No Tax Breaks for Outsourcing Act

To amend the Internal Revenue Code of 1986 to provide for current year inclusion of net CFC tested income, and for other purposes. 1. Short title, etc (a) Short title This Act may be cited as the No Tax Breaks for Outsourcing Act (b) Amendment of 1986 code Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Table of contents The table of contents of this Act is as follows: Sec. 1. Short title, etc. Sec. 2. Current year inclusion of net CFC tested income. Sec. 3. Country-by-country application of limitation on foreign tax credit based on taxable units. Sec. 4. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group. Sec. 5. Modifications to rules relating to inverted corporations. Sec. 6. Treatment of foreign corporations managed and controlled in the United States as domestic corporations. 2. Current year inclusion of net CFC tested income (a) Repeal of tax-Free deemed return on investments (1) In general Section 951A(a) global intangible low-taxed income net CFC tested income (2) Conforming amendments (A) Section 951A (B) Section 951A(e)(1) subsections (b), (c)(1)(A), and subsections (c)(1)(A) and (C) Section 951A(f) global intangible low-taxed income net CFC tested income (D) Section 960(d)(2)(A) global intangible low-taxed income (as defined in section 951A(b)) net CFC tested income (as defined in section 951A(c)) (b) Country-by-Country application of section based on CFC taxable units Section 951A (g) Country-by-Country application of section based on CFC taxable units (1) In general If any CFC taxable unit of a United States shareholder is a tax resident of (or, in the case of a branch, is located in) a country which is different from the country with respect to which any other CFC taxable unit of such United States shareholder is a tax resident (or, in the case of a branch, is located in)— (A) such shareholder’s net CFC tested income for purposes of subsection (a) shall be the sum of the amounts of net CFC tested income determined separately with respect to each such country, and (B) for purposes of determining such separate amounts of net CFC tested income— (i) except as otherwise provided by the Secretary, any reference in subsection (c) to a controlled foreign corporation of such shareholder shall be treated as reference to a CFC taxable unit of such shareholder, and (ii) net CFC tested income and such other items and amounts as the Secretary may provide, shall be determined separately with respect to each such country by determining such amounts with respect to the CFC taxable units of such shareholder which are a tax resident of such country. (2) Definitions For purposes of this subsection— (A) CFC taxable unit The term CFC taxable unit (i) by substituting controlled foreign corporation foreign corporation (ii) without regard to the references to the taxpayer in clauses (iii) and (iv) of such section. (B) Application of other definitions Terms used in this subsection which are also used in section 904(e) shall have the same meaning as when used in section 904(e). (3) Special rules For purposes of this subsection— (A) Application of certain rules Except as otherwise provided by the Secretary, rules similar to the rules of section 904(e) shall apply. (B) Allocation of net CFC tested income to controlled foreign corporations Except as otherwise provided by the Secretary, subsection (f)(2) shall be applied separately with respect to each CFC taxable unit. . (c) Regulatory authority Section 951A (h) Regulations The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out, or prevent the avoidance of, the purposes of this section, including regulations or guidance which provide for— (1) the treatment of property if such property is transferred, or held, temporarily, (2) the treatment of property if the avoidance of the purposes of this section is a factor in the transfer or holding of such property, (3) appropriate adjustments to the basis of stock and other ownership interests, and to earnings and profits, to reflect tested losses (whether or not taken into account in determining net CFC tested income), (4) rules similar to the rules provided under the regulations or guidance issued under section 904(e)(4), (5) other appropriate basis adjustments, (6) appropriate adjustments to be made, and appropriate tax attributes and records to be maintained, separately with respect to CFC taxable units, and (7) appropriate adjustments in determining tested income or tested loss if property is transferred between related parties or amounts are paid or accrued between related parties. . (d) Coordination with other provisions Section 951A(f)(1) (C) Treatment of certain references Except as otherwise provided by the Secretary, references to section 951 or section 951(a) in sections 959, 961, 962, and such other provisions as the Secretary may identify shall include references to section 951A or section 951A(a), respectively. . (e) Repeal of reduced rate of tax on net CFC tested income and foreign-Derived intangible income (1) In general Part VIII of subchapter B of chapter 1 (2) Conforming amendments (A) Section 59A(c)(4)(B)(i) section 172, 245A, or 250 section 172 or 245A (B) Section 172(d) (C) Section 246(b)(1) (i) by striking subsection (a) and (b) of section 245, and section 250 and subsection (a) and (b) of section 245 (ii) by striking subsection (a) and (b) of section 245, and 250 and subsection (a) and (b) of section 245 (D) Section 469(i)(3)(E)(iii) , 221, and 250 and 221 (f) Repeal of certain exclusions from the determination