent to 

12 evade tax. 

13 ‘‘(5) RULES RELATING TO INTEREST.— 

14 ‘‘(A) IN GENERAL.—In the case of any net 

15 tax liability prorated to an installment under 

16 this subsection, the last date prescribed for pay17 ment of the tax for purposes of section 6601(a) 

18 shall be the last date for payment of the install19 ment rather than the last date for payment of 

20 tax for the taxable year in which the net tax li21 ability arose. 

22 ‘‘(B) SPECIAL RULES FOR DEFI23 CIENCIES.— 

24 ‘‘(i) INTEREST PAYABLE FOR ENTIRE

25 PERIOD.—Subparagraph (A) shall not 


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1 apply to any deficiency prorated to an in2 stallment under paragraph (4). 

3 ‘‘(ii) PAYMENT OF INTEREST ATTRIB4 UTABLE TO PRIOR PERIODS.—In the case 

5 of a deficiency to which paragraph (4) ap6 plies, interest with respect to such defi7 ciency which is assigned under paragraph 

8 (4) to any installment the date for pay9 ment of which has arrived on or before the 

10 date of the assessment of the deficiency, 

11 shall be paid upon notice and demand from 

12 the Secretary. 

13 ‘‘(6) PERIOD OF ASSESSMENT.—Notwith14 standing section 6501, the period for assessing the 

15 net tax liability under this section for which an elec16 tion is made under paragraph (1) shall not expire 

17 before the due date for the last installment. 

18 ‘‘(7) ELECTION.—Any election under paragraph 

19 (1) shall be made not later than the due date for the 

20 return of tax for the taxable year of such United 

21 States shareholder in which the increase in subpart 

22 F income under subsection (a) is included in such 

23 shareholder’s gross income under section 951(a)(1) 

24 and shall be made in such manner as the Secretary 

25 may provide. 


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1 ‘‘(8) NET TAX LIABILITY UNDER THIS SEC2 TION.—For purposes of this subsection— 

3 ‘‘(A) IN GENERAL.—The net tax liability 

4 under this section with respect to any United 

5 States shareholder is the excess (if any) of— 

6 ‘‘(i) such taxpayer’s net income tax 

7 for the taxable year, over 

8 ‘‘(ii) such taxpayer’s net income tax 

9 for such taxable year determined without 

10 regard to this section. 

11 ‘‘(B) NET INCOME TAX.—The term ‘net 

12 income tax’ means the net income tax (as de13 fined in section 38(c)(1)) reduced by the credit 

14 allowed under section 38. 

15 ‘‘(C) REGULATIONS.—The Secretary shall 

16 prescribe such regulations as may be necessary 

17 for the determination under this subsection of 

18 the net tax liability under this section in the 

19 case of any pass-thru entity. 

20 ‘‘(d) REGULATIONS.—The Secretary shall promul21 gate such regulations as necessary to carry out the pur22 poses of this section, including regulations for the applica23 tion of this section to pass-through entities all or part of 

24 which are owned by one or more domestic corporations.’’. 

25 (2) CONFORMING AMENDMENTS.— 


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1 (A) Section 56(g)(4)(C) of the Internal 

2 Revenue Code of 1986 is amended by striking 

3 clause (vi). 

4 (B) Paragraph (3) of section 245(a) of 

5 such Code is amended— 

6 (i) by striking ‘‘post-1986’’ in sub7 paragraph (A), and 

8 (ii) by striking ‘‘total post-1986’’ in 

9 subparagraph (B). 

10 (C) Paragraph (4) of section 245(a) of 

11 such Code is amended to read as follows: 

12 ‘‘(4) UNDISTRIBUTED EARNINGS.—The term 

13 ‘undistributed earnings’ means the amount of the 

14 earnings and profits of the controlled foreign cor15 poration (computed in accordance with sections 

16 964(a) and 986)— 

17 ‘‘(A) as of the close of the taxable year of 

18 the controlled foreign corporation in which the 

19 dividend is distributed, and 

20 ‘‘(B) without diminution by reason of divi21 dends distributed during such taxable year.’’. 

22 (D) Paragraph (5) of section 245(a) of 

23 such Code is amended— 


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1 (i) by striking ‘‘post-1986’’ both 

2 places it appears in the matter preceding 

3 subparagraph (A), and 

4 (ii) by striking ‘‘POST-1986 UNDIS5 TRIBUTED’’ in the heading thereof and in6 serting ‘‘UNDISTRIBUTED’’. 

