[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 2704 Introduced in Senate (IS)]

113th CONGRESS
  2d Session
                                S. 2704

   To prohibit the award of Federal Government contracts to inverted 
             domestic corporations, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 30, 2014

   Mr. Levin (for himself, Mr. Durbin, and Mr. Reed) introduced the 
 following bill; which was read twice and referred to the Committee on 
               Homeland Security and Governmental Affairs

_______________________________________________________________________

                                 A BILL


 
   To prohibit the award of Federal Government contracts to inverted 
             domestic corporations, and for other purposes.

    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 ``No Federal Contracts for Corporate 
Deserters Act of 2014''.

SEC. 2. PROHIBITION ON AWARDING CONTRACTS TO INVERTED DOMESTIC 
              CORPORATIONS.

    (a) Civilian Contracts.--
            (1) In general.--Chapter 47 of title 41, United States 
        Code, is amended by adding at the end the following new 
        section:
``Sec. 4713. Prohibition on awarding contracts to inverted domestic 
              corporations
    ``(a) Prohibition.--
            ``(1) In general.--The head of an executive agency may not 
        award a contract for the procurement of property or services 
        to--
                    ``(A) any foreign incorporated entity that such 
                head has determined is an inverted domestic corporation 
                or any subsidiary of such entity; or
                    ``(B) any joint venture if more than 10 percent of 
                the joint venture (by vote or value) is held by a 
                foreign incorporated entity that such head has 
                determined is an inverted domestic corporation or any 
                subsidiary of such entity.
            ``(2) Subcontracts.--
                    ``(A) In general.--The head of an executive agency 
                shall include in each contract for the procurement of 
                property or services awarded by the executive agency 
                with a value in excess of $10,000,000, other than a 
                contract for exclusively commercial items, a clause 
                that prohibits the prime contractor on such contract 
                from--
                            ``(i) awarding a first-tier subcontract 
                        with a value greater than 10 percent of the 
                        total value of the prime contract to an entity 
                        or joint venture described in paragraph (1); or
                            ``(ii) structuring subcontract tiers in a 
                        manner designed to avoid the limitation in 
                        paragraph (1) by enabling an entity or joint 
                        venture described in paragraph (1) to perform 
                        more than 10 percent of the total value of the 
                        prime contract as a lower-tier subcontractor.
                    ``(B) Penalties.--The contract clause included in 
                contracts pursuant to subparagraph (A) shall provide 
                that, in the event that the prime contractor violates 
                the contract clause--
                            ``(i) the prime contract may be terminated 
                        for default; and
                            ``(ii) the matter may be referred to the 
                        suspension or debarment official for the 
                        appropriate agency and may be a basis for 
                        suspension or debarment of the prime 
                        contractor.
    ``(b) Inverted Domestic Corporation.--
            ``(1) In general.--For purposes of this section, 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 before, on, or 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, as 
                        determined pursuant to regulations prescribed 
                        by the Secretary of the Treasury, and such 
                        expanded affiliated group has significant 
                        domestic business activities.
            ``(2) Exception for corporations with substantial business 
        activities in foreign country of organization.--
                    ``(A) In general.--A foreign incorporated entity 
                described in paragraph (1) 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.
