‘‘(B) NET EARNINGS.—Any determination 
of net earnings for any taxable year shall be 
made on the basis of the applicable financial 
statement of the applicable financial reporting 
group for the last financial reporting year end-
ing with or within the taxable year. 
‘‘(C) 
APPLICABLE
FINANCIAL
STATE-
MENT.—The term ‘applicable financial state-
ment’ means a statement for financial reporting 
purposes which is made on the basis of— 
‘‘(i) generally accepted accounting 
principles, 
‘‘(ii) international financial reporting 
standards, or 
‘‘(iii) any other method specified by 
the Secretary in regulations. 
A statement under clause (ii) or (iii) may be 
used as an applicable financial statement by a 
group only if there is no statement of the group 
under any preceding clause. 
‘‘(6) 
APPLICABLE
FINANCIAL
REPORTING 
GROUP.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The term ‘applicable 
financial reporting group’ means, with respect 
to any corporation, a group of which such cor-
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poration is a member and which files an appli-
cable financial statement. 
‘‘(B) EXCEPTION FOR GROUPS WITH MINI-
MAL
DOMESTIC
NET
INTEREST
EXPENSE.— 
Such term shall not include a group if the ag-
gregate net interest expense for which a deduc-
tion is allowable to all members of the group 
under this chapter (determined without regard 
to this subsection or any other limitation on de-
ductibility of interest under this chapter) is less 
than $5,000,000. 
‘‘(C) EXCEPTION FOR CERTAIN FINANCIAL 
ENTITIES.—A corporation which is described in 
section 864(f)(4)(B), or is treated as described 
in section 864(f)(4)(B) by reason of paragraph 
(4)(C) or (5)(A) of section 864(f) (without re-
gard to whether an election is made under such 
paragraph (5)(A)), shall not be treated as a 
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— 
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‘‘(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 
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 
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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.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2015. 
SEC. 7. MODIFICATIONS TO RULES RELATING TO IN-
VERTED CORPORATIONS. 
(a) IN GENERAL.—Subsection (b) of section 7874 of 
the Internal Revenue Code of 1986 is amended to read 
as follows: 
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‘‘(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)— 
‘‘(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 
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‘‘(B) after the acquisition, 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 cor-
poration 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 partner-
ship by reason of holding a capital or prof-
its interest in the domestic partnership. 
‘‘(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-
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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.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Clause (i) of section 7874(a)(2)(B) of the 
Internal Revenue Code of 1986 is amended by strik-
ing ‘‘after March 4, 2003,’’ and inserting ‘‘after 
March 4, 2003, and before May 9, 2014,’’. 
(2) Subsection (c) of section 7874 of such Code 
is amended— 
(A) in paragraph (2)— 
(i) 
by 
striking 
‘‘subsection 
(a)(2)(B)(ii)’’ and inserting ‘‘subsections 
(a)(2)(B)(ii) and (b)(2)(B)’’, 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), 
as 
the 
case 
may 
be,’’ 
after 
‘‘(a)(2)(B)(ii)’’, 
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(C) in paragraph (5), by striking ‘‘sub-
section (a)(2)(B)(ii)’’ and inserting ‘‘sub-
sections (a)(2)(B)(ii) and (b)(2)(B)’’, and 
(D) in paragraph (6), by inserting ‘‘or in-
verted domestic corporation, as the case may 
be,’’ after ‘‘surrogate foreign corporation’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after May 
8, 2014. 
Æ 
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