II 

115TH CONGRESS 

1ST SESSION S. 1637 

To prohibit the award of Federal Government contracts to inverted domestic 

corporations, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JULY 26, 2017 

Mr. DURBIN (for himself, Mr. REED, Mr. FRANKEN, Ms. DUCKWORTH, and 

Mr. WHITEHOUSE) introduced the following bill; which was read twice 

and referred to the Committee on Homeland Security and Governmental 

Affairs 

A BILL 

To prohibit the award of Federal Government contracts to 

inverted domestic 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 ‘‘American Business for 

5 American Companies Act of 2017’’. 

6 SEC. 2. PROHIBITION ON AWARDING CONTRACTS TO IN7 VERTED DOMESTIC CORPORATIONS. 

8 (a) CIVILIAN CONTRACTS.— 

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1 (1) IN GENERAL.—Chapter 47 of title 41, 

2 United States Code, is amended by adding at the 

3 end the following new section: 

4 ‘‘§ 4713. Prohibition on awarding contracts to in5 verted domestic corporations 

6 ‘‘(a) PROHIBITION.— 

7 ‘‘(1) IN GENERAL.—The head of an executive 

8 agency may not award a contract for the procure9 ment of property or services to— 

10 ‘‘(A) any foreign incorporated entity that 

11 such head has determined is an inverted domes12 tic corporation or any subsidiary of such entity; 

13 or 

14 ‘‘(B) any joint venture if more than 10 

15 percent of the joint venture (by vote or value) 

16 is held by a foreign incorporated entity that 

17 such head has determined is an inverted domes18 tic corporation or any subsidiary of such entity. 

19 ‘‘(2) SUBCONTRACTS.— 

20 ‘‘(A) IN GENERAL.—The head of an execu21 tive agency shall include in each contract for 

22 the procurement of property or services award23 ed by the executive agency with a value in ex24 cess of $10,000,000, other than a contract for 

25 exclusively commercial items, a clause that promstockstill on DSK30JT082PROD with BILLS

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1 hibits the prime contractor on such contract 

2 from— 

3 ‘‘(i) awarding a first-tier subcontract 

4 with a value greater than 10 percent of the 

5 total value of the prime contract to an en6 tity or joint venture described in paragraph 

7 (1); or 

8 ‘‘(ii) structuring subcontract tiers in a 

9 manner designed to avoid the limitation in 

10 paragraph (1) by enabling an entity or 

11 joint venture described in paragraph (1) to 

12 perform more than 10 percent of the total 

13 value of the prime contract as a lower-tier 

14 subcontractor. 

15 ‘‘(B) PENALTIES.—The contract clause in16 cluded in contracts pursuant to subparagraph 

17 (A) shall provide that, in the event that the 

18 prime contractor violates the contract clause— 

19 ‘‘(i) the prime contract may be termi20 nated for default; and 

21 ‘‘(ii) the matter may be referred to 

22 the suspension or debarment official for 

23 the appropriate agency and may be a basis 

24 for suspension or debarment of the prime 

25 contractor. 

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1 ‘‘(b) INVERTED DOMESTIC CORPORATION.— 

2 ‘‘(1) IN GENERAL.—For purposes of this sec3 tion, a foreign incorporated entity shall be treated as 

4 an inverted domestic corporation if, pursuant to a 

5 plan (or a series of related transactions)— 

6 ‘‘(A) the entity completes on or after May 

7 8, 2014, the direct or indirect acquisition of— 

8 ‘‘(i) substantially all of the properties 

9 held directly or indirectly by a domestic 

10 corporation; or 

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

12 or substantially all of the properties consti13 tuting a trade or business of, a domestic 

14 partnership; and 

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

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

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

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

19 with respect to a domestic corpora20 tion, by former shareholders of the 

21 domestic corporation by reason of 

22 holding stock in the domestic corpora23 tion; or 

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

25 with respect to a domestic partnermstockstill on DSK30JT082PROD with BILLS

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1 ship, by former partners of the do2 mestic partnership by reason of hold3 ing a capital or profits interest in the 

4 domestic partnership; or 

5 ‘‘(ii) the management and control of 

6 the expanded affiliated group which in7 cludes the entity occurs, directly or indi8 rectly, primarily within the United States, 

9 as determined pursuant to regulations pre10 scribed by the Secretary of the Treasury, 

11 and such expanded affiliated group has 

12 significant domestic business activities. 

