I 

113TH CONGRESS 

2D SESSION H. R. 5278 

To prohibit the award of Federal Government contracts to inverted domestic 

corporations, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 30, 2014 

Ms. DELAURO (for herself, Mr. DOGGETT, and Mr. LEVIN) introduced the following bill; which was referred to the Committee on Oversight and Government Reform, and in addition to the Committee on Armed Services, 

for a period to be subsequently determined by the Speaker, in each case 

for consideration of such provisions as fall within the jurisdiction of the 

committee concerned 

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 ‘‘No Federal Contracts 

5 for Corporate Deserters Act of 2014’’. 

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 to— 

9 ‘‘(A) any foreign incorporated entity that 

10 such head has determined is an inverted domes11 tic corporation or any subsidiary of such entity; 

12 or 

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

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

15 is held by a foreign incorporated entity that 

16 such head has determined is an inverted domes17 tic corporation or any subsidiary of such entity. 

18 ‘‘(2) SUBCONTRACTS.— 

19 ‘‘(A) IN GENERAL.—The head of an execu20 tive agency shall include in each contract 

21 awarded by the executive agency with a value in 

22 excess of $10,000,000, other than a contract 

23 for exclusively commercial items, a clause that 

24 prohibits the prime contractor on such contract 

25 from— 


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

2 with a value greater than 10 percent of the 

3 total value of the prime contract to an en4 tity or joint venture described in paragraph 

5 (1); or 

6 ‘‘(ii) structuring subcontract tiers in a 

7 manner designed to avoid the limitation in 

8 paragraph (1) by enabling an entity or 

9 joint venture described in paragraph (1) to 

10 perform more than 10 percent of the total 

11 value of the prime contract as a lower-tier 

12 subcontractor. 

13 ‘‘(B) PENALTIES.—The contract clause in14 cluded in contracts pursuant to subparagraph 

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

16 prime contractor violates the contract clause— 

17 ‘‘(i) the prime contract may be termi18 nated for default; and 

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

20 the suspension or debarment official for 

21 the appropriate agency and may be a basis 

22 for suspension or debarment of the prime 

23 contractor. 

24 ‘‘(b) INVERTED DOMESTIC CORPORATION.— 


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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, a foreign incorporated entity shall be treated as 

3 an inverted domestic corporation if, pursuant to a 

4 plan (or a series of related transactions)— 

5 ‘‘(A) the entity completes before, on, or 

6 after May 8, 2014, the direct or indirect acqui7 sition 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 partnerVerDate Mar 15 2010 03:05 Aug 05, 2014 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H5278.IH H5278

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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 May 8, 2014. 

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 May 8, 2014, 

11 but applied by treating all references in such 

12 regulations to ‘foreign country’ and ‘relevant 

13 foreign country’ as references to ‘the United 

14 States’. The Secretary of the Treasury (or the 

15 Secretary’s delegate) may issue regulations de16 creasing the threshold percent in any of the 

17 tests under such regulations for determining if 

18 business activities constitute significant domes19 tic business activities for purposes of this para20 graph. 

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 is 

2 required in the interest of national security. 

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

4 executive agency issuing a waiver under paragraph 

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

6 waiver, submit a written notification of the waiver to 

7 the relevant authorizing committees of Congress and 

8 the Committees on Appropriations of the Senate and 

9 the House of Representatives. 

10 ‘‘(d) APPLICABILITY.— 

11 ‘‘(1) IN GENERAL.—Except as provided in para12 graph (2), this section shall not apply to any con13 tract entered into before the date of the enactment 

14 of this section. 

15 ‘‘(2) TASK AND DELIVERY ORDERS.—This sec16 tion shall apply to any task or delivery order issued 

17 after the date of the enactment of this section pur18 suant to a contract entered into before, on, or after 

19 such date of enactment. 

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

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

22 ‘expanded affiliated group’, ‘foreign incorporated en23 tity’, ‘person’, ‘domestic’, and ‘foreign’ have the 

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

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


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

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

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

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

5 395(c)(1)) shall apply.’’. 