                    ``(B) Substantial business activities.--The 
                Secretary of the Treasury (or the Secretary's delegate) 
                shall establish regulations for determining whether an 
                affiliated group has substantial business activities 
                for purposes of subparagraph (A), except that such 
                regulations may not treat any group as having 
                substantial business activities if such group would not 
                be considered to have substantial business activities 
                under the regulations prescribed under section 7874 of 
                the Internal Revenue Code of 1986, as in effect on May 
                8, 2014.
            ``(3) Significant domestic business activities.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(B)(ii), an expanded affiliated group has 
                significant domestic business activities if at least 25 
                percent of--
                            ``(i) the employees of the group are based 
                        in the United States;
                            ``(ii) the employee compensation incurred 
                        by the group is incurred with respect to 
                        employees based in the United States;
                            ``(iii) the assets of the group are located 
                        in the United States; or
                            ``(iv) the income of the group is derived 
                        in the United States.
                    ``(B) Determination.--Determinations pursuant to 
                subparagraph (A) shall be made in the same manner as 
                such determinations are made for purposes of 
                determining substantial business activities under 
                regulations referred to in paragraph (2) as in effect 
                on May 8, 2014, but applied by treating all references 
                in such regulations to `foreign country' and `relevant 
                foreign country' as references to `the United States'. 
                The Secretary of the Treasury (or the Secretary's 
                delegate) 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.
    ``(c) Waiver.--
            ``(1) In general.--The head of an executive agency may 
        waive subsection (a) with respect to any Federal Government 
        contract under the authority of such head if the head 
        determines that the waiver is required in the interest of 
        national security or is necessary for the efficient or 
        effective administration of Federal or Federally-funded 
        programs that provide health benefits to individuals.
            ``(2) Report to congress.--The head of an executive agency 
        issuing a waiver under paragraph (1) shall, not later than 14 
        days after issuing such waiver, submit a written notification 
        of the waiver to the relevant authorizing committees of 
        Congress and the Committees on Appropriations of the Senate and 
        the House of Representatives.
    ``(d) Applicability.--
            ``(1) In general.--Except as provided in paragraph (2), 
        this section shall not apply to any contract entered into 
        before the date of the enactment of this section.
            ``(2) Task and delivery orders.--This section shall apply 
        to any task or delivery order issued after the date of the 
        enactment of this section pursuant to a contract entered into 
        before, on, or after such date of enactment.
            ``(3) Scope.--This section applies only to contracts 
        subject to regulation under the Federal Acquisition Regulation.
    ``(e) Definitions and Special Rules.--
            ``(1) Definitions.--In this section, the terms `expanded 
        affiliated group', `foreign incorporated entity', `person', 
        `domestic', and `foreign' have the meaning given those terms in 
        section 835(c) of the Homeland Security Act of 2002 (6 U.S.C. 
        395(c)).
            ``(2) Special rules.--In applying subsection (b) of this 
        section for purposes of subsection (a) of this section, the 
        rules described under 835(c)(1) of the Homeland Security Act of 
        2002 (6 U.S.C. 395(c)(1)) shall apply.''.
            (2) Clerical amendment.--The table of sections at the 
        beginning of chapter 47 of title 41, United States Code, is 
        amended by inserting after the item relating to section 4712 
        the following new item:

