[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 3120 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 3120

To impose restrictions on the ability of officers and employees of the 
United States to enter into contracts with corporations or partnerships 
 that move outside the United States while retaining substantially the 
                            same ownership.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            October 16, 2002

Mr. Grassley (for himself, Mr. Baucus, and Ms. Collins) introduced the 
 following bill; which was read twice and referred to the Committee on 
                          Governmental Affairs

_______________________________________________________________________

                                 A BILL


 
To impose restrictions on the ability of officers and employees of the 
United States to enter into contracts with corporations or partnerships 
 that move outside the United States while retaining substantially the 
                            same ownership.

    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 ``Reclaiming Expatriated Contracts and 
Profits Act''.

SEC. 2. RESTRICTIONS ON FEDERAL CONTRACTS WITH CERTAIN INVERTED 
              ENTITIES.

    (a) Restrictions.--
            (1) Ban on certain inverted entities.--Notwithstanding any 
        other provision of law--
                    (A) no officer or employee of the United States may 
                enter into, extend, or modify a contract with a foreign 
                incorporated entity treated as an inverted domestic 
                corporation under subsection (c) during the restriction 
                period for the entity, and
                    (B) any officer or employee of the United States 
                entering into a contract after the date of the 
                enactment of this Act shall include in the contract a 
                prohibition on the subcontracting of any portion of the 
                contract to any foreign incorporated entity treated as 
                an inverted domestic corporation under subsection (c) 
                during the restriction period for the entity.
            (2) Mandatory reduction in contract evaluation of certain 
        entities.--
                    (A) In general.--If, during the restriction period 
                for an acquired entity to which this section applies, 
                the entity makes an offer in response to a solicitation 
                of offers for a contract with the United States, any 
                officer or employee of the United States evaluating the 
                offer shall, solely for purposes of awarding the 
                contract, adjust the evaluation as follows:
                            (i) In the case of a contract to be entered 
                        into with an offeror selected solely on the 
                        basis of price, the price offered by such 
                        acquired entity shall be deemed to be equal to 
                        110 percent of the price actually offered.
                            (ii) In the case of a contract to be 
                        entered into with an offeror on the basis of 
                        two or more evaluation factors, the 
                        quantitative evaluation of the offer made by 
                        such acquired entity shall be deemed to be 
                        reduced by 10 percent.
                    (B) Application to certain contractors.--If a 
                person other than an entity to which this paragraph 
                applies makes an offer for a contract with the United 
                States, and it is reasonable to assume at the time of 
                the offer that any portion of the work will be 
                subcontracted to such an entity, subparagraph (A) shall 
                be applied to such offer in the same manner as if the 
                person making the offer were such an entity.
            (3) Application to related entities.--Paragraphs (1) and 
        (2) shall also apply during the restriction period for an 
        entity to--
                    (A) a member of an expanded affiliated group which 
                includes the entity, and
                    (B) any other related person with respect to the 
                entity.
    (b) Exceptions.--
            (1) Presidential waiver.--The President of the United 
        States may waive the application of subsection (a) with respect 
        to any contract if the President determines that the waiver is 
        necessary in the interest of national security.
            (2) Exception where no tax avoidance purpose.--
                    (A) In general.--This section shall not apply to a 
                foreign incorporated entity or an acquired entity if 
                the entity requests, and the Secretary of the Treasury 
                issues, a determination letter that the acquisition 
                described in subsection (c)(1)(A) with respect to the 
                entity did not have as one of its principal purposes 
                the avoidance of Federal income taxation.
                    (B) Procedures.--The Secretary of the Treasury 
                shall prescribe the time and manner of filing a request 
                under this paragraph.
                    (C) Stay of restriction period.--
                            (i) In general.--The restriction period 
                        with respect to an entity filing a request 
                        under this paragraph shall not begin until the 
                        Secretary of the Treasury notifies the entity 
                        that it will not issue a determination letter 
                        with respect to the request.
                            (ii) No action.--If the Secretary takes no 
                        action with respect to a request during the 1-
                        year period beginning on the date of the 