6 (2) CLERICAL AMENDMENT.—The table of sec7 tions at the beginning of chapter 47 of title 41, 

8 United States Code, is amended by inserting after 

9 the item relating to section 4712 the following new 

10 item: 

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

11 (b) DEFENSE CONTRACTS.— 

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

13 United States Code, is amended by adding at the 

14 end the following new section: 

15 ‘‘§ 2338. Prohibition on awarding contracts to in16 verted domestic corporations 

17 ‘‘(a) PROHIBITION.— 

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

19 not award a contract to— 

20 ‘‘(A) any foreign incorporated entity that 

21 such head has determined is an inverted domes22 tic corporation or any subsidiary of such entity; 

23 or 

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

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


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1 is owned by a foreign incorporated entity that 

2 such head has determined is an inverted domes3 tic corporation or any subsidiary of such entity. 

4 ‘‘(2) SUBCONTRACTS.— 

5 ‘‘(A) IN GENERAL.—The head of an execu6 tive agency shall include in each contract 

7 awarded by the executive agency with a value in 

8 excess of $10,000,000, other than a contract 

9 for exclusively commercial items, a clause that 

10 prohibits the prime contractor on such contract 

11 from— 

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

13 with a value greater than 10 percent of the 

14 total value of the prime contract to an en15 tity or joint venture described in paragraph 

16 (1); or 

17 ‘‘(ii) structuring subcontract tiers in a 

18 manner designed to avoid the limitation in 

19 paragraph (1) by enabling an entity or 

20 joint venture described in paragraph (1) to 

21 perform more than 10 percent of the total 

22 value of the prime contract as a lower-tier 

23 subcontractor. 

24 ‘‘(B) PENALTIES.—The contract clause in25 cluded in contracts pursuant to subparagraph 


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

2 prime contractor violates the contract clause— 

3 ‘‘(i) the prime contract may be termi4 nated for default; and 

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

6 the suspension or debarment official for 

7 the appropriate agency and may be a basis 

8 for suspension or debarment of the prime 

9 contractor. 

10 ‘‘(b) INVERTED DOMESTIC CORPORATION.— 

11 ‘‘(1) IN GENERAL.—For purposes of this sec12 tion, a foreign incorporated entity shall be treated as 

13 an inverted domestic corporation if, pursuant to a 

14 plan (or a series of related transactions)— 

15 ‘‘(A) the entity completes before, on, or 

16 after May 8, 2014, the direct or indirect acqui17 sition of— 

18 ‘‘(i) substantially all of the properties 

19 held directly or indirectly by a domestic 

20 corporation; or 

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

22 or substantially all of the properties consti23 tuting a trade or business of, a domestic 

24 partnership; and 

25 ‘‘(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 as determined pursuant to regulations pre20 scribed by the Secretary of the Treasury, 

21 and such expanded affiliated group has 

22 significant domestic business activities. 

23 ‘‘(2) EXCEPTION FOR CORPORATIONS WITH

24 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN

25 COUNTRY OF ORGANIZATION.— 


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

2 entity described in paragraph (1) shall not be 

3 treated as an inverted domestic corporation if 

4 after the acquisition the expanded affiliated 

5 group which includes the entity has substantial 

6 business activities in the foreign country in 

7 which or under the law of which the entity is 

8 created or organized when compared to the 

9 total business activities of such expanded affili10 ated group. 

11 ‘‘(B) SUBSTANTIAL BUSINESS ACTIVI12 TIES.—The Secretary of the Treasury (or the 

13 Secretary’s delegate) shall establish regulations 

14 for determining whether an affiliated group has 

15 substantial business activities for purposes of 

16 subparagraph (A), except that such regulations 

17 may not treat any group as having substantial 

18 business activities if such group would not be 

19 considered to have substantial business activi20 ties under the regulations prescribed under sec21 tion 7874 of the Internal Revenue Code of 

22 1986, as in effect on May 8, 2014. 

