II 

114TH CONGRESS 

1ST SESSION S. 975 

To prohibit the award of Federal Government contracts to inverted domestic 

corporations, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 16, 2015 

Mr. DURBIN (for himself, Mr. REED, Mr. WHITEHOUSE, and Mr. FRANKEN) 

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 2015’’. 

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 proVerDate Sep 11 2014 02:06 Apr 23, 2015 Jkt 049200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S975.IS S975

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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 before, on, or 

7 after May 8, 2014, the direct or indirect acqui8 sition of— 

9 ‘‘(i) substantially all of the properties 

10 held directly or indirectly by a domestic 

11 corporation; or 

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

13 or substantially all of the properties consti14 tuting a trade or business of, a domestic 

15 partnership; and 

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

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

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

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

20 with respect to a domestic corpora21 tion, by former shareholders of the 

22 domestic corporation by reason of 

23 holding stock in the domestic corpora24 tion; or 


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

2 with respect to a domestic partner3 ship, by former partners of the do4 mestic partnership by reason of hold5 ing a capital or profits interest in the 

6 domestic partnership; or 

7 ‘‘(ii) the management and control of 

8 the expanded affiliated group which in9 cludes the entity occurs, directly or indi10 rectly, primarily within the United States, 

11 as determined pursuant to regulations pre12 scribed by the Secretary of the Treasury, 

13 and such expanded affiliated group has 

14 significant domestic business activities. 

15 ‘‘(2) EXCEPTION FOR CORPORATIONS WITH

16 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN

17 COUNTRY OF ORGANIZATION.— 

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

19 entity described in paragraph (1) shall not be 

20 treated as an inverted domestic corporation if 

21 after the acquisition the expanded affiliated 

22 group which includes the entity has substantial 

23 business activities in the foreign country in 

24 which or under the law of which the entity is 

25 created or organized when compared to the 


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1 total business activities of such expanded affili2 ated group. 

3 ‘‘(B) SUBSTANTIAL BUSINESS ACTIVI4 TIES.—The Secretary of the Treasury (or the 

5 Secretary’s delegate) shall establish regulations 

6 for determining whether an affiliated group has 

7 substantial business activities for purposes of 

8 subparagraph (A), except that such regulations 

9 may not treat any group as having substantial 

10 business activities if such group would not be 

11 considered to have substantial business activi12 ties under the regulations prescribed under sec13 tion 7874 of the Internal Revenue Code of 

14 1986, as in effect on May 8, 2014. 

15 ‘‘(3) SIGNIFICANT DOMESTIC BUSINESS ACTIVI16 TIES.— 

17 ‘‘(A) IN GENERAL.—For purposes of para18 graph (1)(B)(ii), an expanded affiliated group 

19 has significant domestic business activities if at 

20 least 25 percent of— 

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

22 based in the United States; 

23 ‘‘(ii) the employee compensation in24 curred by the group is incurred with reVerDate Sep 11 2014 02:06 Apr 23, 2015 Jkt 049200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S975.IS S975

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1 spect to employees based in the United 

2 States; 

3 ‘‘(iii) the assets of the group are lo4 cated in the United States; or 

5 ‘‘(iv) the income of the group is de6 rived in the United States. 

7 ‘‘(B) DETERMINATION.—Determinations 

8 pursuant to subparagraph (A) shall be made in 

9 the same manner as such determinations are 

10 made for purposes of determining substantial 

11 business activities under regulations referred to 

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

13 but applied by treating all references in such 

14 regulations to ‘foreign country’ and ‘relevant 

15 foreign country’ as references to ‘the United 

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

17 Secretary’s delegate) may issue regulations de18 creasing the threshold percent in any of the 

19 tests under such regulations for determining if 

20 business activities constitute significant domes21 tic business activities for purposes of this para22 graph. 

23 ‘‘(c) WAIVER.— 

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

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


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1 Federal Government contract under the authority of 

2 such head if the head determines that the waiver 

3 is— 

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

5 security; or 

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

7 administration of Federal or federally funded— 

8 ‘‘(i) programs that provide health ben9 efits to individuals; or 

10 ‘‘(ii) public health programs. 

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

12 executive agency issuing a waiver under paragraph 

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

14 waiver, submit a written notification of the waiver to 

15 the relevant authorizing committees of Congress and 

16 the Committees on Appropriations of the Senate and 

17 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 Sep 11 2014 04:05 Apr 23, 2015 Jkt 049200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S975.IS S975

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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 ‘‘§ 2338. 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 before, on, or 

4 after May 8, 2014, the direct or indirect acqui5 sition of— 

6 ‘‘(i) substantially all of the properties 

7 held directly or indirectly by a domestic 

8 corporation; or 

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

10 or substantially all of the properties consti11 tuting a trade or business of, a domestic 

12 partnership; and 

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

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

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

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

17 with respect to a domestic corpora18 tion, by former shareholders of the 

19 domestic corporation by reason of 

20 holding stock in the domestic corpora21 tion; or 

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

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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 May 8, 2014. 

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 May 8, 2014, 

9 but applied by treating all references in such 

10 regulations to ‘foreign country’ and ‘relevant 

11 foreign country’ as references to ‘the United 

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

13 Secretary’s delegate) may issue regulations de14 creasing the threshold percent in any of the 

15 tests under such regulations for determining if 

16 business activities constitute significant domes17 tic business activities for purposes of this para18 graph. 

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 

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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 2337 the following new 

13 item: 

‘‘2338. 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 2338(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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