S. 409: No Tax Breaks for Outsourcing Act

The "No Tax Breaks for Outsourcing Act" proposes several changes to the Internal Revenue Code aimed at curbing tax benefits for corporations that engage in outsourcing practices. Below is a summary of the key provisions of the bill:

Tax Benefits Elimination

The bill eliminates specific tax benefits that have been associated with what is known as global intangible low-taxed income (GILTI). This means that domestic corporations will no longer receive favorable tax treatment for income earned abroad in low-tax jurisdictions.

Current Year Taxation

Under the new regulations, net Controlled Foreign Corporation (CFC) tested income will be included in the taxation for the current year. This shifts the tax burden to include more income generated overseas by U.S. corporations and their foreign subsidiaries.

Regulatory Enforcement

The bill introduces stricter regulations on both domestic corporations and their foreign subsidiaries. These regulations are aimed at limiting the tax deductions that corporations can claim, particularly in cases involving inverted corporations—companies that merge with foreign entities to reduce tax liability in the U.S.

Definition of Executive Officers

In the context of this legislation, individuals who are responsible for strategic, financial, and operational decisions within any U.S.-based affiliated group will be classified as executive officers, regardless of their official job titles. This classification is intended to ensure accountability and transparency in corporate governance.

Significance of U.S. Business Activities

A corporation is considered to have significant domestic business activities if at least 25% of its employees, compensation, assets, or income are based in the United States. This definition helps determine which companies will be affected by the new tax regulations and enforcement measures.

Purpose and Goals

The overarching aim of the "No Tax Breaks for Outsourcing Act" is to discourage the practice of outsourcing by ensuring that corporations pay their fair share of taxes on income earned in the U.S. and abroad. By tightening the tax code and enforcing regulations on both domestic and foreign operations, the bill seeks to promote domestic job retention and economic stability.

Relevant Companies

• IBM (International Business Machines Corporation) - As a major player in technology services and consulting, IBM may be affected due to its global operations and outsourced services.
• AAPL (Apple Inc.) - Apple, with significant overseas income and manufacturing, could see changes in its tax strategies as a result of the bill.
• GOOGL (Alphabet Inc.) - Alphabet, the parent company of Google, may need to reevaluate its tax positions related to global income.
• CSCO (Cisco Systems, Inc.) - Cisco operates in many countries and could be impacted by the elimination of tax breaks for income derived from foreign subsidiaries.