7 (E) Paragraph (6) of section 245(a) of 

8 such Code is amended— 

9 (i) by striking ‘‘beginning after De10 cember 31, 1986’’ and inserting ‘‘which is 

11 after the first taxable year of such corpora12 tion’’, and 

13 (ii) by striking ‘‘post-1986’’ both 

14 places it appears. 

15 (F) Paragraph (2) of section 6601(b) of 

16 such Code is amended— 

17 (i) by striking ‘‘section 6156(a)’’ in 

18 the matter preceding subparagraph (A) 

19 and inserting ‘‘section 965(c)(1) or 

20 6156(a)’’, and 

21 (ii) by striking ‘‘section 6156(b)’’ in 

22 subparagraph (A) and inserting ‘‘section 

23 965(c)(2) or 6156(b), as the case may be’’. 

24 (G) The table of sections for subpart F of 

25 part III of subchapter N of chapter 1 of such 


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1 Code is amended by striking the item relating 

2 to section 965 and inserting the following: 

‘‘Sec. 965. Inclusion of previously deferred foreign income.’’. 

3 (3) EFFECTIVE DATE.—The amendments made 

4 by this subsection shall apply to taxable years begin5 ning after December 31, 2017. 

6 SEC. 3. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

7 APPLICABLE TO LARGE INTEGRATED OIL 

8 COMPANIES WHICH ARE DUAL CAPACITY 

9 TAXPAYERS. 

10 (a) IN GENERAL.—Section 901 of the Internal Rev11 enue Code of 1986 is amended by redesignating subsection 

12 (n) as subsection (o) and by inserting after subsection (m) 

13 the following new subsection: 

14 ‘‘(n) SPECIAL RULES RELATING TO LARGE INTE15 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

16 TAXPAYERS.— 

17 ‘‘(1) GENERAL RULE.—Notwithstanding any 

18 other provision of this chapter, any amount paid or 

19 accrued by a dual capacity taxpayer which is a large 

20 integrated oil company to a foreign country or pos21 session of the United States for any period shall not 

22 be considered a tax— 

23 ‘‘(A) if, for such period, the foreign coun24 try or possession does not impose a generally 

25 applicable income tax, or 


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1 ‘‘(B) to the extent such amount exceeds 

2 the amount (determined in accordance with reg3 ulations) which— 

4 ‘‘(i) is paid by such dual capacity tax5 payer pursuant to the generally applicable 

6 income tax imposed by the country or pos7 session, or 

8 ‘‘(ii) would be paid if the generally ap9 plicable income tax imposed by the country 

10 or possession were applicable to such dual 

11 capacity taxpayer. 

12 Nothing in this paragraph shall be construed to 

13 imply the proper treatment of any such amount 

14 not in excess of the amount determined under 

15 subparagraph (B). 

16 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur17 poses of this subsection, the term ‘dual capacity tax18 payer’ means, with respect to any foreign country or 

19 possession of the United States, a person who— 

20 ‘‘(A) is subject to a levy of such country or 

21 possession, and 

22 ‘‘(B) receives (or will receive) directly or 

23 indirectly a specific economic benefit (as deter24 mined in accordance with regulations) from 

25 such country or possession. 


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1 ‘‘(3) GENERALLY APPLICABLE INCOME TAX.— 

2 For purposes of this subsection— 

3 ‘‘(A) IN GENERAL.—The term ‘generally 

4 applicable income tax’ means an income tax (or 

5 a series of income taxes) which is generally im6 posed under the laws of a foreign country or 

7 possession on income derived from the conduct 

8 of a trade or business within such country or 

9 possession. 

10 ‘‘(B) EXCEPTIONS.—Such term shall not 

11 include a tax unless it has substantial applica12 tion, by its terms and in practice, to— 

13 ‘‘(i) persons who are not dual capacity 

14 taxpayers, and 

15 ‘‘(ii) persons who are citizens or resi16 dents of the foreign country or possession. 

17 ‘‘(4) LARGE INTEGRATED OIL COMPANY.—For 

18 purposes of this subsection, the term ‘large inte19 grated oil company’ means, with respect to any tax20 able year, an integrated oil company (as defined in 

21 section 291(b)(4)) which— 

22 ‘‘(A) had gross receipts in excess of 

23 $1,000,000,000 for such taxable year, and 


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1 ‘‘(B) has an average daily worldwide pro2 duction of crude oil of at least 500,000 barrels 

3 for such taxable year.’’. 

