No Tax Breaks for Outsourcing Act

Bill: 116-s-780
Sponsor: full_name: Sen. Whitehouse, Sheldon [D-RI]
Introduced: 2019-03-13
Policy area: Taxation
Subjects: Accounting and auditing

Corporate finance and management

Foreign and international corporations

Income tax credits

Income tax deductions

Interest, dividends, interest rates

Oil and gas

Tax administration and collection, taxpayers

Taxation of foreign income

U.S. and foreign investments
Latest action: action_date: 2019-03-13
text: Read twice and referred to the Committee on Finance.

Summaries:
action_date: 2019-03-13
action_desc: Introduced in Senate
text: <p><b>No Tax Breaks for Outsourcing Act </b></p> <p>This bill modifies the tax treatment of the foreign source income of domestic corporations. The bill includes provisions that</p> <ul> <li> eliminate an exemption for certain returns from tangible investments made overseas, </li> <li> eliminate deductions for a domestic corporation's foreign-derived intangible income and global intangible low-taxed income, </li> <li> repeal a provision that excludes foreign oil and gas extraction income from the tested income of a controlled foreign corporation, </li> <li> limit the tax deduction for the interest expenses of a U.S. corporation that is a member of a financial reporting group (i.e., a group that prepares consolidated financial statements according to generally accepted accounting principles or international financial reporting standards), </li> <li> modify the rules for the taxation of inverted corporations (U.S. corporations that acquire foreign companies to reincorporate in a foreign jurisdiction with income tax rates lower than the United States), and </li> <li> treat certain foreign corporations managed and controlled primarily in the United States as domestic corporations for tax purposes. </li> </ul>

tv_txt: II 116th CONGRESS 1st Session S. 780 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.

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. 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. 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. 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. 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.