13 ‘‘(2) EXCEPTION FOR CORPORATIONS WITH

14 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN

15 COUNTRY OF ORGANIZATION.— 

16 ‘‘(A) IN GENERAL.—A foreign incorporated 

17 entity described in paragraph (1) shall not be 

18 treated as an inverted domestic corporation if 

19 after the acquisition the expanded affiliated 

20 group which includes the entity has substantial 

21 business activities in the foreign country in 

22 which or under the law of which the entity is 

23 created or organized when compared to the 

24 total business activities of such expanded affili25 ated group. 

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1 ‘‘(B) SUBSTANTIAL BUSINESS ACTIVI2 TIES.—The Secretary of the Treasury (or the 

3 Secretary’s delegate) shall establish regulations 

4 for determining whether an affiliated group has 

5 substantial business activities for purposes of 

6 subparagraph (A), except that such regulations 

7 may not treat any group as having substantial 

8 business activities if such group would not be 

9 considered to have substantial business activi10 ties under the regulations prescribed under sec11 tion 7874 of the Internal Revenue Code of 

12 1986, as in effect on January 18, 2017. 

13 ‘‘(3) SIGNIFICANT DOMESTIC BUSINESS ACTIVI14 TIES.— 

15 ‘‘(A) IN GENERAL.—For purposes of para16 graph (1)(B)(ii), an expanded affiliated group 

17 has significant domestic business activities if at 

18 least 25 percent of— 

19 ‘‘(i) the employees of the group are 

20 based in the United States; 

21 ‘‘(ii) the employee compensation in22 curred by the group is incurred with re23 spect to employees based in the United 

24 States; 

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1 ‘‘(iii) the assets of the group are lo2 cated in the United States; or 

3 ‘‘(iv) the income of the group is de4 rived in the United States. 

5 ‘‘(B) DETERMINATION.—Determinations 

6 pursuant to subparagraph (A) shall be made in 

7 the same manner as such determinations are 

8 made for purposes of determining substantial 

9 business activities under regulations referred to 

10 in paragraph (2) as in effect on January 18, 

11 2017, but applied by treating all references in 

12 such regulations to ‘foreign country’ and ‘rel13 evant foreign country’ as references to ‘the 

14 United States’. The Secretary of the Treasury 

15 (or the Secretary’s delegate) may issue regula16 tions decreasing the threshold percent in any of 

17 the tests under such regulations for deter18 mining if business activities constitute signifi19 cant domestic business activities for purposes of 

20 this paragraph. 

21 ‘‘(c) WAIVER.— 

22 ‘‘(1) IN GENERAL.—The head of an executive 

23 agency may waive subsection (a) with respect to any 

24 Federal Government contract under the authority of 

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1 such head if the head determines that the waiver 

2 is— 

3 ‘‘(A) required in the interest of national 

4 security; or 

5 ‘‘(B) necessary for the efficient or effective 

6 administration of Federal or federally funded— 

7 ‘‘(i) programs that provide health ben8 efits to individuals; or 

9 ‘‘(ii) public health programs. 

10 ‘‘(2) REPORT TO CONGRESS.—The head of an 

11 executive agency issuing a waiver under paragraph 

12 (1) shall, not later than 14 days after issuing such 

13 waiver, submit a written notification of the waiver to 

14 the relevant authorizing committees of Congress and 

15 the Committees on Appropriations of the Senate and 

16 the House of Representatives. 

