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[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5125 Introduced in House (IH)]

<DOC>

114th CONGRESS
  2d Session
                                H. R. 5125

  To amend the Internal Revenue Code of 1986 to discourage corporate 
inversions and to impose tax on unrepatriated earnings and unrecognized 
           gains in connection with corporate expatriations.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             April 29, 2016

Mr. Doggett (for himself, Mr. Blumenauer, Mr. Capuano, Mr. Cartwright, 
Mr. Cicilline, Mr. Cohen, Mr. Conyers, Mr. Cummings, Mr. Danny K. Davis 
   of Illinois, Mr. DeFazio, Ms. DeLauro, Mr. Ellison, Mr. Farr, Mr. 
 Garamendi, Mr. Gene Green of Texas, Mr. Grijalva, Mr. Gutierrez, Mr. 
 Hastings, Mr. Johnson of Georgia, Mr. Kildee, Ms. Lee, Mr. Levin, Mr. 
   Lewis, Mr. Lipinski, Mr. Loebsack, Mr. Lynch, Mr. McDermott, Mr. 
 McGovern, Ms. Moore, Mr. Nadler, Mr. Pascrell, Mr. Payne, Mr. Pocan, 
 Mr. Rangel, Ms. Roybal-Allard, Mr. Rush, Ms. Schakowsky, Mr. Scott of 
 Virginia, Mr. Sherman, Ms. Slaughter, Mr. Thompson of California, Mr. 
   Tonko, Mr. Van Hollen, Mr. Welch, Mr. Yarmuth, Ms. Eddie Bernice 
    Johnson of Texas, Ms. Bass, and Mr. Perlmutter) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
  To amend the Internal Revenue Code of 1986 to discourage corporate 
inversions and to impose tax on unrepatriated earnings and unrecognized 
           gains in connection with corporate expatriations.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Corporate EXpatriates and Inverters 
Tax Fairness Act'' or as the ``Corporate EXIT Fairness Act''.

SEC. 2. RULES TO DISCOURAGE CORPORATE INVERSIONS AND IMPOSE TAX ON 
              UNREPATRIATED EARNINGS AND UNRECOGNIZED GAINS IN 
              CONNECTION WITH CORPORATE EXPATRIATIONS.

    (a) Rules Relating to Corporate Inversions and Corporate 
Expatriations Completed After April 29, 2016.--Subchapter C of chapter 
80 of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 7874A. RULES RELATING TO CORPORATE INVERSIONS AND CORPORATE 
              EXPATRIATIONS.

    ``(a) Unrepatriated Earnings and Unrecognized Gains in Connection 
With Corporate Expatriation.--
            ``(1) In general.--In the case of a corporate 
        expatriation--
                    ``(A) the subpart F income of any applicable 
                controlled foreign corporation for its last taxable 
                year ending before the acquisition date shall be 
                increased by the accumulated deferred foreign income of 
                such corporation, and
                    ``(B) any gain position stock of any applicable 
                controlled foreign corporation which is held by an 
                expatriated entity on the acquisition date shall be 
                treated as sold on such date for its fair market value.
            ``(2) Rules related to recognition of gain.--
                    ``(A) Application to dispositions during 5 years 
                before acquisition date.--In the case of any 
                disposition of gain position stock of any applicable 
                controlled foreign corporation by an expatriated entity 
                at any time during the 5-year period ending on the 
                acquisition date with respect to a corporate 
                expatriation, such disposition shall be treated as a 
                sale of such stock for its fair market value and the 
                period of limitation on assessment and collection of 
                any tax with respect to such disposition under section 
                6501 or 6502 shall commence not earlier than the 
                acquisition date.
                    ``(B) Gain position stock.--For purposes of this 
                subsection, the term `gain position stock' means any 
                stock if gain would arise from the sale of such stock.
                    ``(C) Gain taken into account; proper adjustment.--
                Notwithstanding any other provision of this title, in 
                the case of any sale under paragraph (1)(B) or (2)(A), 
                any gain arising from such sale shall be taken into 
                account for the taxable year of the sale. In the case 
                of any sale under paragraph (1)(B), proper adjustment 
                shall be made in the amount of any gain or loss 
                subsequently realized for gain taken into account under 
                the preceding sentence.
    ``(b) Foreign Parent Treated as Domestic Corporation.--
Notwithstanding section 7701(a)(4)--
            ``(1) Application to corporate inversions.--In the case of 
        a corporate inversion, the foreign corporation making the 
        acquisition described in subsection (c)(1) shall be treated for 
        purposes of this title as a domestic corporation.