                        request (or such longer period as the Secretary 
                        and the entity may agree upon), the Secretary 
                        shall be treated as having issued a 
                        determination letter described in subparagraph 
                        (A). This clause shall not apply to a request 
                        if the entity does not submit the request in 
                        proper form or the entity does not provide the 
                        information the Secretary requests to process 
                        the request.
    (c) Inverted Domestic Corporation.--For purposes of this section--
            (1) In general.--A foreign incorporated entity shall be 
        treated as an inverted domestic corporation if, pursuant to a 
        plan (or a series of related transactions)--
                    (A) the entity completes after the date of the 
                enactment of this Act the direct or indirect 
                acquisition of substantially all of the properties held 
                directly or indirectly by a domestic corporation or 
                substantially all of the properties constituting a 
                trade or business of a domestic partnership,
                    (B) after the acquisition at least 80 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, and
                    (C) the expanded affiliated group which after the 
                acquisition includes the entity does not have 
                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.
            (2) Rules for application of subsection.--In applying this 
        subsection, the following rules shall apply:
                    (A) Certain stock disregarded.--There shall not be 
                taken into account in determining ownership for 
                purposes of paragraph (1)(B)--
                            (i) stock held by members of the expanded 
                        affiliated group which includes the foreign 
                        incorporated entity, or
                            (ii) stock of such entity which is sold in 
                        a public offering related to the acquisition 
                        described in paragraph (1)(A).
                    (B) Plan deemed in certain cases.--If a foreign 
                incorporated entity acquires directly or indirectly 
                substantially all of the properties of a domestic 
                corporation or partnership during the 4-year period 
                beginning on the date which is 2 years before the 
                ownership requirements of paragraph (1)(B) are met with 
                respect to such corporation or partnership, such 
                actions shall be treated as pursuant to a plan.
                    (C) Certain transfers disregarded.--The transfer of 
                properties or liabilities (including by contribution or 
                distribution) shall be disregarded if such transfers 
                are part of a plan a principal purpose of which is to 
                avoid the purposes of this section.
                    (D) Special rule for related partnerships.--For 
                purposes of applying this subsection to the acquisition 
                of a domestic partnership, except as provided in 
                regulations, all partnerships which are under common 
                control (within the meaning of section 482 of the 
                Internal Revenue Code of 1986) shall be treated as 1 
                partnership.
                    (E) Treatment of certain rights.--The Secretary of 
                the Treasury shall prescribe such regulations as may be 
                necessary--
                            (i) to treat warrants, options, contracts 
                        to acquire stock, convertible debt instruments, 
                        and other similar interests as stock, and
                            (ii) to treat stock as not stock.
    (d) Acquired Entity to Which Section Applies.--
            (1) In general.--This section shall apply to an acquired 
        entity if a foreign incorporated entity would be treated as an 
        inverted domestic corporation with respect to the acquired 
        entity if subsection (c)(1)(B) were applied by substituting 
        ``50 percent'' for ``80 percent''.
            (2) Application to certain acquisitions before enactment.--
        This section shall apply to an acquired entity if a foreign 
        incorporated entity would be treated as an inverted domestic 
        corporation if subsection (c)(1) were applied--
                    (A) by substituting ``after December 31, 1996, and 
                on or before the date of the enactment of this Act,'' 
                for ``after the date of the enactment of this Act'' in 
                subparagraph (A), and
                    (B) by substituting ``50 percent'' for ``80 
                percent'' in subparagraph (B).
            (3) Acquired entity.--For purposes of this section--
                    (A) In general.--The term `acquired entity' means 
                the domestic corporation or partnership substantially 
                all of the properties of which are directly or 
                indirectly acquired in an acquisition described in 
                subsection (c)(1)(A) to which this subsection applies.
                    (B) Aggregation rules.--Any domestic person bearing 
                a relationship described in section 267(b) or 707(b) of 
                the Internal Revenue Code of 1986 to an acquired entity 
                shall be treated as an acquired entity with respect to 
                the acquisition described in subparagraph (A).
    (e) Definitions.--For purposes of this section--
            (1) Expanded affiliated group.--The term ``expanded 
        affiliated group'' means an affiliated group as defined in 