17 ‘‘(d) APPLICABILITY.— 

18 ‘‘(1) IN GENERAL.—Except as provided in para19 graph (2), this section shall not apply to any con20 tract entered into before the date of the enactment 

21 of this section. 

22 ‘‘(2) TASK AND DELIVERY ORDERS.—This sec23 tion shall apply to any task or delivery order issued 

24 after the date of the enactment of this section purmstockstill on DSK30JT082PROD with BILLS

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1 suant to a contract entered into before, on, or after 

2 such date of enactment. 

3 ‘‘(3) SCOPE.—This section applies only to con4 tracts subject to regulation under the Federal Acqui5 sition Regulation. 

6 ‘‘(e) DEFINITIONS AND SPECIAL RULES.— 

7 ‘‘(1) DEFINITIONS.—In this section, the terms 

8 ‘expanded affiliated group’, ‘foreign incorporated en9 tity’, ‘person’, ‘domestic’, and ‘foreign’ have the 

10 meaning given those terms in section 835(c) of the 

11 Homeland Security Act of 2002 (6 U.S.C. 395(c)). 

12 ‘‘(2) SPECIAL RULES.—In applying subsection 

13 (b) of this section for purposes of subsection (a) of 

14 this section, the rules described under 835(c)(1) of 

15 the Homeland Security Act of 2002 (6 U.S.C. 

16 395(c)(1)) shall apply.’’. 

17 (2) CLERICAL AMENDMENT.—The table of sec18 tions at the beginning of chapter 47 of title 41, 

19 United States Code, is amended by inserting after 

20 the item relating to section 4712 the following new 

21 item: 

‘‘4713. Prohibition on awarding contracts to inverted domestic corporations.’’. 

22 (b) DEFENSE CONTRACTS.— 

23 (1) IN GENERAL.—Chapter 137 of title 10, 

24 United States Code, is amended by adding at the 

25 end the following new section: 

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1 ‘‘§ 2340. Prohibition on awarding contracts to in2 verted domestic corporations 

3 ‘‘(a) PROHIBITION.— 

4 ‘‘(1) IN GENERAL.—The head of an agency may 

5 not award a contract for the procurement of prop6 erty or services to— 

7 ‘‘(A) any foreign incorporated entity that 

8 such head has determined is an inverted domes9 tic corporation or any subsidiary of such entity; 

10 or 

11 ‘‘(B) any joint venture if more than 10 

12 percent of the joint venture (by vote or value) 

13 is owned by a foreign incorporated entity that 

14 such head has determined is an inverted domes15 tic corporation or any subsidiary of such entity. 

16 ‘‘(2) SUBCONTRACTS.— 

17 ‘‘(A) IN GENERAL.—The head of an execu18 tive agency shall include in each contract for 

19 the procurement of property or services award20 ed by the executive agency with a value in ex21 cess of $10,000,000, other than a contract for 

22 exclusively commercial items, a clause that pro23 hibits the prime contractor on such contract 

24 from— 

25 ‘‘(i) awarding a first-tier subcontract 

26 with a value greater than 10 percent of the 

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1 total value of the prime contract to an en2 tity or joint venture described in paragraph 

3 (1); or 

4 ‘‘(ii) structuring subcontract tiers in a 

5 manner designed to avoid the limitation in 

6 paragraph (1) by enabling an entity or 

7 joint venture described in paragraph (1) to 

8 perform more than 10 percent of the total 

9 value of the prime contract as a lower-tier 

10 subcontractor. 

11 ‘‘(B) PENALTIES.—The contract clause in12 cluded in contracts pursuant to subparagraph 

13 (A) shall provide that, in the event that the 

14 prime contractor violates the contract clause— 

15 ‘‘(i) the prime contract may be termi16 nated for default; and 

17 ‘‘(ii) the matter may be referred to 

18 the suspension or debarment official for 

19 the appropriate agency and may be a basis 

20 for suspension or debarment of the prime 

21 contractor. 