of tested income Section 951A(c)(2)(A)(i) (1) by striking subclauses (III) and (V), (2) by redesignating subclause (IV) as subclause (III), (3) by adding and (4) by striking and over (g) Increase in deemed paid credit for taxes properly attributable to tested income (1) In general Section 960(d) 80 percent of (2) Conforming amendment Section 78 (determined without regard to the phrase “80 percent of” in subsection (d)(1) thereof) (h) Repeal of high tax exclusion for foreign base company income and insurance income (1) In general Section 954(b) (2) Conforming amendment Section 904(d)(3)(E) (i) Elimination of carryback of foreign tax credit (1) In general Section 904(c) (A) by striking in the first preceding taxable year, and in any of the first 10 succeeding taxable years, in that order in any of the first 10 succeeding taxable years, in order (B) by striking preceding or (C) by striking Carryback and (2) Application to limitation on foreign oil and gas taxes Section 907(f) (A) in paragraph (1), by striking in the first preceding taxable year and (B) in paragraph (2), by striking preceding or (C) in paragraph (3)(B)— (i) by striking in a preceding or succeeding in a succeeding (ii) by striking in such preceding or succeeding in such succeeding (D) in the heading, by striking Carryback and (j) Treatment of foreign base company oil related income as subpart F income (1) In general Section 954(a) and , and (4) the foreign base company oil related income for the taxable year (determined under subsection (f) and reduced as provided in subsection (b)(5)). . (2) Foreign base company oil related income Section 954 (f) Foreign base company oil related income For purposes of this section, the term foreign base company oil related income (1) oil or gas which was extracted from an oil or gas well located in such foreign country, or (2) oil, gas, or a primary product of oil or gas which is sold by the foreign corporation or a related person for use or consumption within such country or is loaded in such country on a vessel or aircraft as fuel for such vessel or aircraft. Such term shall not include any foreign personal holding company income (as defined in subsection (c)). . (3) Conforming amendments (A) Section 952(c)(1)(B)(iii) (III) foreign base company oil related income. . (B) Section 954(b) (i) by striking and the foreign base company services income the foreign base company services income, and the foreign base company oil related income (ii) by adding at the end the following new paragraph: (6) Foreign base company oil related income not treated as another kind of foreign base company income Income of a corporation which is foreign base company oil related income shall not be considered foreign base company income of such corporation under paragraph (2) or (3) of subsection (a). . (k) Effective dates (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2022, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. (2) Regulatory authority and coordination with other provisions The amendments made by subsections (c) and (d) shall apply to taxable years of foreign corporations beginning after the date of the enactment of this Act, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. (3) Repeal of reduced rate of tax; increase in deemed paid credit The amendments made by subsections (e) and (g) shall apply to taxable years beginning after December 31, 2022. (4) Elimination of carryback of foreign tax credit The amendment made by subsection (i) shall apply to credits arising in taxable years beginning after December 31, 2022. (l) No inference regarding certain modifications The amendments made by subsections (c) and (d) shall not be construed to create any inference with respect to the proper application of any provision of the Internal Revenue Code of 1986 with respect to any taxable year beginning before the taxable years to which such amendments apply. 3. Country-by-country application of limitation on foreign tax credit based on taxable units (a) In general Section 904 (e) Country-by-Country application based on taxable units (1) In general Subsection (d) (and the provisions of this title referred to in paragraph (1) of such subsection) shall be applied separately with respect to each country by taking into account the aggregate income properly attributable or otherwise allocable to a taxable unit of the taxpayer which is a tax resident of (or, in the case of a branch, is located in) such country. (2) Taxable units (A) In general Except as otherwise provided by the Secretary, each item shall be attributable or otherwise allocable to exactly one taxable unit of the taxpayer. (B) Determination of taxable units Except as otherwise provided by the Secretary, the taxable units of a taxpayer are as follows: (i) General taxable unit The person that is the taxpayer and that is not otherwise described in a separate clause of this subparagraph. (ii) Certain foreign corporations Each foreign corporation with respect to which the taxpayer is a United States shareholder. (iii) Interests in pass-through entities Each interest held (directly or indirectly) by the taxpayer or any foreign corporation referred to in clause (ii) in a pass-through entity if such pass-through entity is a tax resident of a country other than the country with respect to which such taxpayer or foreign corporation (as the case may be) is a tax resident. (iv) Branches Each branch (or portion thereof) the activities of which are directly or indirectly carried on by the taxpayer or any foreign corporation referred