Title: No Tax Breaks for Outsourcing Act
Policy area: Taxation

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

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 780 Introduced in Senate (IS)]

<DOC>






116th CONGRESS
  1st Session
                                 S. 780

To amend the Internal Revenue Code of 1986 to provide for current year 
      inclusion of net CFC tested income, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 13, 2019

    Mr. Whitehouse (for himself and Mr. Van Hollen) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide for current year 
      inclusion of net CFC tested income, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 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. Limitation on deduction of interest by domestic corporations 
                            which are members of an international 
                            financial reporting group.
Sec. 4. Modifications to rules relating to inverted corporations.
Sec. 5. Treatment of foreign corporations managed and controlled in the 
                            United States as domestic corporations.

SEC. 2. CURRENT YEAR INCLUSION OF NET CFC TESTED INCOME.

    (a) Repeal of Tax-Free Deemed Return on Investments.--
            (1) In general.--Section 951A(a) is amended by striking 
        ``global intangible low-taxed income'' and inserting ``net CFC 
        tested income''.
            (2) Conforming amendments.--
                    (A) Section 951A is amended by striking subsections 
                (b) and (d).
                    (B) Section 951A(e)(1) is amended by striking 
                ``subsections (b), (c)(1)(A), and'' and inserting 
                ``subsections (c)(1)(A) and''.
                    (C) Section 951A(f) is amended to read as follows:
    ``(f) Treatment as Subpart F Income for Certain Purposes.--
            ``(1) In general.--Except as provided in paragraph (2), any 
        net CFC tested income included in gross income under subsection 
        (a) shall be treated in the same manner as an amount included 
        under section 951(a)(1)(A) for purposes of applying sections 
        168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 961, 962, 
        993(a)(1)(E), 996(f)(1), 1248(b)(1), 1248(d)(1), 6501(e)(1)(C), 
        6654(d)(2)(D), and 6655(e)(4).
            ``(2) Exception.--The Secretary shall provide rules for the 
        application of paragraph (1) to other provisions of this title 
        in any case in which the determination of subpart F income is 
        required to be made at the level of the controlled foreign 
        corporation.''.
                    (D) Section 960(d)(2)(A) is amended by striking 
                ``global intangible low-taxed income (as defined in 
                section 951A(b))'' and inserting ``net CFC tested 
                income (as defined in section 951A(c))''.
    (b) Repeal of Reduced Rate of Tax on Net CFC Tested Income.--
            (1) In general.--Part VIII of subchapter B of chapter 1 is 
        amended by striking section 250 (and by striking the item 
        relating to such section in the table of sections of such 
        part).
            (2) Conforming amendments.--
                    (A) Section 59A(c)(4)(B)(i) is amended by striking 
                ``section 172, 245A, or 250'' and inserting ``section 
                172 or 245A''.
                    (B) Section 172(d) is amended by striking paragraph 
                (9).
                    (C) Section 246(b)(1) is amended--
                            (i) by striking ``subsection (a) and (b) of 
                        section 245, and section 250'' and inserting 
                        ``and subsection (a) and (b) of section 245''; 
                        and
                            (ii) by striking ``subsection (a) and (b) 
                        of section 245, and 250'' and inserting ``and 
                        subsection (a) and (b) of section 245''.
                    (D) Section 469(i)(3)(F)(iii) is amended by 
                striking ``222, and 250'' and inserting ``and 222''.
    (c) Net CFC Tested Income Determined Without Regard to High Tax 
Foreign Income.--Section 951A(c)(2)(A)(i) is amended by redesignating 
subclauses (IV) and (V) as subclauses (V) and (VI), respectively, and 
by inserting after subclause (III) the following new subclause:
                                    ``(IV) any item of income subject 
                                to an effective rate of income tax 
                                imposed by a foreign country greater 
                                than the maximum rate of tax specified 
                                in section 11,''.
    (d) Repeal of Exclusion of Foreign Oil and Gas Extraction Income 
From the Determination of Tested Income.--Section 951A(c)(2)(A)(i), as 
amended by subsection (c) is amended--
            (1) by adding ``and'' at the end of subclause (IV);
            (2) by striking ``and'' at the end of subclause (V) and 
        inserting ``over''; and
            (3) by striking subclause (VI).
    (e) Increase in Deemed Paid Credit for Taxes Properly Attributable 
to Tested Income.--
            (1) In general.--Section 960(d) is amended by striking ``80 
        percent of''.
            (2) Conforming amendment.--Section 78 is amended by 
        striking ``(determined without regard to the phrase ``80 
        percent of'' in subsection (d)(1) thereof)''.
    (f) Effective Date.--
            (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, 2018, and to taxable years of United States shareholders in 
        which or with which such taxable years of foreign corporations 
        end.
            (2) Repeal of reduced rate of tax; increase in deemed paid 
        credit.--The amendments made by subsection (b) and (e) shall 
        apply to taxable years beginning after December 31, 2018.