22 ‘‘(b) INVERTED DOMESTIC CORPORATION.— 

23 ‘‘(1) IN GENERAL.—For purposes of this sec24 tion, a foreign incorporated entity shall be treated as 

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1 an inverted domestic corporation if, pursuant to a 

2 plan (or a series of related transactions)— 

3 ‘‘(A) the entity completes on or after May 

4 8, 2014, the direct or indirect acquisition of— 

5 ‘‘(i) substantially all of the properties 

6 held directly or indirectly by a domestic 

7 corporation; or 

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

9 or substantially all of the properties consti10 tuting a trade or business of, a domestic 

11 partnership; and 

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

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

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

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

16 with respect to a domestic corpora17 tion, by former shareholders of the 

18 domestic corporation by reason of 

19 holding stock in the domestic corpora20 tion; or 

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

22 with respect to a domestic partner23 ship, by former partners of the do24 mestic partnership by reason of holdmstockstill on DSK30JT082PROD with BILLS

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1 ing a capital or profits interest in the 

2 domestic partnership; or 

3 ‘‘(ii) the management and control of 

4 the expanded affiliated group which in5 cludes the entity occurs, directly or indi6 rectly, primarily within the United States, 

7 as determined pursuant to regulations pre8 scribed by the Secretary of the Treasury, 

9 and such expanded affiliated group has 

10 significant domestic business activities. 

11 ‘‘(2) EXCEPTION FOR CORPORATIONS WITH

12 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN

13 COUNTRY OF ORGANIZATION.— 

14 ‘‘(A) IN GENERAL.—A foreign incorporated 

15 entity described in paragraph (1) shall not be 

16 treated as an inverted domestic corporation if 

17 after the acquisition the expanded affiliated 

18 group which includes the entity has substantial 

19 business activities in the foreign country in 

20 which or under the law of which the entity is 

21 created or organized when compared to the 

22 total business activities of such expanded affili23 ated group. 

24 ‘‘(B) SUBSTANTIAL BUSINESS ACTIVI25 TIES.—The Secretary of the Treasury (or the 

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1 Secretary’s delegate) shall establish regulations 

2 for determining whether an affiliated group has 

3 substantial business activities for purposes of 

4 subparagraph (A), except that such regulations 

5 may not treat any group as having substantial 

6 business activities if such group would not be 

7 considered to have substantial business activi8 ties under the regulations prescribed under sec9 tion 7874 of the Internal Revenue Code of 

10 1986, as in effect on January 18, 2017. 

11 ‘‘(3) SIGNIFICANT DOMESTIC BUSINESS ACTIVI12 TIES.— 

13 ‘‘(A) IN GENERAL.—For purposes of para14 graph (1)(B)(ii), an expanded affiliated group 

15 has significant domestic business activities if at 

16 least 25 percent of— 

17 ‘‘(i) the employees of the group are 

18 based in the United States; 

19 ‘‘(ii) the employee compensation in20 curred by the group is incurred with re21 spect to employees based in the United 

22 States; 

23 ‘‘(iii) the assets of the group are lo24 cated in the United States; or 

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1 ‘‘(iv) the income of the group is de2 rived in the United States. 

3 ‘‘(B) DETERMINATION.—Determinations 

4 pursuant to subparagraph (A) shall be made in 

5 the same manner as such determinations are 

6 made for purposes of determining substantial 

7 business activities under regulations referred to 

8 in paragraph (2) as in effect on January 18, 

9 2017, but applied by treating all references in 

10 such regulations to ‘foreign country’ and ‘rel11 evant foreign country’ as references to ‘the 

12 United States’. The Secretary of the Treasury 

13 (or the Secretary’s delegate) may issue regula14 tions decreasing the threshold percent in any of 

15 the tests under such regulations for deter16 mining if business activities constitute signifi17 cant domestic business activities for purposes of 

18 this paragraph. 

