Stop Corporate Earnings Stripping Act of 2017

To amend the Internal Revenue Code of 1986 to prevent earnings stripping of corporations which are related to inverted corporations. 1. Short title This Act may be cited as the Stop Corporate Earnings Stripping Act of 2017 2. Prevention of earnings stripping of corporations which are related to inverted corporations (a) In general Section 7874 (g) Special rules applicable to earnings stripping and related party transactions (1) In general In the case of any corporation which is a related corporation for any taxable year, section 163(j) shall be applied with the following modifications: (A) 5-year limitation on carryforward of disallowed amounts For purposes of determining any amount carried to, or from, such taxable year under subparagraph (B) of section 163(j)(1), such subparagraph shall be applied by substituting in the 1st succeeding taxable and in the 2nd through 5th succeeding taxable years to the extent disallowed under subparagraph (A) in the preceding taxable year (determined on a first-in, first-out basis and by treating the amount carried forward under this subparagraph as allowed under subparagraph (A) before amounts otherwise taken into account under subparagraph (A)) in the succeeding taxable year (B) Rules for determining whether interest limitation rules apply In applying section 163(j)(2) to determine whether section 163(j) applies to such related corporation for such taxable year— (i) subparagraph (A)(ii) shall be disregarded, and (ii) subparagraph (B)(i)(II) shall be applied by substituting 25 percent of the adjusted taxable income of the corporation the sum of 50 percent of the adjusted taxable income of the corporation plus any excess limitation carryforward under clause (ii) (2) Related corporation For purposes of this subsection— (A) In general The term related corporation (i) is a surrogate foreign corporation, determined by applying subsection (a)(2)(B)— (I) by substituting on or after May 8, 2014 after March 4, 2003 (II) by substituting more than 50 percent at least 60 percent (III) by disregarding the matter following clause (iii) thereof, and (ii) is not treated as a domestic corporation by reason of subsection (b). (B) Special rule for inclusion of noncorporate entities For purposes of subparagraph (A), a partnership or other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity controls (as determined under section 954(d)(3)), or is controlled by (as so determined), members of such group (including any entity treated as a member of such group by reason of this sentence). (3) Rules related to application of 5-year carryforward of disallowed amounts For purposes of applying paragraph (1)(A)— (A) Transition rule For purposes of applying paragraph (1)(A), the term 1st succeeding taxable year (i) the 1st succeeding taxable year after the taxable year in which the disqualified interest is paid or accrued (determined without regard to subsection (j)(1)(B)), or (ii) the 1st taxable year beginning after the date of the enactment of this subsection. (B) Amounts carried to taxable year for which corporation is a related corporation Paragraph (1)(A) shall apply to amounts carried to a taxable year to which such paragraph applies without regard to whether such paragraph applied to the taxable year in which such amount was originally paid or accrued (or to any other taxable year). (C) Amounts carried from taxable year for which corporation is a related corporation Paragraph (1)(A) shall apply to amounts carried from a taxable year to which such paragraph applies (whether or not such amount was originally paid or accrued in such taxable year) without regard to whether such paragraph applies to the taxable year to which carried (or to any other taxable year). . (b) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (2) Limitation on carryforward of disallowed amounts For purposes of determining any amount carried to a taxable year beginning after the date of the enactment of this Act, the amendments made by this Act shall apply to amounts paid or incurred before, on, or after the date of the enactment of this Act.

Summary: Stop Corporate Earnings Stripping Act of 2017 This bill amends the Internal Revenue Code to limit the tax deduction available to certain foreign-controlled U.S. multinational corporations for excess interest on debt incurred by such corporations (i.e., earnings stripping) by: (1) repealing the debt-to-equity ratio threshold required for such deduction, (2) reducing the permitted net interest expense threshold from 50% to 25% of the corporation's adjusted taxable income, (3) repealing the excess limitation carryforward, and (4) limiting to five years the carryforward of disallowed interest expenses with respect to amounts paid or incurred before, on, or after the date of enactment of this bill.