[Congressional Record Volume 154, Number 43 (Thursday, March 13, 2008)]
[Senate]
[Pages S2155-S2156]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KERRY (for himself, Mr. Obama, Mr. Harkin, and Mrs. 
        Clinton):
  S. 2775. A bill to amend the Internal Revenue Code of 1986 and the 
Social Security Act to treat certain domestically controlled foreign 
persons performing services under contract with the United States 
Government as American employers for purposes of certain employment 
taxes and benefits; to the Committee on Finance.
  Mr. KERRY. Mr. President, today Representatives Ellsworth and Emanuel 
and Senator Obama and I are introducing the Fair Share Act of 2008 
which ends the practice of U.S. Government contractors setting up shell 
companies in foreign jurisdictions to avoid payroll taxes. On March 6 
2008, Farah Stockman of the Boston Globe reported that Kellogg, Brown 
and Root Inc. KBR, has avoided payroll taxes by hiring workers through 
shell companies in the Cayman Islands. The article estimates that 
hundreds of millions of dollars in payroll taxes have been avoided a 
disturbing, yet not all too surprising discovery.
  KBR is an American engineering and construction company, formerly a 
subsidiary of Halliburton, based in Houston, TX. Throughout its 
history, KBR and its predecessors have won numerous contracts with the 
United States military. In recent years, however, many of these 
contracts have been called into question based on everything from 
wasteful spending to mismanagement and lack of competition. The evasion 
of payroll taxes is yet one more serious misstep.
  The Fair Share Act of 2008 will end the practice of U.S. Government 
contractors setting up shell companies in foreign jurisdictions to 
avoid payroll taxes. The legislation amends the Internal Revenue Code 
and the Social Security Act to treat foreign subsidiaries of U.S. 
companies performing services under contract with the U.S. Government 
as American employers for the purpose of Social Security and Medicare 
payroll taxes. The legislation will apply to foreign subsidiaries of a 
U.S. parent. The degree of common ownership applied by the legislation 
is 50 percent, meaning that the U.S. parent would have to own more than 
50 percent of the subsidiary.
  In addition, the legislation addresses the situation in which a U.S. 
subsidiary of a foreign corporation subcontracts with its foreign 
subsidiary to perform a contract with the U.S Government. In this 
situation, the legislation would apply to wages paid by the foreign 
subsidiary to its U.S. employees. The legislation does not address the 
situation in which the foreign parent contracts directly with the U.S. 
Government. Present law will continue to apply to totalization 
agreements. The legislation applies to services performed after the 
date of enactment.
  The bottom line is this: Federal contractors should not be allowed to 
use tax loopholes to avoid paying U.S. Medicare and Social Security 
taxes on behalf of their American employees working in Iraq. 
Furthermore, KBR should not have a competitive advantage over its U.S. 
competitors because it sets up sham corporations to avoid paying its 
fair share of U.S. payroll taxes. Failing to contribute to Social 
Security and Medicare thousands of times over is not shielding the 
taxpayers they claim to protect, it is costing our citizens.
  At a time when as much as $300 billion per year in taxes goes 
uncollected by the government, and by some estimates more than a third 
of that money may be related to corporations using offshore tax havens, 
we should close every loophole possible.
  Just last week, the Government Accountability Office, GAO, went to 
the Caymans to investigate U.S. companies' offshore operations. The GAO 
went to look at the buildings where U.S. corporations locate shell 
corporations. These corporations are often nothing more than a computer 
file. According to the Boston Globe, the KBR Cayman Island corporations 
do not even have an office or a phone number. I commend Senators Baucus 
and Grassley for requesting this investigation.
  As a member of the Finance Committee, I will continue working to 
close corporate loopholes that are fueled by greed. I urge my 
colleagues to support ending this egregious practice.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2775

       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 ``Fair Share Act of 2008''.

[[Page S2156]]

     SEC. 2. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS 
                   PERFORMING SERVICES UNDER CONTRACT WITH UNITED 
                   STATES GOVERNMENT TREATED AS AMERICAN 
                   EMPLOYERS.

       (a) FICA Taxes.--Section 3121 of the Internal Revenue Code 
     of 1986 (relating to definitions) is amended by adding at the 
     end the following new subsection:
       ``(z) Treatment of Certain Foreign Persons as American 
     Employers.--
       ``(1) In general.--If any employee of a foreign person is 
     performing services in connection with a contract between the 
     United States Government (or any instrumentality thereof) and 
     any member of any domestically controlled group of entities 
     which includes such foreign person, such foreign person shall 
     be treated for purposes of this chapter as an American 
     employer with respect to such services performed by such 
     employee.
       ``(2) Domestically controlled group of entities.--For 
     purposes of this subsection--
       ``(A) In general.--The term `domestically controlled group 
     of entities' means a controlled group of entities the common 
     parent of which is a domestic corporation.
       ``(B) Controlled group of entities.--The term `controlled 
     group of entities' means a controlled group of corporations 
     as defined in section 1563(a)(1), except that--
       ``(i) `more than 50 percent' shall be substituted for `at 
     least 80 percent' each place it appears therein, and
       ``(ii) the determination shall be made without regard to 
     subsections (a)(4) and (b)(2) of section 1563.

     A partnership or any other entity (other than a corporation) 
     shall be treated as a member of a controlled group of 
     entities if such entity is controlled (within the meaning of 
     section 954(d)(3)) by members of such group (including any 
     entity treated as a member of such group by reason of this 
     sentence).
       ``(3) Liability of common parent.--In the case of a foreign 
     person who is a member of any domestically controlled group 
     of entities, the common parent of such group shall be jointly 
     and severally liable for any tax under this chapter for which 
     such foreign person is liable by reason of this subsection.
       ``(4) Cross reference.--For relief from taxes in cases 
     covered by certain international agreements, see sections 
     3101(c) and 3111(c).''.
       (b) Social Security Benefits.--Subsection (e) of section 
     210 of the Social Security Act (42 U.S.C. 410(e)) is 
     amended--
       (1) by striking ``(e) The term'' and inserting ``(e)(1) The 
     term'',
       (2) by redesignating paragraphs (1) through (6) as 
     subparagraphs (A) through (F), respectively, and
       (3) by adding at the end the following new paragraph:
       ``(2)(A) If any employee of a foreign person is performing 
     services in connection with a contract between the United 
     States Government (or any instrumentality thereof) and any 
     member of any domestically controlled group of entities which 
     includes such foreign person, such foreign person shall be 
     treated for purposes of this chapter as an American employer 
     with respect to such services performed by such employee.
       ``(B) For purposes of this paragraph--
       ``(i) The term `domestically controlled group of entities' 
     means a controlled group of entities the common parent of 
     which is a domestic corporation.
       ``(ii) The term `controlled group of entities' means a 
     controlled group of corporations as defined in section 
     1563(a)(1) of the Internal Revenue Code of 1986, except 
     that--
       ``(I) `more than 50 percent' shall be substituted for `at 
     least 80 percent' each place it appears therein, and
       ``(II) the determination shall be made without regard to 
     subsections (a)(4) and (b)(2) of section 1563 of such Code.

     A partnership or any other entity (other than a corporation) 
     shall be treated as a member of a controlled group of 
     entities if such entity is controlled (within the meaning of 
     section 954(d)(3) of such Code) by members of such group 
     (including any entity treated as a member of such group by 
     reason of this sentence).''.
       (c) Effective Date.--The amendment made by this section 
     shall apply to services performed after the date of the 
     enactment of this Act.
                                 ______