            ``(2) Elective application to corporate expatriations.--If 
        the common parent of the expanded affiliated group which 
        includes the foreign corporation making the acquisition in a 
        corporate expatriation elects the application of this paragraph 
        and enters into an agreement with the Secretary providing the 
        Secretary such assurances as the Secretary may require that the 
        application of paragraph (1) will be administrable and 
        enforceable with respect to such corporation--
                    ``(A) such foreign corporation shall be treated for 
                purposes of this title as a domestic corporation, and
                    ``(B) subsection (a) shall not apply with respect 
                to such corporate expatriation.
    ``(c) Corporate Inversion; Corporate Expatriation.--For purposes of 
this section--
            ``(1) Corporate inversion.--The term `corporate inversion' 
        means the direct or indirect acquisition (pursuant to a plan or 
        a series of related transactions) of substantially all of the 
        assets of a domestic corporation or domestic partnership, 
        substantially all of the trade or business assets of a domestic 
        corporation or domestic partnership, or substantially all of 
        the United States trade or business assets of a foreign 
        partnership, by a foreign corporation if--
                    ``(A) such acquisition is completed after April 29, 
                2016,
                    ``(B) after the acquisition the expanded affiliated 
                group which includes the foreign corporation does not 
                have substantial business activities in the foreign 
                country in which, or under the law of which, the 
                foreign corporation is created or organized, when 
                compared to the total business activities of such 
                expanded affiliated group, and
                    ``(C) after the acquisition, either--
                            ``(i) more than 50 percent of the stock (by 
                        vote or value) of the foreign corporation is 
                        held--
                                    ``(I) in the case of an acquisition 
                                with respect to a domestic corporation, 
                                by former shareholders of the domestic 
                                corporation by reason of holding stock 
                                in the domestic corporation, or
                                    ``(II) in the case of an 
                                acquisition with respect to a 
                                partnership, by former partners of the 
                                partnership by reason of holding a 
                                capital or profits interest in the 
                                partnership, or
                            ``(ii) the management and control of the 
                        expanded affiliated group which includes the 
                        foreign corporation occurs, directly or 
                        indirectly, primarily within the United States, 
                        and such expanded affiliated group has 
                        significant domestic business activities.
            ``(2) Corporate expatriation.--The term `corporate 
        expatriation' means any acquisition which is not described in 
        paragraph (1) but which would be so described if paragraph (1) 
        were applied without regard to subparagraphs (B) and (C) 
        thereof.
            ``(3) Determinations with respect to management and control 
        and business activities.--
                    ``(A) Management and control.--For purposes of 
                paragraph (1)(C)(ii)--
                            ``(i) In general.--The Secretary shall 
                        prescribe regulations for purposes of 
                        determining cases in which the management and 
                        control of an expanded affiliated group is to 
                        be treated as occurring, directly or 
                        indirectly, primarily within the United States.
                            ``(ii) Executive officers and senior 
                        management.--Such regulations shall provide 
                        that the management and control of an expanded 
                        affiliated group shall be treated as occurring, 
                        directly or indirectly, primarily within the 
                        United States if substantially all of the 
                        executive officers and senior management of the 
                        expanded affiliated group who exercise day-to-
                        day responsibility for making decisions 
                        involving strategic, financial, and operational 
                        policies of the expanded affiliated group are 
                        based or primarily located within the United 
                        States. Individuals who in fact exercise such 
                        day-to-day responsibilities shall be treated as 
                        executive officers and senior management 
                        regardless of their title.
                    ``(B) Substantial business activities.--For 
                purposes of paragraph (1)(B), the term `substantial 
                business activities' shall have the meaning given such 
                term under regulations in effect on April 29, 2016, 
                except that the Secretary may issue regulations 
                increasing the threshold percent in any of the tests 
                under such regulations for determining if business 
                activities constitute substantial business activities 
                for purposes of this subsection.
                    ``(C) Significant domestic business activities.--
                For purposes of paragraph (1)(C)(ii), an expanded 
                affiliated group has significant domestic business 
                activities if at least 25 percent of--
                            ``(i) the employees of the group are based 
                        in the United States,
                            ``(ii) the employee compensation incurred 
                        by the group is incurred with respect to 
                        employees based in the United States,
                            ``(iii) the assets of the group are located 
                        in the United States, or
                            ``(iv) the income of the group is derived 
                        in the United States,
                determined in the same manner as such determinations 
                are made for purposes of determining substantial 
                business activities under regulations referred to in 
                subparagraph (B) as in effect on April 29, 2016, but 
                applied by treating all references in such regulations 
                to `foreign country' and `relevant foreign country' as 
                references to `the United States'. The Secretary may 
                issue regulations decreasing the threshold percent in 
                any of the tests under such regulations for determining 
                if business activities constitute significant domestic 
                business activities for purposes of this subsection.
