Stop Corporate Earnings Stripping Act of 2016

“(g) Special rules applicable to earnings stripping and related party transactions

“(1) In general—In the case of any corporation which is a related corporation for any taxable year, section 163(j) shall be applied with the following modifications:

“(A) 5-year limitation on carryforward of disallowed amounts—For purposes of determining any amount carried to, or from, such taxable year under subparagraph (B) of section 163(j)(1), such subparagraph shall be applied by substituting “in the 1st succeeding taxable and in the 2nd through 5th succeeding taxable years to the extent disallowed under subparagraph (A) in the preceding taxable year (determined on a first-in, first-out basis and by treating the amount carried forward under this subparagraph as allowed under subparagraph (A) before amounts otherwise taken into account under subparagraph (A))” for “in the succeeding taxable year”.

“(B) Rules for determining whether interest limitation rules apply—In applying section 163(j)(2) to determine whether section 163(j) applies to such related corporation for such taxable year—

“(i) subparagraph (A)(ii) shall be disregarded, and

“(ii) subparagraph (B)(i)(II) shall be applied by substituting “25 percent of the adjusted taxable income of the corporation” for “the sum of 50 percent of the adjusted taxable income of the corporation plus any excess limitation carryforward under clause (ii)” for purposes of determining the corporation's excess interest expense for such taxable year.

“(2) Related corporation—For purposes of this subsection—

“(A) In general—The term “related corporation” means any corporation for any taxable year if, at any time during such taxable year, such corporation is a member of an expanded affiliated group which includes (at any time during such taxable year) an entity which is a surrogate foreign corporation, determined by applying subsection (a)(2)(B)—

“(i) by substituting “on or after May 8, 2014” for “after March 4, 2003” in clause (i) thereof,

“(ii) by substituting “more than 50 percent” for “at least 60 percent” in clause (ii) thereof, and

“(iii) by disregarding the matter following clause (iii) thereof.

“(B) Exception for inverted corporations treated as domestic corporations—Such term shall not include any corporation if such corporation is treated as a domestic corporation by reason of subsection (b).

“(C) Special rule for inclusion of noncorporate entities—For purposes of subparagraph (A), a partnership or other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity controls (as determined under section 954(d)(3)), or is controlled by (as so determined), members of such group (including any entity treated as a member of such group by reason of this sentence).”