[Congressional Record Volume 163, Number 126 (Wednesday, July 26, 2017)]
[Senate]
[Pages S4302-S4303]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DURBIN (for himself, Mr. Reed, Mr. Franken, Ms. Duckworth, 
        and Mr. Whitehouse):
  S. 1637. A bill to prohibit the award of Federal Government contracts 
to inverted domestic corporations, and for other purposes; to the 
Committee on Homeland Security and Governmental Affairs.
  Mr. DURBIN. 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. 1637

       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 ``American Business for 
     American Companies Act of 2017''.

     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 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 January 18, 
     2017.
       ``(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 January 18, 2017, 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--
       ``(A) required in the interest of national security; or
       ``(B) necessary for the efficient or effective 
     administration of Federal or federally funded--
       ``(i) programs that provide health benefits to individuals; 
     or
       ``(ii) public health programs.
       ``(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.''.

[[Page S4303]]

       (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. 2340. 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 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 January 18, 
     2017.
       ``(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 January 18, 2017, 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 2339 
     the following new item:

``2340. 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 2340(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.
                                 ______