19 ‘‘(c) WAIVER.— 

20 ‘‘(1) IN GENERAL.—The head of an agency may 

21 waive subsection (a) with respect to any Federal 

22 Government contract under the authority of such 

23 head if the head determines that the waiver is re24 quired in the interest of national security or is nec25 essary for the efficient or effective administration of 

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1 Federal or federally funded programs that provide 

2 health benefits to individuals. 

3 ‘‘(2) REPORT TO CONGRESS.—The head of an 

4 agency issuing a waiver under paragraph (1) shall, 

5 not later than 14 days after issuing such waiver, 

6 submit a written notification of the waiver to the 

7 Committees on Armed Services and Appropriations 

8 of the Senate and the House of Representatives. 

9 ‘‘(d) APPLICABILITY.— 

10 ‘‘(1) IN GENERAL.—Except as provided in para11 graph (2), this section shall not apply to any con12 tract entered into before the date of the enactment 

13 of this section. 

14 ‘‘(2) TASK AND DELIVERY ORDERS.—This sec15 tion shall apply to any task or delivery order issued 

16 after the date of the enactment of this section pur17 suant to a contract entered into before, on, or after 

18 such date of enactment. 

19 ‘‘(3) SCOPE.—This section applies only to con20 tracts subject to regulation under the Federal Acqui21 sition Regulation and the Defense Supplement to the 

22 Federal Acquisition Regulation. 

23 ‘‘(e) DEFINITIONS AND SPECIAL RULES.— 

24 ‘‘(1) DEFINITIONS.—In this section, the terms 

25 ‘expanded affiliated group’, ‘foreign incorporated enmstockstill on DSK30JT082PROD with BILLS

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1 tity’, ‘person’, ‘domestic’, and ‘foreign’ have the 

2 meaning given those terms in section 835(c) of the 

3 Homeland Security Act of 2002 (6 U.S.C. 395(c)). 

4 ‘‘(2) SPECIAL RULES.—In applying subsection 

5 (b) of this section for purposes of subsection (a) of 

6 this section, the rules described under 835(c)(1) of 

7 the Homeland Security Act of 2002 (6 U.S.C. 

8 395(c)(1)) shall apply.’’. 

9 (2) CLERICAL AMENDMENT.—The table of sec10 tions at the beginning of chapter 137 of title 10, 

11 United States Code, is amended by inserting after 

12 the item relating to section 2339 the following new 

13 item: 

‘‘2340. Prohibition on awarding contracts to inverted domestic corporations.’’. 

14 (c) REGULATIONS REGARDING MANAGEMENT AND

15 CONTROL.— 

16 (1) IN GENERAL.—The Secretary of the Treas17 ury (or the Secretary’s delegate) shall, for purposes 

18 of section 4713(b)(1)(B)(ii) of title 41, United 

19 States Code, and section 2340(b)(1)(B)(ii) of title 

20 10, United States Code, as added by subsections (a) 

21 and (b), respectively, prescribe regulations for pur22 poses of determining cases in which the management 

23 and control of an expanded affiliated group is to be 

24 treated as occurring, directly or indirectly, primarily 

25 within the United States. The regulations prescribed 

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1 under the preceding sentence shall apply to periods 

2 after May 8, 2014. 

3 (2) EXECUTIVE OFFICERS AND SENIOR MAN4 AGEMENT.—The regulations prescribed under para5 graph (1) shall provide that the management and 

6 control of an expanded affiliated group shall be 

7 treated as occurring, directly or indirectly, primarily 

8 within the United States if substantially all of the 

9 executive officers and senior management of the ex10 panded affiliated group who exercise day-to-day re11 sponsibility for making decisions involving strategic, 

12 financial, and operational policies of the expanded 

13 affiliated group are based or primarily located within 

14 the United States. Individuals who in fact exercise 

15 such day-to-day responsibilities shall be treated as 

16 executive officers and senior management regardless 

17 of their title. 

Æ 

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