Increased credit for initial life sciences research

(a)

In general

Subsection (h) of section 41 of the Internal Revenue Code of 1986 is amended by redesignating subsection (h) as subsection (i) and inserting after subsection (g) the following new subsection:

(h)

Special rules for increased initial life sciences research

(1)

In general

In the case of qualified initial life sciences research expenses for any taxable year with respect to which the taxpayer elects the application of this subsection— (A)

Increased credit

Subsection (a) shall be applied by substituting 40 percent for 20 percent. (B)

Amounts paid for qualified life sciences research to certain research incubators, eligible small businesses, universities, and Federal laboratories

Subsection (b)(3)(A) shall be applied by substituting 100 percent for 65 percent, in the case of amounts paid or incurred to a qualified research incubator, or to persons described in subclause (I), (II), or (III) of subsection (b)(3)(D)(i), for qualified life sciences research. (C)

Alternative simplified credit in case of initial qualified life science research

(i)Subsection (c)(5)(A) shall be applied by substituting 28 percent for 14 percent, and (ii)subsection (c)(5)(B) shall be applied by substituting 12 percent for 6 percent. (2)

Definitions

For purposes of this subsection— (A)

Qualified initial life sciences research expenses

The term qualified initial life sciences research expenses means so much of the amounts taken into account under subsection (a) as are attributable to qualified life sciences research and do not exceed $150,000,000. (B)

Qualified life sciences research

The term qualified life sciences research means any qualified research with respect to the branch of knowledge or study of biology, biochemistry, biophysics, bioengineering, microbiology, genetics, or physiology (in each case as such knowledge or study relates to human beings), except that the term does not include sociology or psychology. (C)

Qualified research incubator

The term qualified research incubator means any entity created by and operated under State law exclusively to conduct qualified life sciences research on behalf of the taxpayer and 1 or more unrelated taxpayers. (3)

Coordination with 965A

This subsection shall not apply with respect to any taxpayer for any taxable year for which an election is in effect under section 965A (relating to limited deduction for life sciences jobs and investment in United States). (4)

Election

Any election under this subsection shall be made in such manner as may be prescribed by the Secretary, and shall be made with respect to a taxable year not later than the due date (including extensions of time) for filing the taxpayer’s return for such taxable year. (5)

Termination

This subsection shall not apply to any taxable year beginning after December 31, 2015.

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

Incentives to invest in life sciences jobs, research, and facilities

(a)

In general

Subpart F of part III of subchapter N of chapter 1 of the Internal Revenue Code of 1986 (relating to controlled foreign corporations) is amended by adding at the end the following new section:

965A.

Limited deduction for life sciences jobs and investment in United States

(a)

Deduction

(1)

In general

In the case of a corporation which is a United States shareholder and for which the election under this section is in effect for the taxable year, there shall be allowed as a deduction an amount equal to 100 percent of the cash dividends which are received during such taxable year by such shareholder from controlled foreign corporations. (2)

Dividends paid indirectly from controlled foreign corporations

If, within the taxable year for which the election under this section is in effect, a United States shareholder receives a cash distribution from a controlled foreign corporation which is excluded from gross income under section 959(a), such distribution shall be treated for purposes of this section as a cash dividend to the extent of any amount included in income by such United States shareholder under section 951(a)(1)(A), including as a result of any cash dividend during such taxable year to— (A)such controlled foreign corporation from another controlled foreign corporation that is in a chain of ownership described in section 958(a), or (B)any other controlled foreign corporation in such chain of ownership from another controlled foreign corporation in such chain of ownership, but only to the extent of cash distributions described in section 959(b) which are made during such taxable year to the controlled foreign corporation from which such United States shareholder received such distribution. (b)

Limitations

(1)

In general

The amount of dividends taken into account under subsection (a) shall not exceed the lesser of— (A)$150,000,000, or (B)the amount shown on the applicable financial statement as earnings permanently reinvested outside the United States.

The amounts described in subparagraph (B) shall be treated as being zero if there is no such statement or such statement fails to show a specific amount of such earnings.

(2)

Requirement to invest in life sciences

Subsection (a) shall not apply to any dividend received by a United States shareholder unless the amount of the dividend is invested solely in the United States and solely for the purpose of— (A)the new hiring of additional scientists, researchers, and comparable personnel engaged in qualified life sciences research, (B)payments to universities, qualified research incubators, and other qualified organizations which are used by such organizations to conduct qualified life sciences research, or (C)the building or leasing of new facilities to be used in the conduct of qualified life sciences research. (3)

Prohibited uses

Subsection (a) shall not apply to any dividend any amount of which is used by the taxpayer to pay remuneration for services of any covered employee (as defined in section 162(m)(3)), to pay dividends to the shareholders of the taxpayer, or to pay interest or principal on any debt security of the taxpayer. (4)

No reserve

Subsection (a) shall not apply to any dividend if the taxpayer’s compliance with this section is uncertain and requires a provision or reserve on the taxpayer’s applicable financial statements. (5)

Separate account

Subsection (a) shall not apply to any dividend unless the amount of the dividend is held in a separate account, trust, or other arrangement that segregates the amount from other funds of the taxpayer until the amount is used solely for the purposes described in paragraph (2). (c)

Substantiation of compliance

(1)

In general

The taxpayer must substantiate its compliance with subsection (b) with written documents and such other credible evidence as the Secretary may reasonably require, and shall bear the burden of proof with respect to such substantiation. (2)

Certification

The chief executive officer and the independent director serving as head of the audit committee of the taxpayer, or comparable corporate officials, shall attest in writing to the taxpayer’s compliance with each of the requirements of subsection (b). (d)

Definitions and special rules

For purposes of this section— (1)

Qualified life sciences research; qualified research incubator

The terms qualified life sciences research and qualified research incubator shall have the respective meanings given such terms by section 41(d). (2)The term qualified organization means any organization described in subparagraph (A), (B), or (C) of section 41(e)(6). (3)The term applicable financial statement and dividend shall have the respective meanings given such terms by section 965(c). (4)Rules similar to the rules of paragraph (3) of section 965(b) shall apply for purposes of this section, except that such paragraph shall be applied by substituting December 31, 2009 for October 3, 2004. (5)Rules similar to the rules of paragraphs (4) and (5) of section 965(c) shall apply for purposes of this section, except that such paragraph (5) shall be applied— (A)by substituting $150,000,000 for $500,000,000, and (B)without regard to the reference to subparagraph (C) of section 965(b)(1). (e)

Denial of foreign tax credit

(1)No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend with respect to which an election is in effect under this section and which is included in income under section 951(a)(1)(A). (2)No deduction shall be allowed under this chapter for any tax for which credit is not allowable by reason of paragraph (1). (f)

Election

Any election under this section shall be made in such manner as may be prescribed by the Secretary, and shall be made with respect to a taxable year not later than the due date (including extensions of time) for filing the taxpayer’s return for such taxable year. (g)

Termination

This section shall not apply to any taxable year beginning after December 31, 2015.

(b)

Clerical amendment

The table of sections for subpart F of part III of subchapter N of chapter 1 of such Code is amended by adding at the end the following new section:

Sec. 965A. Limited deduction for life sciences jobs and investment in United States.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of enactment.