to in clause (ii) and which give rise to a taxable presence in a country other than the country with respect to which such taxpayer or foreign corporation (as the case may be) is a tax resident. (3) Definitions and special rules For purposes of this subsection— (A) Tax resident Except as otherwise provided by the Secretary, the term tax resident (B) Pass-through entity Except as otherwise provided by the Secretary, the term pass-through entity (C) Branch Except as otherwise provided by the Secretary, the term branch (D) Treatment of fiscally autonomous jurisdictions Any fiscally autonomous jurisdiction shall be treated as a separate country. Any possession of the United States shall also be treated as a separate country. (E) Possession of the United States The term possession of the United States (4) Regulations The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out, or prevent avoidance of, the purposes of this subsection, including regulations or other guidance— (A) providing for the application of this subsection to an entity or arrangement that is considered a tax resident of more than one country or of no country, (B) providing for the application of this subsection to hybrid entities or hybrid transactions (as such terms are used for purposes of section 267A), pass-through entities, passive foreign investment companies, trusts, and other entities or arrangements not otherwise described in this subsection, and (C) providing for the assignment of any item (including foreign taxes and deductions) to taxable units, including in the case of amounts not otherwise taken into account in determining taxable income under this chapter. . (b) Treatment of inadequate substantiation Section 904(d)(4)(C)(ii) paragraph (1)(A) paragraph (1)(C) (c) Application of foreign tax credit limitation with respect to foreign branches Section 904(d)(2)(J)(i) (1) by striking qualified business units (as defined in section 989(a)) in 1 or more foreign countries foreign branches described in section 904(e)(2)(B)(iv) (2) by striking a qualified business unit a foreign branch (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2022. 4. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group (a) In general Section 163 (n) Limitation on deduction of interest by domestic corporations in international financial reporting groups (1) In general In the case of any domestic corporation which is a member of any international financial reporting group, the deduction under this chapter for interest paid or accrued during the taxable year shall not exceed the sum of— (A) the allowable percentage of 110 percent of the excess (if any) of— (i) the amount of such interest so paid or accrued, over (ii) the amount described in subparagraph (B), plus (B) the amount of interest includible in gross income of such corporation for such taxable year. (2) International financial reporting group (A) For purposes of this subsection, the term international financial reporting group (i) includes— (I) at least one foreign corporation engaged in a trade or business within the United States, or (II) at least one domestic corporation and one foreign corporation, (ii) prepares consolidated financial statements with respect to such year, and (iii) reports in such statements average annual gross receipts (determined in the aggregate with respect to all entities which are part of such group) for the 3-reporting-year period ending with such reporting year in excess of $100,000,000. (B) Rules relating to determination of average gross receipts For purposes of subparagraph (A)(iii), rules similar to the rules of section 448(c)(3) shall apply. (3) Allowable percentage For purposes of this subsection— (A) In general The term allowable percentage (i) such corporation’s allocable share of the international financial reporting group’s reported net interest expense for the reporting year of such group which ends in or with such taxable year of such corporation, over (ii) such corporation’s reported net interest expense for such reporting year of such group. (B) Reported net interest expense The term reported net interest expense (i) with respect to any international financial reporting group for any reporting year, the excess of— (I) the aggregate amount of interest expense reported in such group’s consolidated financial statements for such taxable year, over (II) the aggregate amount of interest income reported in such group’s consolidated financial statements for such taxable year, and (ii) with respect to any domestic corporation for any reporting year, the excess of— (I) the amount of interest expense of such corporation reported in the books and records of the international financial reporting group which are used in preparing such group’s consolidated financial statements for such taxable year, over (II) the amount of interest income of such corporation reported in such books and records. (C) Allocable share of reported net interest expense With respect to any domestic corporation which is a member of any international financial reporting group, such corporation’s allocable share of such group’s reported net interest expense for any reporting year is the portion of such expense which bears the same ratio to such expense as— (i) the EBITDA of such corporation for such reporting year, bears to (ii) the EBITDA of such group for such reporting year. (D) EBITDA (i) In general The term EBITDA (I) as determined in the international financial reporting group’s consolidated financial statements for such year, or (II) for