4 (b) EFFECTIVE DATE.— 

5 (1) IN GENERAL.—The amendments made by 

6 this section shall apply to taxes paid or accrued in 

7 taxable years beginning after the date of the enact8 ment of this Act. 

9 (2) CONTRARY TREATY OBLIGATIONS

10 UPHELD.—The amendments made by this section 

11 shall not apply to the extent contrary to any treaty 

12 obligation of the United States. 

13 SEC. 4. REINSTITUTION OF PER COUNTRY FOREIGN TAX 

14 CREDIT. 

15 (a) IN GENERAL.—Subsection (a) of section 904 of 

16 the Internal Revenue Code of 1986 is amended to read 

17 as follows: 

18 ‘‘(a) LIMITATION.—The amount of the credit in re19 spect of the tax paid or accrued to any foreign country 

20 or possession of the United States shall not exceed the 

21 same proportion of the tax against which such credit is 

22 taken which the taxpayer’s taxable income from sources 

23 within such country or possession (but not in excess of 

24 the taxpayer’s entire taxable income) bears to such tax25 payer’s entire taxable income for the same taxable year.’’. 


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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2017. 

4 SEC. 5. TREATMENT OF FOREIGN CORPORATIONS MAN5 AGED AND CONTROLLED IN THE UNITED 

6 STATES AS DOMESTIC CORPORATIONS. 

7 (a) IN GENERAL.—Section 7701 of the Internal Rev8 enue Code of 1986 is amended by redesignating subsection 

9 (p) as subsection (q) and by inserting after subsection (o) 

10 the following new subsection: 

11 ‘‘(p) CERTAIN CORPORATIONS MANAGED AND CON12 TROLLED IN THE UNITED STATES TREATED AS DOMES13 TIC FOR INCOME TAX.— 

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

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

16 paragraph (2) if— 

17 ‘‘(A) the corporation would not otherwise 

18 be treated as a domestic corporation for pur19 poses of this title, but 

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

21 corporation occurs, directly or indirectly, pri22 marily within the United States, 

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

24 provision of this title relating to chapter 1), the cor25 poration shall be treated as a domestic corporation. 


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1 ‘‘(2) CORPORATION DESCRIBED.— 

2 ‘‘(A) IN GENERAL.—A corporation is de3 scribed in this paragraph if— 

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

5 regularly traded on an established securi6 ties market, or 

7 ‘‘(ii) the aggregate gross assets of 

8 such corporation (or any predecessor there9 of), including assets under management 

10 for investors, whether held directly or indi11 rectly, at any time during the taxable year 

12 or any preceding taxable year is 

13 $50,000,000 or more. 

14 ‘‘(B) GENERAL EXCEPTION.—A corpora15 tion shall not be treated as described in this 

16 paragraph if— 

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

18 corporation described in this paragraph in 

19 a preceding taxable year, 

20 ‘‘(ii) such corporation— 

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

22 established securities market, and 

23 ‘‘(II) has, and is reasonably ex24 pected to continue to have, aggregate 

25 gross assets (including assets under 


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1 management for investors, whether 

2 held directly or indirectly) of less than 

3 $50,000,000, and 

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

5 such corporation under this subparagraph. 

6 ‘‘(3) MANAGEMENT AND CONTROL.— 

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

8 prescribe regulations for purposes of deter9 mining cases in which the management and 

10 control of a corporation is to be treated as oc11 curring primarily within the United States. 

12 ‘‘(B) EXECUTIVE OFFICERS AND SENIOR

13 MANAGEMENT.—Such regulations shall provide 

14 that— 

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

16 corporation shall be treated as occurring 

17 primarily within the United States if sub18 stantially all of the executive officers and 

19 senior management of the corporation who 

20 exercise day-to-day responsibility for mak21 ing decisions involving strategic, financial, 

22 and operational policies of the corporation 

23 are located primarily within the United 

24 States, and 


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1 ‘‘(ii) individuals who are not executive 

2 officers and senior management of the cor3 poration (including individuals who are of4 ficers or employees of other corporations in 

5 the same chain of corporations as the cor6 poration) shall be treated as executive offi7 cers and senior management if such indi8 viduals exercise the day-to-day responsibil9 ities of the corporation described in clause 

10 (i). 

