[Congressional Record Volume 148, Number 136 (Wednesday, October 16, 2002)]
[Senate]
[Pages S10576-S10578]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself, Mr. Baucus, and Ms. Collins):
  S. 3120. 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; to the Committee on 
Governmental Affairs.
  Mr. GRASSLEY. Mr. President, I rise today to offer a bill on behalf 
of Sen. Baucus and myself to address the issue of inverting 
corporations that are awarded contracts by the federal government. Our 
bill is the ``Reclaiming Expatriated Contracts and Profits'', RECAP, 
Act.
  Inverting corporations set up a folder in a foreign filing cabinet or 
a mail box overseas and call that their new foreign ``headquarters.'' 
This allows companies to escape millions of dollars of Federal taxes 
every year. In April of this year, Sen. Baucus and I introduced the 
``Reversing the Expatriation of Profits Offshore'', REPO, Act to shut 
down these phony corporate inversions. Today, our REPO bill sits in the 
Care Act, awaiting Senate passage.
  You would think that the ``greed-grab'' of corporate inversions would 
satisfy most companies, but unfortunately it is not enough. After these 
corporations invert and save millions in taxes, they then come back 
into the United States to obtain juicy contracts with the Federal 
Government.
  Imagine the nerve. They create phony foreign headquarters to escape 
taxes and then use other peoples' taxes to turn a profit. That's really 
something, something that needs to be stopped.
  Let's look at some of the numbers. Tyco had over 1700 contracts in 
2001, worth over $286 million dollars. Accenture had contracts worth 
nearly $279 million. Ingersoll Rand left the United States for Bermuda, 
where it reportedly pays less than $28,000 a year to register its phony 
headquarters and receives $40 million in U.S. tax savings. Ingersoll 
Rand had more than 200 government contracts in 2001, worth over $12 
million.
  I was the first member of Congress to disclose that inverting 
corporations were receiving Federal contracts, back in March of this 
year. Out of respect for the committee system, I have waited for the 
committees with jurisdiction over government contracts to act on this 
issue. They have not. Instead, we have seen a series of politically-
inspired amendments offered in Congress, all of which are ineffective, 
easily evaded, and, if enacted, could cost thousands of Americans their 
jobs. I then read in the paper last week that the Defense 
Appropriations conferees dropped one of those amendments, rather than 
try to rewrite it. I decided enough is enough. It is time for serious 
legislation on this issue.
  Chairman Baucus and I offer our bipartisan RECAP bill as a compliment 
to our earlier REPO bill on corporate inversions. For future corporate 
inversions, our RECAP bill will bar the inverting company from 
receiving Federal contracts. For the inversions that have already 
gotten out before the REPO bill can be enacted, our RECAP bill will 
make them send back their ill-gotten tax savings by forcing them to 
lower their bids in order to obtain government contracts. The RECAP 
bill does not unwind Federal contracts that were legal when they were 
entered into. Therefore, unlike the other proposals, our RECAP bill 
will not throw thousands of Americans out of a job. The bill we submit 
today has only one objective: to permanently place corporate inversions 
on the endangered species list.
  I am aware that many of my colleagues believe this measure is 
unnecessary because inverting corporations pay U.S. taxes on their 
profits from Federal contracts. It is generally true that profits 
earned from a Federal contract are taxable in the United States, but 
those profits are easily reduced when an inverter creates phony 
deductions through its inversion structure. For example, most inverted 
companies create phony interest deductions for interest that is 
fictitiously paid to the ``file folder'' foreign headquarters. 
Objections to this bill simply overlook the real insult to the American 
people: these inverted companies take other peoples' tax dollars to 
make a profit, but they won't pay their share of taxes to keep America 
strong. And that's just wrong.
  So let me be clear to everyone developing or contemplating one of 
these inversion deals, you proceed at your own peril. We are not only 
going after the

[[Page S10577]]

corporate expatriation abuse, but also the abusers who seek big 
government contracts while skirting their U.S. tax obligations. I 
intend to pursue this issue throughout the remainder of this Congress 
and into the next.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 3120

       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--

[[Page S10578]]

       (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.

  Mr. BAUCUS. Mr. President, I join the Ranking Republican Member of 
the Finance Committee, Senator Grassley, in introducing bipartisan 
legislation to further address the increasing problem of U.S. 
corporations reincorporating to tax haven countries to avoid taxes, a 
practice also known as a corporate inversion. I am pleased to cosponsor 
the Reclaiming Expatriated Contracts and Profits, RECAP, Act which 
prohibits the most egregious inverted corporations from receiving 
Federal Government contracts.
  Last March, Senator Grassley and I announced our intention to 
introduce legislation to curb the proliferation of U.S. corporations 
changing their Articles of Incorporation to become a corporation of a 
foreign tax haven country. On April 11, 2002, we introduced legislation 
to address this problem. S. 2119, the Reversing the Expatriation of 
Profits Offshore, REPO, Act, was designed to put the brakes on the 
potential rush to move U.S. corporate headquarters to tax haven 
countries. On June 18, 2002, the Senate Finance Committee sent a strong 
message to corporate America by passing S. 2119 by unanimous vote.
  But the REPO Act was just the first step to curb inversions. Senator 
Wellstone led the effort to eliminate another incentive for these 
corporations by restricting them from qualification for government 
contracts. The idea is simple. If a corporation wants to, in essence, 
renounce their U.S. citizenship, then they shouldn't be entitled to 
compete for U.S. government contracts. I applaud Senator Wellstone for 
his leadership and willingness to press ahead with restricting inverted 
corporations from winning government contracts.
  Today, Senator Chuck Grassley and I cosponsor legislation focused on 
the same goal as that of Senator Wellstone. The legislation we 
introduce today will prevent the most egregious of these inverted 
corporations from receiving any U.S. government contracts. These 
companies have placed tax avoidance as their first priority and their 
U.S. identity as their second priority. The reduction in taxes for 
inverted corporations allows them to underbid those corporations that 
choose to remain U.S. corporations. This is wrong.
  I welcome the opportunity to support RECAP and I urge Congress to act 
quickly on this legislation, as it will go a long way toward restoring 
public confidence in corporate America.
                                 ______