``4713. Prohibition on awarding contracts to inverted domestic 
                            corporations.''.
    (b) Defense Contracts.--
            (1) In general.--Chapter 137 of title 10, United States 
        Code, is amended by adding at the end the following new 
        section:
``Sec. 2338. Prohibition on awarding contracts to inverted domestic 
              corporations
    ``(a) Prohibition.--
            ``(1) In general.--The head of an agency may not award a 
        contract for the procurement of property or services to--
                    ``(A) any foreign incorporated entity that such 
                head has determined is an inverted domestic corporation 
                or any subsidiary of such entity; or
                    ``(B) any joint venture if more than 10 percent of 
                the joint venture (by vote or value) is owned by a 
                foreign incorporated entity that such head has 
                determined is an inverted domestic corporation or any 
                subsidiary of such entity.
            ``(2) Subcontracts.--
                    ``(A) In general.--The head of an executive agency 
                shall include in each contract for the procurement of 
                property or services awarded by the executive agency 
                with a value in excess of $10,000,000, other than a 
                contract for exclusively commercial items, a clause 
                that prohibits the prime contractor on such contract 
                from--
                            ``(i) awarding a first-tier subcontract 
                        with a value greater than 10 percent of the 
                        total value of the prime contract to an entity 
                        or joint venture described in paragraph (1); or
                            ``(ii) structuring subcontract tiers in a 
                        manner designed to avoid the limitation in 
                        paragraph (1) by enabling an entity or joint 
                        venture described in paragraph (1) to perform 
                        more than 10 percent of the total value of the 
                        prime contract as a lower-tier subcontractor.
                    ``(B) Penalties.--The contract clause included in 
                contracts pursuant to subparagraph (A) shall provide 
                that, in the event that the prime contractor violates 
                the contract clause--
                            ``(i) the prime contract may be terminated 
                        for default; and
                            ``(ii) the matter may be referred to the 
                        suspension or debarment official for the 
                        appropriate agency and may be a basis for 
                        suspension or debarment of the prime 
                        contractor.
    ``(b) Inverted Domestic Corporation.--
            ``(1) In general.--For purposes of this section, 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 before, on, or 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, as 
                        determined pursuant to regulations prescribed 
                        by the Secretary of the Treasury, and such 
                        expanded affiliated group has significant 
                        domestic business activities.
            ``(2) Exception for corporations with substantial business 
        activities in foreign country of organization.--
                    ``(A) In general.--A foreign incorporated entity 
                described in paragraph (1) 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.
                    ``(B) Substantial business activities.--The 
                Secretary of the Treasury (or the Secretary's delegate) 
                shall establish regulations for determining whether an 
                affiliated group has substantial business activities 
                for purposes of subparagraph (A), except that such 
                regulations may not treat any group as having 
                substantial business activities if such group would not 
                be considered to have substantial business activities 
                under the regulations prescribed under section 7874 of 
                the Internal Revenue Code of 1986, as in effect on May 
                8, 2014.
            ``(3) Significant domestic business activities.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(B)(ii), an expanded affiliated group has 
                significant domestic business activities if at least 25 
                percent of--
                            ``(i) the employees of the group are based 
                        in the United States;
                            ``(ii) the employee compensation incurred 
                        by the group is incurred with respect to 
                        employees based in the United States;
                            ``(iii) the assets of the group are located 
                        in the United States; or
                            ``(iv) the income of the group is derived 
                        in the United States.
                    ``(B) Determination.--Determinations pursuant to 
                subparagraph (A) shall be made in the same manner as 
                such determinations are made for purposes of 
                determining substantial business activities under 
                regulations referred to in paragraph (2) as in effect 
                on May 8, 2014, but applied by treating all references 
                in such regulations to `foreign country' and `relevant 
                foreign country' as references to `the United States'. 
                The Secretary of the Treasury (or the Secretary's 
                delegate) 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.
    ``(c) Waiver.--
            ``(1) In general.--The head of an agency may waive 
        subsection (a) with respect to any Federal Government contract 
        under the authority of such head if the head determines that 
        the waiver is required in the interest of national security or 
        is necessary for the efficient or effective administration of 
        Federal or Federally-funded programs that provide health 
        benefits to individuals.
            ``(2) Report to congress.--The head of an agency issuing a 
        waiver under paragraph (1) shall, not later than 14 days after 
        issuing such waiver, submit a written notification of the 
        waiver to the Committees on Armed Services and Appropriations 
        of the Senate and the House of Representatives.
    ``(d) Applicability.--
            ``(1) In general.--Except as provided in paragraph (2), 
        this section shall not apply to any contract entered into 
        before the date of the enactment of this section.
            ``(2) Task and delivery orders.--This section shall apply 
        to any task or delivery order issued after the date of the 
        enactment of this section pursuant to a contract entered into 
        before, on, or after such date of enactment.
            ``(3) Scope.--This section applies only to contracts 
        subject to regulation under the Federal Acquisition Regulation 
        and the Defense Supplement to the Federal Acquisition 
        Regulation.
    ``(e) Definitions and Special Rules.--
            ``(1) Definitions.--In this section, the terms `expanded 
        affiliated group', `foreign incorporated entity', `person', 
        `domestic', and `foreign' have the meaning given those terms in 
        section 835(c) of the Homeland Security Act of 2002 (6 U.S.C. 
        395(c)).
            ``(2) Special rules.--In applying subsection (b) of this 
        section for purposes of subsection (a) of this section, the 
        rules described under 835(c)(1) of the Homeland Security Act of 
        2002 (6 U.S.C. 395(c)(1)) shall apply.''.
            (2) Clerical amendment.--The table of sections at the 
        beginning of chapter 137 of title 10, United States Code, is 
        amended by inserting after the item relating to section 2337 
        the following new item:

``2338. Prohibition on awarding contracts to inverted domestic 
                            corporations.''
    (c) Regulations Regarding Management and Control.--
            (1) In general.--The Secretary of the Treasury (or the 
        Secretary's delegate) shall, for purposes of section 
        4713(b)(1)(B)(ii) of title 41, United States Code, and section 
        2338(b)(1)(B)(ii) of title 10, United States Code, as added by 
        subsections (a) and (b), respectively, 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.
            (2) Executive officers and senior management.--The 
        regulations prescribed under paragraph (1) 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.
                                 <all>