11 ‘‘(C) CORPORATIONS PRIMARILY HOLDING

12 INVESTMENT ASSETS.—Such regulations shall 

13 also provide that the management and control 

14 of a corporation shall be treated as occurring 

15 primarily within the United States if— 

16 ‘‘(i) the assets of such corporation (di17 rectly or indirectly) consist primarily of as18 sets being managed on behalf of investors, 

19 and 

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

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

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

23 this section shall apply to taxable years beginning on or 

24 after the date which is 2 years after the date of the enact25 ment of this Act. 


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1 SEC. 6. RESTRICTIONS ON DEDUCTION FOR INTEREST EX2 PENSE OF MEMBERS OF FINANCIAL REPORT3 ING GROUPS WITH EXCESS DOMESTIC IN4 DEBTEDNESS. 

5 (a) IN GENERAL.—Section 163 of the Internal Rev6 enue Code of 1986 is amended by redesignating subsection 

7 (n) as subsection (o) and by inserting after subsection (m) 

8 the following new subsection: 

9 ‘‘(n) RESTRICTION ON DEDUCTION FOR INTEREST

10 EXPENSE OF MEMBERS OF FINANCIAL REPORTING

11 GROUPS WITH EXCESS DOMESTIC INDEBTEDNESS.— 

12 ‘‘(1) IN GENERAL.—In the case of any corpora13 tion which is a member of an applicable financial re14 porting group the common parent of which is a for15 eign corporation, the deduction allowed under this 

16 chapter for interest paid or accrued by the corpora17 tion during the taxable year shall not exceed the ap18 plicable limitation for the taxable year. 

19 ‘‘(2) CARRYFORWARD.—Any amount disallowed 

20 under paragraph (1) for any taxable year shall be 

21 treated as interest paid or accrued in the succeeding 

22 taxable year. 

23 ‘‘(3) APPLICABLE LIMITATION.—For purposes 

24 of this subsection— 


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1 ‘‘(A) IN GENERAL.—The applicable limita2 tion with respect to a taxpayer for any taxable 

3 year is the sum of— 

4 ‘‘(i) the greater of— 

5 ‘‘(I) the taxpayer’s allocable 

6 share of the applicable financial re7 porting group’s net interest expense 

8 for the taxable year, or 

9 ‘‘(II) 10 percent of the taxpayer’s 

10 adjusted taxable income for the tax11 able year, plus 

12 ‘‘(ii) the excess limitation 

13 carryforwards to the taxable year from any 

14 preceding taxable year. 

15 ‘‘(B) LIMITATION NOT LESS THAN IN16 CLUDIBLE INTEREST.—The applicable limita17 tion under subparagraph (A) for any taxable 

18 year shall not be less than the amount of inter19 est includible in the gross income of the tax20 payer for the taxable year. 

21 ‘‘(C) EXCESS LIMITATION

22 CARRYFORWARD.—If the applicable limitation 

23 of a taxpayer for any taxable year (determined 

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1 crued by the taxpayer during the taxable year, 

2 such excess shall be an excess limitation 

3 carryforward to the 1st succeeding taxable year 

4 and the 2nd and 3rd succeeding taxable years 

5 to the extent not previously taken into account 

6 under this paragraph. 

7 ‘‘(4) ALLOCABLE SHARE OF NET INTEREST EX8 PENSE.—For purposes of this subsection— 

9 ‘‘(A) IN GENERAL.—A taxpayer’s allocable 

10 share of an applicable financial reporting 

11 group’s net interest expense for any taxable 

12 year shall be the amount (not less than zero) 

13 which bears the same ratio to such net interest 

14 expense as— 

15 ‘‘(i) the net earnings of the taxpayer, 

16 bears to 

17 ‘‘(ii) the aggregate net earnings of all 

18 members of the applicable financial report19 ing group. 

20 ‘‘(B) NET EARNINGS.—The term ‘net 

21 earnings’ means, with respect to any taxpayer, 

22 the earnings of the taxpayer— 

23 ‘‘(i) computed without regard to any 

24 reduction allowable for— 

25 ‘‘(I) net interest expense, 


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1 ‘‘(II) taxes, or 

2 ‘‘(III) depreciation, amortization, 

3 or depletion, and 

4 ‘‘(ii) computed with such other adjust5 ments as the Secretary may by regulations 

6 prescribe. 

7 ‘‘(C) BURDEN ON TAXPAYER.—If a tax8 payer elects not to compute its allocable share, 

9 or fails to establish to the satisfaction of the 

10 Secretary the amount of its allocable share, for 

11 any taxable year, the allocable share shall be 

12 zero. 