        section 1504(a) of the Internal Revenue Code of 1986 (without 
        regard to section 1504(b)(3) of such Code), except that section 
        1504(a) of such Code shall be applied by substituting ``more 
        than 50 percent'' for ``at least 80 percent'' each place it 
        appears.
            (2) Foreign incorporated entity.--The term ``foreign 
        incorporated entity'' means any entity which is treated as a 
        foreign corporation for purposes of such Code.
            (3) Related person.--The term ``related person'' means, 
        with respect to any entity, a person which--
                    (A) bears a relationship to such entity described 
                in section 267(b) or 707(b) of such Code, or
                    (B) is under the same common control (within the 
                meaning of section 482 of such Code) as such entity.
            (4) Restriction period.--
                    (A) In general.--The term ``restriction period'' 
                means, with respect to any entity, the period--
                            (i) beginning on the date substantially all 
                        of the properties to be acquired as part of the 
                        acquisition described in subsection (c)(1)(A) 
                        are acquired, and
                            (ii) to the extent provided by the 
                        Secretary of the Treasury, ending on the date 
                        the income and gain from such properties is 
                        subject to United States taxation in the same 
                        manner as if such properties were held by a 
                        United States person.
                    (B) Special rules for acquired entities.--
                            (i) 10-year limit.--In the case of an 
                        acquired entity to which subsection (a)(2) 
                        applies, the restriction period shall end no 
                        later than the date which is 10 years from the 
                        date described in subparagraph (A)(i) (or, if 
                        later, the date of the enactment of this Act).
                            (ii) Subsequent acquisitions by unrelated 
                        domestic corporations.--
                                    (I) In general.--Subject to such 
                                conditions, limitations, and exceptions 
                                as the Secretary of the Treasury may 
                                prescribe, if, after an acquisition 
                                described in subsection (c)(1)(A) to 
                                which subsection (a)(2) applies, a 
                                domestic corporation the stock of which 
                                is traded on an established securities 
                                market acquires directly or indirectly 
                                any properties of one or more acquired 
                                entities, then the restriction period 
                                for any such acquired entity with 
                                respect to which the requirements of 
                                clause (ii) are met shall end 
                                immediately after such acquisition.
                                    (II) Requirements.--The 
                                requirements of this subclause are met 
                                with respect to a transaction involving 
                                any acquisition described in subclause 
                                (I) if--
                                            (aa) before such 
                                        transaction the domestic 
                                        corporation did not have a 
                                        relationship described in 
                                        section 267(b) or 707(b) of 
                                        such Code, and was not under 
                                        common control (within the 
                                        meaning of section 482 of such 
                                        Code), with the acquired 
                                        entity, or any member of an 
                                        expanded affiliated group 
                                        including such entity, and
                                            (bb) after such 
                                        transaction, such acquired 
                                        entity is a member of the same 
                                        expanded affiliated group which 
                                        includes the domestic 
                                        corporation or has such a 
                                        relationship or is under such 
                                        common control with any member 
                                        of such group, and is not a 
                                        member of, and does not have 
                                        such a relationship and is not 
                                        under such common control with 
                                        any member of, the expanded 
                                        affiliated group which before 
                                        such acquisition included such 
                                        entity.
            (5) Other definitions.--The terms ``person'', ``domestic'', 
        and ``foreign'' have the same meanings given such terms by 
        section 7701(a) of such Code.
    (f) Assistance.--The Secretary of the Treasury or his delegate 
shall assist officers and employees of the United States in carrying 
out the provisions of this section, including providing assistance in 
identifying entities to which this section applies.
                                 <all>