member of an applicable financial reporting 
group of which it is otherwise a member and 
this subsection shall not apply to such corpora-
tion. 
‘‘(7) OTHER
DEFINITIONS
AND
RULES.—For 
purposes of this subsection— 
‘‘(A) ADJUSTED TAXABLE INCOME.—The 
term ‘adjusted taxable income’ has the meaning 
given such term by subsection (j)(6)(A). 
‘‘(B) NET INTEREST EXPENSE.—The term 
‘net interest expense’ has the meaning given 
such term by subsection (j)(6)(B). 
‘‘(C) 
TREATMENT
OF
AFFILIATED 
GROUP.—All members of the same affiliated 
group (within the meaning of section 1504(a)) 
shall be treated as 1 taxpayer. 
‘‘(8) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry 
out the purposes of this section, including regula-
tions providing— 
‘‘(A) for the coordination of the application 
of this subsection and other provisions of this 
chapter relating to the deductibility of interest, 
‘‘(B) for the waiver of certain adjustments 
required under United States tax principles in 
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appropriate cases for purposes of applying this 
subsection, 
‘‘(C) for the determination of which finan-
cial institutions are eligible for the exception 
from membership in an applicable financial re-
porting group under paragraph (6)(C) and the 
application of this subsection to the other mem-
bers of the group which are not so excepted, 
and 
‘‘(D) for the application of this subsection 
in the case of pass thru entities and for the 
treatment of pass thru entities as corporations 
in cases where necessary to prevent the avoid-
ance of the purposes of this subsection.’’. 
(b) COORDINATION WITH LIMITATION ON RELATED 
PARTY INDEBTEDNESS.—Paragraph (2) of section 163(j) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph: 
‘‘(D) COORDINATION WITH LIMITATION ON 
EXCESS DOMESTIC INDEBTEDNESS.—This sub-
section shall not apply to any corporation for 
any taxable year to which subsection (n) applies 
to such corporation.’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
TITLE IV—INVERTED 
CORPORATIONS 
SEC. 401. MODIFICATIONS TO RULES RELATING TO IN-
VERTED CORPORATIONS. 
(a) IN GENERAL.—Subsection (b) of section 7874 is 
amended to read as follows: 
‘‘(b) INVERTED CORPORATIONS TREATED AS DO-
MESTIC 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 surro-
gate foreign corporation if subsection (a)(2) 
were applied by substituting ‘80 percent’ for 
‘60 percent’, or 
‘‘(B) such corporation is an inverted do-
mestic 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 trans-
actions)— 
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‘‘(A) the entity completes after May 8, 
2014, 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 consti-
tuting 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 corpora-
tion, by former shareholders of the 
domestic corporation by reason of 
holding stock in the domestic corpora-
tion, or 
‘‘(II) in the case of an acquisition 
with respect to a domestic partner-
ship, by former partners of the do-
mestic partnership by reason of hold-
ing a capital or profits interest in the 
domestic partnership, or 
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‘‘(ii) the management and control of 
the expanded affiliated group which in-
cludes the entity occurs, directly or indi-
rectly, 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 en-
tity has substantial business activities in the foreign 
country in which or under the law of which the enti-
ty 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 busi-
ness activities’ shall have the meaning given such 
term under regulations in effect on May 8, 2014, ex-
cept that the Secretary may issue regulations in-
creasing the threshold percent in any of the tests 
under such regulations for determining if business 
activities constitute substantial business activities for 
purposes of this paragraph. 
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‘‘(4) MANAGEMENT AND CONTROL.—For pur-
poses of paragraph (2)(B)(ii)— 
‘‘(A) IN
GENERAL.—The Secretary shall 
prescribe regulations for purposes of deter-
mining cases in which the management and 
control of an expanded affiliated group is to be 
treated as occurring, directly or indirectly, pri-
marily within the United States. The regula-
tions prescribed under the preceding sentence 
shall apply to periods after May 8, 2014. 
‘‘(B) EXECUTIVE OFFICERS AND SENIOR 
MANAGEMENT.—Such regulations shall provide 
that the management and control of an ex-
panded affiliated group shall be treated as oc-
curring, directly or indirectly, primarily within 
the United States if substantially all of the ex-
ecutive 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 pri-
marily located within the United States. Indi-
viduals who in fact exercise such day-to-day re-
sponsibilities shall be treated as executive offi-
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cers and senior management regardless of their 
title. 
‘‘(5) SIGNIFICANT DOMESTIC BUSINESS ACTIVI-
TIES.—For purposes of paragraph (2)(B)(ii), an ex-
panded 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 employ-
ees 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 determina-
tions are made for purposes of determining substan-
tial business activities under regulations referred to 
in paragraph (3) as in effect on May 8, 2014, but 
applied by treating all references in such regulations 
to ‘foreign country’ and ‘relevant foreign country’ as 
references to ‘the United States’. The Secretary may 
issue regulations decreasing the threshold percent in 
any of the tests under such regulations for deter-
mining if business activities constitute significant 
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domestic business activities for purposes of this 
paragraph.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Clause (i) of section 7874(a)(2)(B) is 
amended by striking ‘‘after March 4, 2003,’’ and in-
serting ‘‘after March 4, 2003, and before May 9, 
2014,’’. 
(2) Subsection (c) of section 7874 is amend-
ed— 
(A) in paragraph (2)— 
(i) 
by 
striking 
‘‘subsection 
(a)(2)(B)(ii)’’ and inserting ‘‘subsections 
(a)(2)(B)(ii) and (b)(2)(B)(i)’’, and 
(ii) by inserting ‘‘or (b)(2)(A)’’ after 
‘‘(a)(2)(B)(i)’’ in subparagraph (B), 
(B) in paragraph (3), by inserting ‘‘or 
(b)(2)(B)(i), as the case may be,’’ after 
‘‘(a)(2)(B)(ii)’’, 
(C) in paragraph (5), by striking ‘‘sub-
section (a)(2)(B)(ii)’’ and inserting ‘‘sub-
sections (a)(2)(B)(ii) and (b)(2)(B)(i)’’, and 
(D) in paragraph (6), by inserting ‘‘or in-
verted domestic corporation, as the case may 
be,’’ after ‘‘surrogate foreign corporation’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after May 
8, 2014. 
Æ 
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