purposes of subparagraph (A)(i), as determined in the books and records of the international financial reporting group which are used in preparing such statements if not determined in such statements. (ii) Treatment of disregarded entities The EBITDA of any domestic corporation shall not fail to include the EBITDA of any entity which is disregarded for purposes of this chapter. (iii) Treatment of intra-group distributions The EBITDA of any domestic corporation shall be determined without regard to any distribution received by such corporation from any other member of the international financial reporting group. (E) Special rules for non-positive EBITDA (i) Non-positive group EBITDA In the case of any international financial reporting group the EBITDA of which is zero or less, paragraph (1) shall not apply to any member of such group the EBITDA of which is above zero. (ii) Non-positive entity EBITDA In the case of any group member the EBITDA of which is zero or less, paragraph (1) shall be applied without regard to subparagraph (A) thereof. (4) Consolidated financial statement For purposes of this subsection, the term consolidated financial statement (A) a financial statement which is certified as being prepared in accordance with generally accepted accounting principles, international financial reporting standards, or any other comparable method of accounting identified by the Secretary, and which is— (i) a 10–K (or successor form), or annual statement to shareholders, required to be filed with the United States Securities and Exchange Commission, (ii) an audited financial statement which is used for— (I) credit purposes, (II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or (III) any other substantial nontax purpose, but only if there is no statement described in clause (i), or (iii) filed with any other Federal or State agency for nontax purposes, but only if there is no statement described in clause (i) or (ii), or (B) a financial statement which— (i) is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or (ii) filed with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary, but only if there is no statement described in subparagraph (A). (5) Reporting year For purposes of this subsection, the term reporting year (6) Application to certain entities (A) Partnerships Except as otherwise provided by the Secretary in paragraph (7), this subsection and subsection (o) shall apply to any partnership which is a member of any international financial reporting group under rules similar to the rules of section 163(j)(4). (B) Foreign corporations engaged in trade or business within the United States Except as otherwise provided by the Secretary in paragraph (7), any deduction for interest paid or accrued by a foreign corporation engaged in a trade or business within the United States shall be limited in a manner consistent with the principles of this subsection. (C) Consolidated groups For purposes of this subsection, the members of any group that file (or are required to file) a consolidated return with respect to the tax imposed by chapter 1 for a taxable year shall be treated as a single corporation. (7) Regulations The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection. . (b) Carryforward of disallowed interest (1) In general Section 163 (o) Carryforward of certain disallowed interest The amount of any interest not allowed as a deduction for any taxable year by reason of subsection (j)(1) or (n)(1) (whichever imposes the lower limitation with respect to such taxable year) shall be treated as interest (and as business interest for purposes of subsection (j)(1)) paid or accrued (and as interest expense reported as described in clause (i)(I) or (ii)(I) of subsection (n)(3)(B), as the case may be) in the succeeding taxable year. Interest paid or accrued in any taxable year (determined without regard to the preceding sentence) shall not be carried past the fifth taxable year following such taxable year, determined by treating interest as allowed as a deduction on a first-in, first-out basis. . (2) Conforming amendments (A) Section 163(j)(2) (2) Carryforward cross-reference For carryforward treatment, see subsection (o). . (B) Section 163(j)(4)(B)(i)(I) paragraph (2) subsection (o) (C) Section 381(c)(20) (20) Carryforward of disallowed interest The carryover of disallowed interest described in section 163(o) to taxable years ending after the date of distribution or transfer. . (D) Section 382(d)(3) (3) Application to carryforward of disallowed interest The term pre-change loss . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2022. 5. Modifications to rules relating to inverted corporations (a) In general Subsection (b) of section 7874 (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 60 percent (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 December 22, 2017, the direct or indirect acquisition of— (i) substantially all of the properties held directly or indirectly by a domestic corporation, or (ii) substantially all of the assets of, or substantially all of the properties constituting a trade or business of, a domestic partnership, and (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 domestic partnership, by former partners of the domestic partnership by reason of holding a capital or profits interest in the domestic 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 (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 December 22, 2017. (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 December 22, 2017, but applied by treating