Protecting the U.S. Corporate Tax Base Act of 2016

To amend the Internal Revenue Code of 1986 to prevent the avoidance of the rules related to investment of earnings in United States property through corporate expatriation or the use of corporate structures in which the common parent is a foreign corporation. 1. Short title This Act may be cited as the Protecting the U.S. Corporate Tax Base Act of 2016 2. Inclusion in subpart F income of investments by controlled foreign corporations with respect to members of foreign group which includes United States shareholder (a) In general Section 956(a)(1)(A) (A) such shareholder’s pro rata share of the sum of— (i) the average of the amounts of United States property held (directly or indirectly) by the controlled foreign corporation as of the close of each quarter of such taxable year, and (ii) in the case of a controlled foreign corporation which is a member of an expanded affiliated group the common parent of which is not a domestic corporation, the average of the amounts of foreign group property held (directly or indirectly) by the controlled foreign corporation as of the close of each quarter of such taxable year, over . (b) Foreign group property Section 956 of such Code is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the following new subsection: (d) Foreign group property; expanded affiliated group For purposes of this section— (1) Foreign group property (A) In general The term foreign group property (B) Exceptions Such term shall not include— (i) the stock or obligation of any entity if less than 25 percent of the total combined voting power of such entity, immediately after the acquisition of any stock in such entity by the controlled foreign corporation, is owned (directly or indirectly) by the common parent referred to in subsection (a)(1)(A)(ii), and (ii) property described in subparagraph (C), (I), (J), (K) or (L) of subsection (c)(2), applied— (I) by substituting foreign person United States person (II) by substituting foreign corporation domestic corporation (III) by treating a foreign person as a United States shareholder described in subsection (c)(2)(L)(ii)(I) if such foreign person would be so described if such person were a United States person. (C) Limitation on treatment as a controlled foreign corporation A foreign corporation shall not be treated as a controlled foreign corporation for purposes of subparagraph (A) unless more than 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and more than 50 percent of the total value of the stock of such corporation, is owned (directly or indirectly) by United States persons described in subparagraph (A) or (C) of section 7701(a)(30). (D) Foreign person For purposes of this paragraph, the term foreign person (2) Expanded affiliated group The term expanded affiliated group (A) by substituting more than 50 percent at least 80 percent (B) without regard to paragraphs (2) and (3) of section 1504(b). A partnership or any 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) Application to non-corporate entities In the case of any entity which is not a corporation— (A) any reference in this subsection to stock shall be treated as a reference to any equity or profits interest in such entity, and (B) except as otherwise provided by the Secretary, paragraph (1)(B)(i) shall be applied by substituting 25 percent (by value) of the beneficial interests in such entity 25 percent of the total combined voting power of such entity . (c) Application of rules for pledges and guarantees Section 956(e) of such Code, as so redesignated, is amended to read as follows: (e) Pledges and guarantees For purposes of subsection (a), a controlled foreign corporation shall, under regulations prescribed by the Secretary, be considered as holding— (1) an obligation of a United States person if such controlled foreign corporation is a pledgor or guarantor of such obligation, and (2) an obligation of a foreign person if such controlled foreign corporation or, to the extent provided under such regulations, any United States shareholder of such controlled foreign corporation, is a pledgor or guarantor of such obligation. . (d) Termination of rule which permits use of related-Party transactions To avoid treatment as a controlled foreign corporation Section 958(b)(4) of such Code is amended by inserting if such stock was acquired by such person on or before May 17, 2016 (e) Application of limitation on amount of foreign taxes deemed paid with respect to section 956 inclusions Notwithstanding section 214(b) of Public Law 111–226 section 960(c) (f) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years of controlled foreign corporations ending 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 controlled foreign corporations end. (2) Termination of rule which permits use of related-party transactions to avoid treatment as a controlled foreign corporation The amendment made by subsection (d) shall apply to taxable years of controlled foreign corporations ending on or after May 17, 2016, and to taxable years of United States shareholders in which or with which such taxable years of controlled foreign corporations end.

Summary: Protecting the U.S. Corporate Tax Base Act of 2016 This bill amends the Internal Revenue Code to revise the rules for taxing the earnings and determining the stock ownership of certain controlled foreign corporations (CFCs). The bill provides that, in the case of certain CFCs, subpart F income (income of a CFC earned outside the United States that is not tax deferred) includes a U.S. shareholder's pro rata share of any increase in the CFC's investment of earnings in certain foreign property. The bill also revises the rules for determining stock ownership to prohibit a CFC from transferring stock to a foreign affiliate to reduce the portion of stock owned by U.S. shareholders below the level required to be considered a CFC.