13 ‘‘(5) NET INTEREST EXPENSE AND NET EARN14 INGS DETERMINATIONS.—For purposes of this sub15 section— 

16 ‘‘(A) NET INTEREST EXPENSE.—Any de17 termination of net interest expense for any tax18 able year shall be made— 

19 ‘‘(i) on the basis of the applicable fi20 nancial statement of the applicable finan21 cial reporting group for the last financial 

22 reporting year ending with or within the 

23 taxable year, and 

24 ‘‘(ii) under United States tax prin25 ciples. 


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1 ‘‘(B) NET EARNINGS.—Any determination 

2 of net earnings for any taxable year shall be 

3 made on the basis of the applicable financial 

4 statement of the applicable financial reporting 

5 group for the last financial reporting year end6 ing with or within the taxable year. 

7 ‘‘(C) APPLICABLE FINANCIAL STATE8 MENT.—The term ‘applicable financial state9 ment’ means a statement for financial reporting 

10 purposes which is made on the basis of— 

11 ‘‘(i) generally accepted accounting 

12 principles, 

13 ‘‘(ii) international financial reporting 

14 standards, or 

15 ‘‘(iii) any other method specified by 

16 the Secretary in regulations. 

17 A statement under clause (ii) or (iii) may be 

18 used as an applicable financial statement by a 

19 group only if there is no statement of the group 

20 under any preceding clause. 

21 ‘‘(6) APPLICABLE FINANCIAL REPORTING

22 GROUP.—For purposes of this subsection— 

23 ‘‘(A) IN GENERAL.—The term ‘applicable 

24 financial reporting group’ means, with respect 

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1 poration is a member and which files an appli2 cable financial statement. 

3 ‘‘(B) EXCEPTION FOR GROUPS WITH MINI4 MAL DOMESTIC NET INTEREST EXPENSE.— 

5 Such term shall not include a group if the ag6 gregate net interest expense for which a deduc7 tion is allowable to all members of the group 

8 under this chapter (determined without regard 

9 to this subsection or any other limitation on de10 ductibility of interest under this chapter) is less 

11 than $5,000,000. 

12 ‘‘(C) EXCEPTION FOR CERTAIN FINANCIAL

13 ENTITIES.—A corporation which is described in 

14 section 864(f)(4)(B), or is treated as described 

15 in section 864(f)(4)(B) by reason of paragraph 

16 (4)(C) or (5)(A) of section 864(f) (without re17 gard to whether an election is made under such 

18 paragraph (5)(A)), shall not be treated as a 

19 member of an applicable financial reporting 

20 group of which it is otherwise a member and 

21 this subsection shall not apply to such corpora22 tion. 

23 ‘‘(7) OTHER DEFINITIONS AND RULES.—For 

24 purposes of this subsection— 


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1 ‘‘(A) ADJUSTED TAXABLE INCOME.—The 

2 term ‘adjusted taxable income’ has the meaning 

3 given such term by subsection (j)(6)(A). 

4 ‘‘(B) NET INTEREST EXPENSE.—The term 

5 ‘net interest expense’ has the meaning given 

6 such term by subsection (j)(6)(B). 

7 ‘‘(C) TREATMENT OF AFFILIATED

8 GROUP.—All members of the same affiliated 

9 group (within the meaning of section 1504(a)) 

10 shall be treated as one taxpayer. 

11 ‘‘(8) REGULATIONS.—The Secretary shall pre12 scribe such regulations as may be necessary to carry 

13 out the purposes of this section, including regula14 tions providing— 

15 ‘‘(A) for the coordination of the application 

16 of this subsection and other provisions of this 

17 chapter relating to the deductibility of interest, 

18 ‘‘(B) for the waiver of certain adjustments 

19 required under United States tax principles in 

20 appropriate cases for purposes of applying this 

21 subsection, 

22 ‘‘(C) for the determination of which finan23 cial institutions are eligible for the exception 

24 from membership in an applicable financial re25 porting group under paragraph (6)(C) and the 


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1 application of this subsection to the other mem2 bers of the group which are not so excepted, 

3 and 

4 ‘‘(D) for the application of this subsection 

5 in the case of pass thru entities and for the 

6 treatment of pass thru entities as corporations 

7 in cases where necessary to prevent the avoid8 ance of the purposes of this subsection.’’. 

