[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 5178 Introduced in Senate (IS)]
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117th CONGRESS
2d Session
S. 5178
To impose restrictions on the investment in Chinese companies by tax-
exempt entities.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
December 1, 2022
Mr. Hawley introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To impose restrictions on the investment in Chinese companies by tax-
exempt entities.
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 ``Dump Investments in Troublesome
Communist Holdings Act'' or as the ``DITCH Act''.
SEC. 2. RESTRICTION ON INVESTMENT IN CHINESE COMPANIES BY TAX-EXEMPT
ENTITIES.
(a) In General.--Section 501 of the Internal Revenue Code of 1986
is amended by adding at the end the following new subsection:
``(s) Restriction on Investment in Chinese Companies.--
``(1) In general.--An organization shall not be treated as
described in subsection (c) or (d) or section 401(a) for any
taxable year if such organization--
``(A) holds any interest in a disqualified Chinese
company at any time during such taxable year, or
``(B) fails to timely transmit the annual report
described in paragraph (5) for such taxable year.
``(2) Disqualified chinese company.--For purposes of this
subsection--
``(A) In general.--The term `disqualified Chinese
company' means any corporation--
``(i) that is incorporated in China, or
``(ii) more than 10 percent of the stock of
which (determined by vote or value) is held
(directly or indirectly through any chain of
ownership) by any of the following (or
combination thereof):
``(I) 1 or more corporations
described in clause (i).
``(II) China or any governmental
agency thereof.
``(III) Provincial, regional,
municipal, Special Administrative
Regions, prefecture, county, township,
village, or any other Chinese sub-
national governmental entity or agency.
``(IV) Any entity controlled
(directly or indirectly) by the Chinese
Communist Party or any Chinese
Communist Party organ.
``(V) Any Chinese national.
``(B) Application to entities other than
corporations.--In the case of any business organization
which is not a corporation, subparagraph (A) shall
apply to such organization in the same manner as though
such organization were a corporation.
``(C) Application to indirect, derivative, or other
contractual interests, etc.--For purposes of this
subsection, an organization shall be treated as holding
an interest in a disqualified Chinese company if such
organization--
``(i) holds such interest (or any
instrument described in subparagraph (A))
directly or indirectly through any chain of
ownership, or
``(ii) holds any derivative financial
instrument or other contractual arrangement
with respect to such interest or company
(including any financial instrument or other
contract which seeks to replicate any financial
return with respect to such interest or such
company).
``(D) Publication of list by secretary.--The
Secretary shall, not later than 120 days after the date
of the enactment of this subsection, establish a
process for the periodic publishing of a list of
certified pooled investments, including exchange traded
funds and mutual funds, that do not have exposure to
disqualified Chinese companies.
``(3) Waivers.--
``(A) In general.--Paragraph (1) shall not apply
with respect to any interest in a disqualified Chinese
company held by any organization during any taxable
year if the Secretary issues a waiver to such
organization with respect to such interest for such
taxable year under this paragraph. Any waiver issued
under this paragraph shall be subject to renewal or
expiration on a biannual basis.
``(B) Waiver process.--
``(i) Application.--Not later than 60 days
after the date of the enactment of this
subsection, the Secretary shall establish a
process under which an organization may submit
a written application for a waiver under this
paragraph. Such application shall be made
publicly available and shall include the
following:
``(I) An explanation of the need
for such waiver and the reasons that
the need for such waiver outweigh the
threat posed to the United States by
China and the lack of separation
between China and the disqualified
Chinese company involved.
``(II) The type (including sector
of the economy), amount, and duration
of the investment in the disqualified
Chinese company.
``(III) The relationship between
the disqualified Chinese company and
China.
``(IV) The extenuating
circumstances justifying the
applicant's need to invest in the
disqualified Chinese company.
``(ii) Response.--The Secretary shall
provide a written response to each completed
application under clause (i) not later than 60
days after receipt of such application. Such
written response shall be made publicly
available and shall include the following:
``(I) A statement of whether the
waiver has been provided or withheld.
``(II) The reasons for providing or
withholding the waiver.
``(III) The identification of any
future investments with respect to
which such waiver applies.
``(IV) The date on which such
waiver expires (which may not be later
than the earlier of the termination of
the extenuating circumstances referred
to in clause (i)(IV) or the end of the
biannual period referred to in
subparagraph (A)).
``(C) Standards for determining if waiver is
provided.--The Secretary may provide a waiver under
this paragraph only if the Secretary independently
determines that--
``(i) the need for such waiver, and the
reasons for the need for such waiver, outweigh
the threat posed to the United States by China
and the lack of separation between China and
the disqualified Chinese company involved, and
``(ii) extenuating circumstances justify
the applicant's need to invest in the
disqualified Chinese company.
For purposes of this subparagraph, the Secretary shall
not consider the past or future financial returns of
any investment in any disqualified Chinese company, or
any other justification based on the applicant's own
financial needs, as an extenuating circumstance
justifying such an investment.
``(D) Publication of waivers provided.--With
respect to each calendar quarter, the Secretary shall
publish and make publicly available a list of the
waivers provided by the Secretary under this paragraph
during such quarter.
``(4) China.--For purposes of this section, the term
`China' means the People's Republic of China and includes any
subordinate Special Administrative Regions thereof.
``(5) Annual report.--Each organization described in
paragraph (1) with respect to each taxable year shall, not
later than the due date for the return of tax for such taxable
year, transmit to the Secretary a written report including--
``(A) a description of each interest in a
disqualified Chinese company held by such organization
during such taxable year,
``(B) the period during which such interest was so
held, and
``(C) whether such organization has a waiver under
paragraph (3) to hold such interest during such
period.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section shall
apply to taxable years ending after the date of the enactment
of this Act, except that only periods after the date that is
270 days after the date of the enactment of this Act shall be
taken into account in determining whether the requirement of
section 501(s) of the Internal Revenue Code of 1986 (as added
by this section) is met with respect to any taxable year.
(2) 1-year grace period under certain circumstances.--In
the case of organization that, after intensive due diligence,
is unaware of the failure to satisfy the requirement of such
section 501(s), paragraph (1) shall be applied by substituting
``1 year'' for ``270 days''.
(c) Public Report.--Not later than 360 days after the date of the
enactment of this Act, and annually thereafter, the Secretary of the
Treasury (or the Secretary's delegate) shall publicly release a report
describing the patterns of United States outbound investment in China,
including such investment by organizations described in section
501(s)(1) of the Internal Revenue Code of 1986 (as added by this
section). Such report shall detail the sectoral breakdown of such
investments.
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