all references in such regulations to foreign country relevant foreign country the United States . (b) Conforming amendments (1) Clause (i) of section 7874(a)(2)(B) after March 4, 2003, after March 4, 2003, and before December 23, 2017, (2) Subsection (c) of section 7874 (A) in paragraph (2)— (i) by striking subsection (a)(2)(B)(ii) subsections (a)(2)(B)(ii) and (b)(2)(B)(i) (ii) by inserting or (b)(2)(A) (a)(2)(B)(i) (B) in paragraph (3), by inserting or (b)(2)(B)(i), as the case may be, (a)(2)(B)(ii) (C) in paragraph (5), by striking subsection (a)(2)(B)(ii) subsections (a)(2)(B)(ii) and (b)(2)(B)(i) (D) in paragraph (6), by inserting or inverted domestic corporation, as the case may be, surrogate foreign corporation (c) Effective date The amendments made by this section shall apply to taxable years ending after December 22, 2017. (d) Extension of limitation on assessment If the period of limitation on assessment of tax resulting from the amendments made by subsection (a) expires before the end of the 3-year period beginning on the date of the enactment of this Act, such assessment (to the extent attributable to such amendments) may, nevertheless, be made before the close of such 3-year period. 6. Treatment of foreign corporations managed and controlled in the United States as domestic corporations (a) In general Section 7701 (p) Certain corporations managed and controlled in the United States treated as domestic for income tax (1) In general Notwithstanding subsection (a)(4), in the case of a corporation described in paragraph (2) if— (A) the corporation would not otherwise be treated as a domestic corporation for purposes of this title, but (B) the management and control of the corporation occurs, directly or indirectly, primarily within the United States, then, solely for purposes of chapter 1 (and any other provision of this title relating to chapter 1), the corporation shall be treated as a domestic corporation. (2) Corporation described (A) In general A corporation is described in this paragraph if— (i) the stock of such corporation is regularly traded on an established securities market, or (ii) the aggregate gross assets of such corporation (or any predecessor thereof), including assets under management for investors, whether held directly or indirectly, at any time during the taxable year or any preceding taxable year is $50,000,000 or more. (B) General exception A corporation shall not be treated as described in this paragraph if— (i) such corporation was treated as a corporation described in this paragraph in a preceding taxable year, (ii) such corporation— (I) is not regularly traded on an established securities market, and (II) has, and is reasonably expected to continue to have, aggregate gross assets (including assets under management for investors, whether held directly or indirectly) of less than $50,000,000, and (iii) the Secretary grants a waiver to such corporation under this subparagraph. (3) Management and control (A) In general The Secretary shall prescribe regulations for purposes of determining cases in which the management and control of a corporation is to be treated as occurring primarily within the United States. (B) Executive officers and senior management Such regulations shall provide that— (i) the management and control of a corporation shall be treated as occurring primarily within the United States if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the United States, and (ii) individuals who are not executive officers and senior management of the corporation (including individuals who are officers or employees of other corporations in the same chain of corporations as the corporation) shall be treated as executive officers and senior management if such individuals exercise the day-to-day responsibilities of the corporation described in clause (i). (C) Corporations primarily holding investment assets Such regulations shall also provide that the management and control of a corporation shall be treated as occurring primarily within the United States if— (i) the assets of such corporation (directly or indirectly) consist primarily of assets being managed on behalf of investors, and (ii) decisions about how to invest the assets are made in the United States. . (b) Effective date The amendments made by this section shall apply to taxable years beginning on or after the date which is 2 years after the date of the enactment of this Act, whether or not regulations are issued under section 7701(p)(3)

Summary: No Tax Breaks for Outsourcing Act This bill modifies the tax treatment of the foreign source income of domestic corporations. The bill includes provisions that modify calculations of the gross income of U.S. shareholders to include net controlled foreign corporation (CFC) tested income in the current taxable year; apply limitations on the foreign tax credit on a country-by-country basis; limit the tax deduction for the interest expense of a U.S. corporation that is a member of an international financial reporting group (i.e., a group that prepares consolidated financial statements according to generally accepted accounting principles or international financial reporting standards); modify the rules for the taxation of inverted corporations (i.e., U.S. corporations that acquire foreign companies to reincorporate in a foreign jurisdiction with income tax rates lower than the United States); and treat certain foreign corporations managed and controlled primarily in the United States as domestic corporations for tax purposes.