9 (b) COORDINATION WITH LIMITATION ON RELATED

10 PARTY INDEBTEDNESS.—Paragraph (2) of section 163(j) 

11 of the Internal Revenue Code of 1986 is amended by add12 ing at the end the following new subparagraph: 

13 ‘‘(D) COORDINATION WITH LIMITATION ON

14 EXCESS DOMESTIC INDEBTEDNESS.—This sub15 section shall not apply to any corporation for 

16 any taxable year to which subsection (n) applies 

17 to such corporation.’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2017. 

21 SEC. 7. MODIFICATIONS TO RULES RELATING TO IN22 VERTED CORPORATIONS. 

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

24 the Internal Revenue Code of 1986 is amended to read 

25 as follows: 


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1 ‘‘(b) INVERTED CORPORATIONS TREATED AS DO2 MESTIC CORPORATIONS.— 

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

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

5 purposes of this title as a domestic corporation if— 

6 ‘‘(A) such corporation would be a surro7 gate foreign corporation if subsection (a)(2) 

8 were applied by substituting ‘80 percent’ for 

9 ‘60 percent’, or 

10 ‘‘(B) such corporation is an inverted do11 mestic corporation. 

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

13 purposes of this subsection, a foreign corporation 

14 shall be treated as an inverted domestic corporation 

15 if, pursuant to a plan (or a series of related trans16 actions)— 

17 ‘‘(A) the entity completes after May 8, 

18 2014, the direct or indirect acquisition of— 

19 ‘‘(i) substantially all of the properties 

20 held directly or indirectly by a domestic 

21 corporation, or 

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

23 or substantially all of the properties consti24 tuting a trade or business of, a domestic 

25 partnership, and 


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1 ‘‘(B) after the acquisition, more than 50 

2 percent of the stock (by vote or value) of the 

3 entity is held— 

4 ‘‘(i) in the case of an acquisition with 

5 respect to a domestic corporation, by 

6 former shareholders of the domestic cor7 poration by reason of holding stock in the 

8 domestic corporation, or 

9 ‘‘(ii) in the case of an acquisition with 

10 respect to a domestic partnership, by 

11 former partners of the domestic partner12 ship by reason of holding a capital or prof13 its interest in the domestic partnership. 

14 ‘‘(3) EXCEPTION FOR CORPORATIONS WITH

15 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN

16 COUNTRY OF ORGANIZATION.—A foreign corporation 

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

18 inverted domestic corporation if after the acquisition 

19 the expanded affiliated group which includes the en20 tity has substantial business activities in the foreign 

21 country in which or under the law of which the enti22 ty is created or organized when compared to the 

23 total business activities of such expanded affiliated 

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

25 the preceding sentence, the term ‘substantial busiVerDate Sep 11 2014 02:40 Mar 15, 2017 Jkt 069200 PO 00000 Frm 00028 Fmt 6652 Sfmt 6201 E:\BILLS\S586.IS S586

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1 ness activities’ shall have the meaning given such 

2 term under regulations in effect on May 8, 2014, ex3 cept that the Secretary may issue regulations in4 creasing the threshold percent in any of the tests 

5 under such regulations for determining if business 

6 activities constitute substantial business activities for 

7 purposes of this paragraph.’’. 

8 (b) CONFORMING AMENDMENTS.— 

9 (1) Clause (i) of section 7874(a)(2)(B) of the 

10 Internal Revenue Code of 1986 is amended by strik11 ing ‘‘after March 4, 2003,’’ and inserting ‘‘after 

12 March 4, 2003, and before May 9, 2014,’’. 

13 (2) Subsection (c) of section 7874 of such Code 

14 is amended— 

15 (A) in paragraph (2)— 

16 (i) by striking ‘‘subsection 

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

18 (a)(2)(B)(ii) and (b)(2)(B)’’, and 

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

20 ‘‘(a)(2)(B)(i)’’ in subparagraph (B), 

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

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

23 ‘‘(a)(2)(B)(ii)’’, 


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1 (C) in paragraph (5), by striking ‘‘sub2 section (a)(2)(B)(ii)’’ and inserting ‘‘sub3 sections (a)(2)(B)(ii) and (b)(2)(B)’’, and 

4 (D) in paragraph (6), by inserting ‘‘or in5 verted domestic corporation, as the case may 

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

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

8 this section shall apply to taxable years ending after May 

9 8, 2014. 

Æ 


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