II 

113TH CONGRESS 

2D SESSION S. 2786 

To amend the Internal Revenue Code of 1986 to prevent earnings stripping 

of domestic corporations which are members of a worldwide group of 

corporations which includes an inverted corporation and to require agreements with respect to certain related party transactions with those members. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 10, 2014 

Mr. SCHUMER (for himself, Mr. DURBIN, Mr. BROWN, Mr. COONS, Mr. 

ROCKEFELLER, Ms. STABENOW, Mr. CARDIN, Mr. REED, Mr. MENENDEZ, Mr. MARKEY, Mr. MERKLEY, Ms. BALDWIN, Mr. LEVIN, and Ms. 

WARREN) 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 prevent 

earnings stripping of domestic corporations which are 

members of a worldwide group of corporations which 

includes an inverted corporation and to require agreements with respect to certain related party transactions 

with those members. 

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


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Corporate Inverters 

3 Earnings Stripping Reform Act of 2014’’. 

4 SEC. 2. ADDITIONAL RULES RELATED TO INVERTED COR5 PORATIONS. 

6 (a) IN GENERAL.—Section 7874 of the Internal Rev7 enue Code of 1986 is amended by redesignating subsection 

8 (g) as subsection (h) and by inserting after subsection (f) 

9 the following new subsection: 

10 ‘‘(g) SPECIAL RULES APPLICABLE TO EARNINGS

11 STRIPPING AND RELATED PARTY TRANSACTIONS.— 

12 ‘‘(1) MODIFICATIONS OF LIMITATION ON INTER13 EST DEDUCTION.— 

14 ‘‘(A) IN GENERAL.—In the case of any ad15 ditional limitation year of a corporation which 

16 is an applicable entity, section 163(j) shall be 

17 applied with the modifications described in sub18 paragraph (B). 

19 ‘‘(B) MODIFICATIONS FOR ADDITIONAL

20 LIMITATION YEARS.—For purposes of subpara21 graph (A), the modifications described in this 

22 subparagraph are as follows: 

23 ‘‘(i) NO CARRYOVER.—No 

24 carryforward to any other taxable year 

25 shall be allowed under section 163(j)(1)(B) 

26 for interest paid or accrued during any adVerDate Mar 15 2010 01:55 Sep 11, 2014 Jkt 039060 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2786.IS S2786

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1 ditional limitation year with respect to 

2 which a deduction was disallowed to the 

3 corporation under section 163(j). 

4 ‘‘(ii) RULES FOR DETERMINING

5 WHETHER INTEREST LIMITATION RULES

6 APPLY.—In applying section 163(j)(2) to 

7 determine whether section 163(j) applies to 

8 the corporation for any additional limita9 tion year— 

10 ‘‘(I) subparagraph (A)(ii) shall 

11 be disregarded, and 

12 ‘‘(II) subparagraph (B)(i)(II) 

13 shall be applied by substituting ‘25 

14 percent of the adjusted taxable income 

15 of the corporation’ for ‘the sum of 50 

16 percent of the adjusted taxable income 

17 of the corporation plus any excess lim18 itation carryforward under clause (ii)’ 

19 for purposes of determining the cor20 poration’s excess interest expense for 

21 the year. 

22 ‘‘(C) ADDITIONAL LIMITATION YEAR.—For 

23 purposes of this paragraph, the term ‘additional 

24 limitation year’ means, with respect to any cor25 poration which is an applicable entity, any taxVerDate Mar 15 2010 01:55 Sep 11, 2014 Jkt 039060 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2786.IS S2786

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1 able year beginning on or after the first day of 

2 the later of the corporation’s— 

3 ‘‘(i) first taxable year beginning on or 

4 after the date of enactment of this sub5 paragraph, or 

6 ‘‘(ii) first taxable year for which the 

7 corporation is an applicable entity. 

8 ‘‘(2) ANNUAL APPLICATION FOR AGREEMENTS

9 ON RETURN POSITIONS.— 

10 ‘‘(A) IN GENERAL.—Each applicable entity 

11 shall file with the Secretary an application for 

12 an approval agreement under subparagraph (C) 

13 for each approval year. Such application shall 

14 be filed at such time and manner, and shall 

15 contain such information, as the Secretary may 

16 prescribe. 

17 ‘‘(B) FAILURES TO COMPLY.—If an appli18 cable entity fails to file an application under 

19 subparagraph (A), or the approval agreement 

20 does not contain the necessary provisions de21 scribed in subparagraph (C), for any taxable 

22 year, then for such taxable year— 

23 ‘‘(i) there shall not be allowed any de24 duction, or addition to basis or cost of 

25 goods sold, for amounts paid or incurred, 


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1 or losses incurred, by reason of a trans2 action between the entity and a foreign re3 lated person, 

4 ‘‘(ii) any transfer or license of intan5 gible property (as defined in section 

6 936(h)(3)(B)) between the entity and a 

7 foreign related person shall be disregarded, 

8 and 

9 ‘‘(iii) any cost-sharing arrangement 

10 between the entity and a foreign related 

11 person shall be disregarded. 

12 ‘‘(C) APPROVAL AGREEMENT.—For pur13 poses of subparagraph (A), the term ‘approval 

14 agreement’ means a prefiling, advance pricing, 

15 or other agreement specified by the Secretary 

16 which contains such provisions as the Secretary 

17 determines necessary to ensure that the require18 ments of sections 163(j), 267(a)(3), 367, 482, 

19 and 845, and any other provision of this title 

20 applicable to transactions between related per21 sons and specified by the Secretary, are met. 

22 ‘‘(D) APPROVAL YEAR.—For purposes of 

23 this paragraph, the term ‘approval year’ means, 

24 with respect to any applicable entity, any tax25 able year beginning on or after the date of enVerDate Mar 15 2010 01:55 Sep 11, 2014 Jkt 039060 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2786.IS S2786

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1 actment of this subparagraph if such taxable 

2 year is within the 10-taxable-year period begin3 ning with the first taxable year for which the 

4 entity is an applicable entity. 

5 ‘‘(3) APPLICABLE ENTITY.—For purposes of 

6 this subsection— 

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

8 entity’ means any corporation which is a mem9 ber of an expanded affiliated group which in10 cludes an entity which— 

11 ‘‘(i) is a surrogate foreign corporation, 

12 determined by applying subsection 

13 (a)(2)(B)— 

14 ‘‘(I) by substituting ‘more than 

15 50 percent’ for ‘at least 60 percent’ in 

16 clause (ii) thereof, 

17 ‘‘(II) by substituting ‘before, on, 

18 or after’ for ‘after’ in clause (i) there19 of, and 

20 ‘‘(III) by disregarding the matter 

21 following clause (iii) thereof, and 

22 ‘‘(ii) is not treated as a domestic cor23 poration by reason of subsection (b). 

24 ‘‘(B) SPECIAL RULE FOR INCLUSION OF

25 NONCORPORATE ENTITIES.—For purposes of 


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1 subparagraph (A), a partnership or other entity 

2 (other than a corporation) shall be treated as a 

3 member of an expanded affiliated group if such 

4 entity controls (as determined under section 

5 954(d)(3)), or is controlled by (as so deter6 mined), members of such group (including any 

7 entity treated as a member of such group by 

8 reason of this sentence).’’. 

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

10 this section shall apply with respect to taxable years begin11 ning after the date of enactment of this Act. 

Æ 


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