23 ‘‘(3) SIGNIFICANT DOMESTIC BUSINESS ACTIVI24 TIES.— 


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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (1)(B)(ii), an expanded affiliated group 

3 has significant domestic business activities if at 

4 least 25 percent of— 

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

6 based in the United States; 

7 ‘‘(ii) the employee compensation in8 curred by the group is incurred with re9 spect to employees based in the United 

10 States; 

11 ‘‘(iii) the assets of the group are lo12 cated in the United States; or 

13 ‘‘(iv) the income of the group is de14 rived in the United States. 

15 ‘‘(B) DETERMINATION.—Determinations 

16 pursuant to subparagraph (A) shall be made in 

17 the same manner as such determinations are 

18 made for purposes of determining substantial 

19 business activities under regulations referred to 

20 in paragraph (2) as in effect on May 8, 2014, 

21 but applied by treating all references in such 

22 regulations to ‘foreign country’ and ‘relevant 

23 foreign country’ as references to ‘the United 

24 States’. The Secretary of the Treasury (or the 

25 Secretary’s delegate) may issue regulations deVerDate Mar 15 2010 03:05 Aug 05, 2014 Jkt 039200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\H5278.IH H5278

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1 creasing the threshold percent in any of the 

2 tests under such regulations for determining if 

3 business activities constitute significant domes4 tic business activities for purposes of this para5 graph. 

6 ‘‘(c) WAIVER.— 

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

8 waive subsection (a) with respect to any Federal 

9 Government contract under the authority of such 

10 head if the head determines that the waiver is re11 quired in the interest of national security. 

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

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

14 not later than 14 days after issuing such waiver, 

15 submit a written notification of the waiver to the 

16 Committees on Armed Services and Appropriations 

17 of the Senate and the House of Representatives. 

18 ‘‘(d) APPLICABILITY.— 

19 ‘‘(1) IN GENERAL.—Except as provided in para20 graph (2), this section shall not apply to any con21 tract entered into before the date of the enactment 

22 of this section. 

23 ‘‘(2) TASK AND DELIVERY ORDERS.—This sec24 tion shall apply to any task or delivery order issued 

25 after the date of the enactment of this section purVerDate Mar 15 2010 03:05 Aug 05, 2014 Jkt 039200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\H5278.IH H5278

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

2 such date of enactment. 

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

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

5 ‘expanded affiliated group’, ‘foreign incorporated en6 tity’, ‘person’, ‘domestic’, and ‘foreign’ have the 

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

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

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

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

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

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

13 395(c)(1)) shall apply.’’. 

14 (2) CLERICAL AMENDMENT.—The table of sec15 tions at the beginning of chapter 137 of title 10, 

16 United States Code, is amended by inserting after 

17 the item relating to section 2337 the following new 

18 item: 

‘‘2338. Prohibition on awarding contracts to inverted domestic corporations.’’. 

19 (c) REGULATIONS REGARDING MANAGEMENT AND

20 CONTROL.— 

21 (1) IN GENERAL.—The Secretary of the Treas22 ury (or the Secretary’s delegate) shall, for purposes 

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

24 States Code, and section 2338(b)(1)(B)(ii) of title 

25 10, United States Code, as added by subsections (a) 


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1 and (b), respectively, prescribe regulations for pur2 poses of determining cases in which the management 

3 and control of an expanded affiliated group is to be 

4 treated as occurring, directly or indirectly, primarily 

5 within the United States. The regulations prescribed 

6 under the preceding sentence shall apply to periods 

7 after May 8, 2014. 

8 (2) EXECUTIVE OFFICERS AND SENIOR MAN9 AGEMENT.—The regulations prescribed under para10 graph (1) shall provide that the management and 

11 control of an expanded affiliated group shall be 

12 treated as occurring, directly or indirectly, primarily 

13 within the United States if substantially all of the 

14 executive officers and senior management of the ex15 panded affiliated group who exercise day-to-day re16 sponsibility for making decisions involving strategic, 

17 financial, and operational policies of the expanded 

18 affiliated group are based or primarily located within 

19 the United States. Individuals who in fact exercise 

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

21 executive officers and senior management regardless 

22 of their title. 

Æ 


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