Bill Summary
This legislation, known as the "Stop Corporate Inversions Act of 2019," is an amendment to the Internal Revenue Code that aims to modify the rules for calculating taxes for corporations who have undergone a process known as inversion. Inversion is a strategy used by some companies to reduce their tax liability by acquiring a foreign company and then relocating their headquarters to that country. This bill would treat these inverted corporations as domestic corporations for tax purposes, meaning they would not receive the tax benefits of being considered a foreign corporation. It also includes exceptions for corporations with substantial business activities in the foreign country of organization and outlines criteria for determining significant domestic business activities. This bill would apply to taxable years ending after May 8, 2014.
Possible Impacts
1. The "Stop Corporate Inversions Act of 2019" may affect shareholders of domestic corporations by limiting their ability to hold a capital or profits interest in a foreign corporation that has completed a direct or indirect acquisition of substantially all of the properties of a domestic corporation or partnership. This could potentially impact the value of their investment and the overall success of the company.
2. The legislation may also affect US-based employees of expanded affiliated groups by requiring at least 25% of the employees, employee compensation, assets, and income to be located in the United States in order for the group to be considered as having significant domestic business activities. This could potentially limit job opportunities for individuals in other countries and impact the diversity of the workforce.
3. The "Stop Corporate Inversions Act" could also have an impact on the overall economy by limiting the ability of US-based companies to engage in tax-avoidance strategies. This may result in lower profits for these companies and potentially impact the stock market and the overall financial health of the country.
[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 2140 Introduced in Senate (IS)]
<DOC>
116th CONGRESS
1st Session
S. 2140
To amend the Internal Revenue Code of 1986 to modify the rules relating
to inverted corporations.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
July 17, 2019
Mr. Durbin (for himself, Mr. Reed, Ms. Warren, Mr. Brown, Ms. Baldwin,
Mr. Whitehouse, Mr. Merkley, Mrs. Feinstein, Ms. Duckworth, Mr.
Sanders, and Mr. Blumenthal) 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 modify the rules relating
to inverted corporations.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Stop Corporate Inversions Act of
2019''.
SEC. 2. MODIFICATIONS TO RULES RELATING TO INVERTED CORPORATIONS.
(a) In General.--Subsection (b) of section 7874 of the Internal
Revenue Code of 1986 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 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
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 January 18, 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 May 8, 2014.
``(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
January 18, 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) of such Code is
amended by striking ``after March 4, 2003,'' and inserting
``after March 4, 2003, and before May 8, 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)(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 May 8, 2014.
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