“A bill to amend the Internal Revenue Code of 1986 to modify the rules relating to inverted corporations.”
No CRS summary available for this bill.
This section revises IRC §7874(b)—which addresses corporate inversions (i.e., transactions in which a foreign corporation acquires a U.S. corporation or partnership primarily to access foreign tax benefits while retaining substantial U.S. operations)—to treat additional foreign corporations as domestic for federal income tax purposes. Specifically, a foreign corporation is treated as domestic if (1) it would qualify as a surrogate foreign corporation under current rules using an 80-percent ownership threshold by former U.S. shareholders (from 60 percent) or (2) it is an "inverted domestic corporation" with respect to acquisitions after May 8, 2014, of substantially all properties held by a domestic corporation or partnership where, following the acquisition, more than 50 percent of the entity's stock (by vote or value) is held by former shareholders or partners or the expanded affiliated group is managed and controlled primarily within the U.S. (based on location of executive officers and senior management exercising day-to-day strategic, financial, and operational responsibilities) with significant domestic business activities (i.e., at least 25 percent of employees, compensation, assets, or income based, incurred, located, or derived in the U.S.). (Thus, affected corporations are subject to U.S. worldwide taxation.) The revision includes an exception for inverted domestic corporations whose expanded affiliated groups conduct substantial business activities (as defined under Treasury regulations in effect on January 18, 2017, with possible increases to activity thresholds) in the foreign corporation's country of organization or incorporation. Conforming amendments to §7874(a) and (c) limit certain prior rules to inversions before May 8, 2014; expand cross-references to the new inverted domestic corporation definition; and adjust related penalties and continuity requirements. The changes apply to taxable years ending after May 8, 2014.