            ``(4) Certain stock disregarded.--There shall not be taken 
        into account in determining ownership under paragraph 
        (1)(C)(i)--
                    ``(A) stock held by members of the expanded 
                affiliated group which includes the foreign 
                corporation, or
                    ``(B) stock of such foreign corporation which is 
                sold in a public offering related to the acquisition 
                described in the matter preceding subparagraph (A) of 
                paragraph (1).
            ``(5) Plan deemed in certain cases.--If a foreign 
        corporation completes an acquisition which would be described 
        in paragraph (1) or (2) if such acquisition were pursuant to a 
        plan and such acquisition is completed--
                    ``(A) in the case of an acquisition which would be 
                so described in paragraph (1), during the 4-year period 
                beginning on the date which is 2 years before the 
                ownership requirements of paragraph (1)(C)(i) are met, 
                or
                    ``(B) in the case of an acquisition which would be 
                so described in paragraph (2), during the 4-year period 
                ending on the acquisition date,
        such acquisition shall be treated as pursuant to a plan.
            ``(6) Certain transfers disregarded.--The transfer of 
        properties or liabilities (including by contribution or 
        distribution) shall be disregarded if such transfers are part 
        of a plan a principal purpose of which is to avoid the purposes 
        of this section.
            ``(7) Special rule for related partnerships.--For purposes 
        of applying paragraph (1)(C)(i) to the acquisition of a trade 
        or business of a partnership, except as provided in 
        regulations, all partnerships which are under common control 
        (within the meaning of section 482) shall be treated as 1 
        partnership.
            ``(8) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to determine whether any 
        transaction or series of transactions is a corporate inversion 
        or corporate expatriation, including regulations--
                    ``(A) to treat warrants, options, contracts to 
                acquire stock, convertible debt interests, and other 
                similar interests as stock, and
                    ``(B) to treat stock as not stock.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Accumulated deferred foreign income.--
                    ``(A) In general.--The term `accumulated deferred 
                foreign income' means the excess of--
                            ``(i) the undistributed earnings of the 
                        controlled foreign corporation, over
                            ``(ii) the undistributed U.S. earnings of 
                        such controlled foreign corporation.
                    ``(B) Undistributed earnings.--The term 
                `undistributed earnings' means the earnings and profits 
                of the controlled foreign corporation described in 
                section 959(c)(3), determined--
                            ``(i) as of the close of the taxable year 
                        described in subparagraph (A),
                            ``(ii) without diminution by reason of 
                        distributions made during such taxable year, 
                        and
                            ``(iii) without regard to this paragraph.
                For purposes of this chapter, any determination with 
                respect to the treatment of distributions described in 
                clause (ii) shall be made after the application of this 
                paragraph to the earnings and profits described in the 
                matter preceding clause (i).
                    ``(C) Undistributed u.s. earnings.--The term 
                `undistributed U.S. earnings' has the meaning given the 
                term `post-1986 undistributed U.S. earnings' in 
                paragraph (5) of section 245(a), determined--
                            ``(i) as of the close of the taxable year 
                        described in subparagraph (A) of this 
                        paragraph, and
                            ``(ii) without regard to `post-1986' each 
                        place it appears in the matter before 
                        subparagraph (A) of such paragraph (5).
            ``(2) Applicable controlled foreign corporation.--The term 
        `applicable controlled foreign corporation' means, with respect 
        to any expatriated entity, any controlled foreign corporation 
        with respect to which such entity was a United States 
        shareholder at any time during the 5-year period ending on the 
        acquisition date.
            ``(3) Expatriated entity.--The term `expatriated entity' 
        means--
                    ``(A) the corporation or partnership referred to in 
                the matter preceding subparagraph (A) of subsection 
                (c)(1) (including with respect to the application of 
                such subsection pursuant to subsection (c)(2)), and
                    ``(B) any United States person who is related 
                (within the meaning of section 267(b) or 707(b)(1)) to 
                a corporation or partnership described in subparagraph 
                (A).
            ``(4) Acquisition date.--The term `acquisition date' means 
        the date on which the acquisition described in paragraph (1) or 
        (2) of subsection (c), as the case may be, is completed.
            ``(5) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined in 
        section 1504(a) but without regard to section 1504(b)(3), 
        except that section 1504(a) shall be applied by substituting 
        `more than 50 percent' for `at least 80 percent' each place it 
        appears.
