H.R. 995 — No Tax Breaks for Outsourcing Act

This section cites the Act as the “No Tax Breaks for Outsourcing Act” and sets forth the table of contents.

This section revises the global intangible low-taxed income (GILTI) inclusion rules under IRC §951A by renaming GILTI as net CFC tested income; repealing the net deemed tangible income return exclusion (i.e., the 10% tax-free return on qualified business asset investment); striking the high-tax exception; and eliminating exclusions from tested income for Subpart F income and income from countries denying U.S. tax treaty benefits under §901(j). It further requires country-by-country computation of net CFC tested income using CFC taxable units (i.e., similar to the taxable units under §904(e) for foreign tax credit baskets, applied separately to each country of tax residence or location). (Thus, U.S. shareholders of controlled foreign corporations (CFCs) must include the full amount of a CFC's net tested income—tested income minus tested losses—without the prior 10% exclusion or high-tax exception.) This section repeals IRC §250 in its entirety, eliminating the 37.5% deduction for GILTI and the 50% deduction for foreign-derived intangible income (FDII). (Thus, corporate taxpayers face full taxation on net CFC tested income at the 21% rate, subject to foreign tax credits.) It also adds regulatory authority for the Secretary to issue rules addressing related-party transfers, basis adjustments, avoidance prevention, and separate accounting for CFC taxable units; coordinates GILTI inclusions with post-inclusion rules under §§959, 961, and 962 (treating them like Subpart F inclusions); and cross-references §904(e) rules for implementation.

This section establishes a country-by-country application of the foreign tax credit limitation under IRC §904(d)—previously applied separately by income baskets (e.g., general and passive categories)—by requiring separate computations for the aggregate income and foreign taxes attributable to each "taxable unit" of the taxpayer in a given country. Taxable units generally include (1) the U.S. taxpayer itself; (2) each foreign corporation of which the taxpayer is a U.S. shareholder; (3) interests in pass-through entities (i.e., partnerships or similar entities) located in a different country than the owner; and (4) branches (i.e., taxable presences) in a different country than the owner; fiscally autonomous jurisdictions and U.S. possessions (American Samoa, Commonwealth of the Northern Mariana Islands, Commonwealth of Puerto Rico, Guam, and Virgin Islands) are treated as separate countries. (Thus, losses in one country generally cannot offset income from another country to expand available foreign tax credits.) The section makes conforming amendments to cross-references in §904(d)(4)(C)(ii) and §904(d)(2)(J)(i), replacing "qualified business units" with "foreign branches" as defined in new §904(e), and directs the Secretary of the Treasury to issue regulations for implementation, including for hybrid entities and avoidance prevention. The amendments apply to taxable years beginning after December 31, 2024.

This section establishes a limitation on the deduction for interest paid or accrued by a domestic corporation that is a member of an international financial reporting group (IFRG)—defined as any group of entities that (1) includes at least one foreign corporation engaged in a U.S. trade or business or at least one domestic corporation and one foreign corporation, (2) prepares consolidated financial statements, and (3) reports average annual gross receipts exceeding $100 million for the three reporting years ending with the relevant year. The deduction is capped at the allowable percentage of 110% of the excess of the corporation's interest paid or accrued over its interest income includible in gross income, plus such interest income. The allowable percentage is the ratio (not exceeding 100%) of the corporation's allocable share of the IFRG's reported net interest expense (i.e., consolidated interest expense minus interest income) to the corporation's reported net interest expense, with the allocable share determined by the corporation's EBITDA relative to the IFRG's EBITDA (earnings before interest, taxes, depreciation, and amortization, as reported in the consolidated financial statements). Special rules apply if group or entity EBITDA is zero or negative, and consolidated financial statements include SEC 10-Ks, audited statements for credit or shareholder reporting, or similar filings.

This section revises the surrogate foreign corporation rules of IRC §7874(b) to treat a foreign corporation as a domestic corporation if (1) it meets an 80 percent (previously 60 percent) ownership threshold under subsection (a)(2) or (2) it is an "inverted domestic corporation." An inverted domestic corporation is a foreign corporation that, after December 22, 2017, acquires substantially all properties of a domestic corporation or partnership where, following the acquisition, more than 50 percent of its stock (by vote or value) is held by former U.S. shareholders or partners or the expanded affiliated group's management and control occurs primarily in the United States (based on location of substantially all executive officers and senior management) with significant domestic business activities (at least 25 percent of employees, compensation, assets, or income). (The revision excludes such corporations if the group has substantial business activities in the foreign country of organization, allows Treasury regulations to adjust thresholds, and includes conforming amendments limiting prior rules to acquisitions before December 23, 2017.) The changes apply to taxable years ending after December 22, 2017, with a three-year extension of the assessment limitation period.

This section establishes a new rule under IRC §7701(p) treating certain foreign corporations as domestic corporations solely for income tax purposes (i.e., Chapter 1 of the IRC) if their management and control occurs primarily within the United States, as determined by Treasury regulations. (Thus, such corporations—currently taxed only on U.S.-source income—would become subject to U.S. tax on their worldwide income.) The rule applies to corporations that are publicly traded on an established securities market or have aggregate gross assets of $50 million or more (including assets under management), subject to a waiver exception for certain prior qualifying corporations with assets below $50 million. Regulations must treat management and control as primarily in the U.S. if substantially all executive officers and senior management exercising day-to-day strategic, financial, and operational decision-making are primarily located in the U.S., or—for corporations primarily holding investment assets—if investment decisions are made in the U.S. The provision applies to taxable years beginning on or after the date that is two years after enactment, regardless of whether regulations are issued.