SEC. 3. LIMITATION ON DEDUCTION OF INTEREST BY DOMESTIC CORPORATIONS 
              WHICH ARE MEMBERS OF AN INTERNATIONAL FINANCIAL REPORTING 
              GROUP.

    (a) In General.--Section 163 is amended by redesignating subsection 
(n) as subsection (p) and by inserting after subsection (m) the 
following new subsection:
    ``(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' means, with 
                respect to any reporting year, any group of entities 
                which--
                            ``(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' 
                means, with respect to any domestic corporation for any 
                taxable year, the ratio (expressed as a percentage and 
                not greater than 100 percent) of--
                            ``(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' means--
                            ``(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' means, 
                        with respect to any reporting year, earnings 
                        before interest, taxes, depreciation, and 
                        amortization--
                                    ``(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' 
        means any consolidated financial statement described in 
        paragraph (2)(A)(ii) if such statement is--
                    ``(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' means, with respect to any international 
        financial reporting group, the year with respect to which the 
        consolidated financial statements are prepared.
            ``(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 is amended by inserting after 
        subsection (n), as added by subsection (a), the following new 
        subsection:
    ``(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 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) is amended to read as 
                follows:
            ``(2) Carryforward cross-reference.--For carryforward 
        treatment, see subsection (o).''.
                    (B) Section 163(j)(4)(B)(i)(I) is amended by 
                striking ``paragraph (2)'' and inserting ``subsection 
                (o)''.
                    (C) Section 381(c)(20) is amended to read as 
                follows:
            ``(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) is amended to read as 
                follows:
            ``(3) Application to carryforward of disallowed interest.--
        The term `pre-change loss' shall include any carryover of 
        disallowed interest described in section 163(o) under rules 
        similar to the rules of paragraph (1).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2018.

SEC. 4. MODIFICATIONS TO RULES RELATING TO INVERTED CORPORATIONS.

    (a) In General.--Subsection (b) of section 7874 is amended to read 
as follows:
    ``(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' for `60 percent', or
                    ``(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' shall have the meaning given such term under 
        regulations in effect on December 22, 2017, except that the 
        Secretary may issue regulations increasing 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.
            ``(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' 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 determining if business 
        activities constitute significant 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 inserting ``after March 
        4, 2003, and before December 23, 2017,''.
            (2) Subsection (c) of section 7874 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)(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 ``subsection 
                (a)(2)(B)(ii)'' and inserting ``subsections 
                (a)(2)(B)(ii) and (b)(2)(B)(i)''; and
                    (D) in paragraph (6), by inserting ``or inverted 
                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 December 22, 2017.

SEC. 5. TREATMENT OF FOREIGN CORPORATIONS MANAGED AND CONTROLLED IN THE 
              UNITED STATES AS DOMESTIC CORPORATIONS.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(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) of the Internal Revenue Code of 
1986, as added by this section.
                                 <all>