    ``(e) Special Rules.--
            ``(1) Credits not allowed against tax on unrepatriated 
        earnings and unrecognized gains.--In the case of any 
        expatriated entity and any United States shareholder of an 
        applicable controlled foreign corporation, credits (other than 
        the credit allowed by section 901) shall be allowed against the 
        tax imposed by chapter 1 on such entity or corporation for any 
        taxable year with respect to which any amount is included in 
        income under subsection (a) only to the extent such tax exceeds 
        the product of--
                    ``(A) the amount so included in income, and
                    ``(B) the highest rate of tax specified in section 
                11(b)(1).
        For purposes of determining the credit allowed by section 901, 
        such income shall be treated as from sources within the United 
        States.
            ``(2) Coordination with section 172 and minimum tax.--Rules 
        similar to the rules of paragraphs (3) and (4) of section 
        860E(a) shall apply for purposes of subsection (a).
    ``(f) Special Rule for Treaties.--Nothing in section 894 or 7852(d) 
or in any other provision of law shall be construed as permitting an 
exemption, by reason of any treaty obligation of the United States 
heretofore or hereafter entered into, from the provisions of this 
section.
    ``(g) Regulations.--The Secretary shall provide such regulations as 
are necessary to carry out this section, including regulations 
providing for such adjustments to the application of this section as 
are necessary to prevent the avoidance of the purposes of this section, 
including the avoidance of such purposes through--
            ``(1) the use of related persons, pass-through or other 
        noncorporate entities, or other intermediaries, or
            ``(2) transactions designed to have persons cease to be (or 
        not become) members of expanded affiliated groups or related 
        persons.''.
    (b) Modifications to Rules Relating to Corporate Inversions 
Completed on or Before April 29, 2016.--
            (1) In general.--Subsection (b) of section 7874 of the 
        Internal Revenue Code of 1986 is amended to read as follows:
    ``(b) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--Notwithstanding section 7701(a)(4), a 
        foreign corporation shall be treated for purposes of this title 
        as a domestic corporation if--
                    ``(A) such corporation would be a surrogate foreign 
                corporation if subsection (a)(2) were applied by 
                substituting `80 percent' for `60 percent', or
                    ``(B) such corporation is an inverted domestic 
                corporation.
            ``(2) Inverted domestic corporation.--For purposes of this 
        subsection, a foreign corporation shall be treated as an 
        inverted domestic corporation if, pursuant to a plan (or a 
        series of related transactions)--
                    ``(A) the entity completes after May 8, 2014, and 
                on or before April 29, 2016, the direct or indirect 
                acquisition of--
                            ``(i) substantially all of the assets of a 
                        domestic corporation or domestic partnership,
                            ``(ii) substantially all of the trade or 
                        business assets of a domestic corporation or 
                        domestic partnership, or
                            ``(iii) substantially all of the United 
                        States trade or business assets of a foreign 
                        partnership,
                    ``(B) after the acquisition, either--
                            ``(i) more than 50 percent of the stock (by 
                        vote or value) of the entity is held--
                                    ``(I) in the case of an acquisition 
                                with respect to a domestic corporation, 
                                by former shareholders of the domestic 
                                corporation by reason of holding stock 
                                in the domestic corporation, or
                                    ``(II) in the case of an 
                                acquisition with respect to a 
                                partnership, by former partners of the 
                                partnership by reason of holding a 
                                capital or profits interest in the 
                                partnership, or
                            ``(ii) the management and control of the 
                        expanded affiliated group which includes the 
                        entity occurs, directly or indirectly, 
                        primarily within the United States, and such 
                        expanded affiliated group has significant 
                        domestic business activities.
            ``(3) Exception for corporations with substantial business 
        activities in foreign country of organization.--A foreign 
        corporation described in paragraph (2) shall not be treated as 
        an inverted domestic corporation if after the acquisition the 
        expanded affiliated group which includes the entity has 
        substantial business activities in the foreign country in which 
        or under the law of which the entity is created or organized 
        when compared to the total business activities of such expanded 
        affiliated group. For purposes of subsection (a)(2)(B)(iii) and 
        the preceding sentence, the term `substantial business 
        activities' shall have the meaning given such term under 
        regulations in effect on May 8, 2014, except that the Secretary 
        may issue regulations increasing the threshold percent in any 
        of the tests under such regulations for determining if business 
        activities constitute substantial business activities for 
        purposes of this paragraph.
            ``(4) Management and control.--For purposes of paragraph 
        (2)(B)(ii)--
                    ``(A) In general.--The Secretary shall prescribe 
                regulations for purposes of determining cases in which 
                the management and control of an expanded affiliated 
                group is to be treated as occurring, directly or 
                indirectly, primarily within the United States. The 
                regulations prescribed under the preceding sentence 
                shall apply to periods after May 8, 2014.
                    ``(B) Executive officers and senior management.--
                Such regulations shall provide that the management and 
                control of an expanded affiliated group shall be 
                treated as occurring, directly or indirectly, primarily 
                within the United States if substantially all of the 
                executive officers and senior management of the 
                expanded affiliated group who exercise day-to-day 
                responsibility for making decisions involving 
                strategic, financial, and operational policies of the 
                expanded affiliated group are based or primarily 
                located within the United States. Individuals who in 
                fact exercise such day-to-day responsibilities shall be 
                treated as executive officers and senior management 
                regardless of their title.
            ``(5) Significant domestic business activities.--For 
        purposes of paragraph (2)(B)(ii), an expanded affiliated group 
        has significant domestic business activities if at least 25 
        percent of--
                    ``(A) the employees of the group are based in the 
                United States,
                    ``(B) the employee compensation incurred by the 
                group is incurred with respect to employees based in 
                the United States,
                    ``(C) the assets of the group are located in the 
                United States, or
                    ``(D) the income of the group is derived in the 
                United States,
        determined in the same manner as such determinations are made 
        for purposes of determining substantial business activities 
        under regulations referred to in paragraph (3) as in effect on 
        May 8, 2014, but applied by treating all references in such 
        regulations to `foreign country' and `relevant foreign country' 
        as references to `the United States'. The Secretary may issue 
        regulations decreasing the threshold percent in any of the 
        tests under such regulations for determining if business 
        activities constitute significant domestic business activities 
        for purposes of this paragraph.''.
            (2) Conforming amendments.--
                    (A) Clause (i) of section 7874(a)(2)(B) of such 
                Code is amended by striking ``after March 4, 2003,'' 
                and inserting ``after March 4, 2003, and before May 9, 
                2014,''.
                    (B) Subsection (c) of section 7874 of such Code is 
                amended--
                            (i) in paragraph (2)--
                                    (I) by striking ``subsection 
                                (a)(2)(B)(ii)'' and inserting 
                                ``subsections (a)(2)(B)(ii) and 
                                (b)(2)(B)(i)'', and
                                    (II) by inserting ``or (b)(2)(A)'' 
                                after ``(a)(2)(B)(i)'' in subparagraph 
                                (B),
                            (ii) in paragraph (3), by inserting ``or 
                        (b)(2)(B)(i), as the case may be,'' after 
                        ``(a)(2)(B)(ii)'',
                            (iii) in paragraph (5), by striking 
                        ``subsection (a)(2)(B)(ii)'' and inserting 
                        ``subsections (a)(2)(B)(ii) and (b)(2)(B)(i)'', 
                        and
                            (iv) in paragraph (6), by inserting ``or 
                        inverted domestic corporation, as the case may 
                        be,'' after ``surrogate foreign corporation''.
    (c) Technical and Conforming Amendments Related to Stock 
Compensation of Insiders in Expatriated Corporations.--
            (1) Section 4985(a)(1) of such Code is amended by striking 
        ``section 1(h)(1)(C)'' and inserting ``section 1(h)(1)(D)''.
            (2) Section 4985(c) of such Code is amended by inserting 
        ``or section 7874A(c)(1) (without regard to subparagraph (C) 
        thereof)'' after ``section 7874(a)(2)(B)(i)''.
            (3) Section 4985(e)(2)(A) of such Code is amended by 
        inserting ``or section 7874A(d)(3)'' after ``section 
        7874(a)(2)''.
    (d) Clerical Amendments.--
            (1) The heading for section 7874 of such Code is amended by 
        striking ``expatriated entities and their foreign parents'' and 
        inserting ``corporate inversions completed on or before april 
        29, 2016''.
            (2) The table of sections for subchapter C of chapter 80 of 
        such Code is amended by striking the item relating to section 
        7874 and inserting the following new items:

``Sec. 7874. Rules relating to corporate inversions completed on or 
                            before April 29, 2016.
``Sec. 7874A. Rules relating to corporate inversions and corporate 
                            expatriations.''.
    (e) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply taxable years 
        ending after April 29, 2016.
            (2) Modifications to rules relating to corporate inversions 
        completed on or before april 29, 2016.--The amendments made by 
        subsection (b) shall apply to taxable years ending after May 8, 
        2014.
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