No Tax Breaks for Outsourcing Act

Bill Number: H.R. 995
Origin Chamber: House
Congress: 119th Congress, Session 1
Policy Area: Taxation
Status: Introduced
Latest Action: 2025-02-05: Referred to the House Committee on Ways and Means.
Last Updated: 2026-06-25T08:07:26Z

AI-Generated Summary

Purpose of the Legislation

The "No Tax Breaks for Outsourcing Act" (H.R. 995) aims to reduce tax incentives for U.S. companies outsourcing operations abroad by amending the Internal Revenue Code of 1986. It targets income from controlled foreign corporations (CFCs, which are foreign companies majority-owned by U.S. shareholders), foreign tax credits (refunds for taxes paid abroad), interest deductions, corporate inversions (relocating headquarters overseas for tax benefits), and the tax treatment of foreign companies managed in the U.S. The goal is to ensure more foreign-earned income is taxed in the U.S. currently, discouraging profit-shifting to low-tax countries.

Key Provisions

Current Year Inclusion of Net CFC Tested Income (Section 2):
Replaces the existing "global intangible low-taxed income" (GILTI) regime with "net CFC tested income," which includes a broader range of foreign income from CFCs, excluding certain exclusions like high-taxed income or oil-related income derived locally abroad.
Applies the inclusion on a country-by-country basis using "CFC taxable units" (groups of related foreign entities or branches in the same country).
Increases the foreign tax credit for taxes on this income from 80% to 100% of deemed-paid credits.
Eliminates carryback of foreign tax credits (allowing carryforward only to future years).
Treats foreign base company oil-related income (profits from oil/gas extraction or sales abroad, excluding local use) as Subpart F income (immediately taxable to U.S. shareholders).
Repeals the 50% deduction for GILTI and foreign-derived intangible income (FDII, income from U.S.-based intangibles like patents).
Authorizes the Treasury Secretary to issue regulations to prevent avoidance, including basis adjustments for losses and related-party transfers.

Country-by-Country Foreign Tax Credit Limitation (Section 3):
Applies foreign tax credit limits separately for each country based on "taxable units" (e.g., foreign corporations, pass-through entities like partnerships, or branches where the taxpayer has a taxable presence).
Defines taxable units to include U.S. shareholders' interests in foreign entities, treating U.S. possessions (e.g., Puerto Rico) and autonomous regions as separate countries.
Requires separate tracking of income, taxes, and deductions per unit to prevent blending high- and low-tax country results.

Interest Deduction Limits for International Groups (Section 4):
For domestic corporations in "international financial reporting groups" (groups with over $100 million in average annual gross receipts, including at least one foreign entity doing business in the U.S.), interest deductions are capped based on the group's consolidated financial statements.
The cap is the corporation's share (based on its EBITDA—earnings before interest, taxes, depreciation, and amortization) of the group's net interest expense, plus 110% of excess interest over income.
Disallowed interest carries forward up to 5 years; applies similar rules to partnerships and foreign entities in the U.S.
Uses financial statements filed with the SEC or for other nontax purposes.

Modifications to Inverted Corporations (Section 5):
Treats a foreign corporation as domestic if it acquires a U.S. company and former U.S. owners hold more than 50% of stock, or if management/control occurs primarily in the U.S. with significant U.S. business activities (at least 25% of employees, compensation, assets, or income in the U.S.).
Lowers the threshold for "surrogate foreign corporations" (inverted entities) from 60% to 80% ownership by former U.S. shareholders.
Exceptions for entities with substantial business in their foreign country of organization; applies retroactively to inversions after December 22, 2017, with extended IRS assessment periods.

Foreign Corporations Managed in the U.S. (Section 6):
Treats large foreign corporations (publicly traded or with $50 million+ in assets, including managed investments) as domestic for U.S. income tax if their management and control (e.g., executive decisions on strategy, finance, and operations) occurs primarily in the U.S.
Focuses on location of senior executives; for investment firms, includes U.S.-based investment decisions.
Exceptions for small or previously classified entities with waivers; effective 2 years after enactment.

Significant Changes to Existing Law

Broadens CFC Income Taxation: Shifts from GILTI (focused on intangibles) to net CFC tested income (all tested income/losses), eliminating deferral benefits and the high-tax exclusion for Subpart F income (foreign base company income like passive earnings).
Enhances Foreign Tax Credits: Removes the 80% limitation and carryback option, but applies credits country-by-country to prevent offsets from high-tax countries against low-tax ones.
Tightens Interest Rules: Adds a new limitation layered on existing business interest rules (Section 163(j)), using group-wide financial reporting for allocation, with a 5-year carryforward replacing indefinite carryforwards.
Expands Anti-Inversion Rules: Lowers ownership thresholds, adds a "management and control" test, and defines "significant domestic activities" more stringently, overriding place-of-incorporation tests.
New Domestic Treatment Test: Introduces a management-based residency rule for foreign corporations, complementing incorporation-based rules, with regulatory guidance required.

Most changes apply to taxable years beginning after December 31, 2024, with some retroactive (e.g., inversions) or delayed (e.g., management rules).

Potential Impacts

Government Agencies: The IRS and Treasury will face increased administrative burdens to issue regulations on taxable units, management control, and avoidance prevention, potentially requiring more resources for audits and compliance. This could boost U.S. tax revenue by billions annually through higher inclusions and reduced deductions.
Citizens: Individual U.S. shareholders of CFCs may see higher personal taxes on foreign income; broader economy could benefit from reduced outsourcing, potentially creating U.S. jobs, but companies might raise prices or cut investments, affecting consumers and workers.
International Relations: May prompt retaliatory tax measures from foreign governments, complicate U.S. trade negotiations, and encourage multinational firms to relocate operations to the U.S., altering global investment flows.

Main Stakeholders Affected

Multinational Corporations: Especially U.S.-based firms with CFCs, inversions, or international groups (e.g., tech, pharma, oil/gas companies), facing higher effective tax rates and complex reporting.
U.S. Shareholders: Individuals and entities owning 10%+ of foreign corporations, subject to immediate inclusion of broader foreign income.
Foreign Corporations: Those managed in the U.S. or inverted, potentially reclassified as domestic, increasing U.S. tax liability.
Financial and Investment Firms: Impacted by interest limits and asset-based domestic treatment rules.
Oil and Gas Industry: New taxation of foreign oil-related income as Subpart F.
Taxpayers and Advisors: Need to adapt to country-by-country tracking and new definitions.

Notable Legal, Constitutional, or Political Implications

Legal: Increases tax code complexity, relying heavily on Treasury regulations for implementation (e.g., defining "management and control" or "taxable units"), which could lead to litigation over interpretations. Retroactive elements (e.g., inversions) extend statute of limitations, raising due process concerns but aligning with congressional taxing authority.
Constitutional: Appears consistent with Congress's power to lay and collect taxes (Article I, Section 8); no apparent First Amendment or equal protection issues, as changes apply uniformly to affected entities.
Political: Reinforces efforts to combat corporate tax avoidance and "offshoring," potentially appealing to voters concerned with fair taxation, but could face opposition from business lobbies arguing it hinders global competitiveness. Sponsored by over 100 House members, mostly Democrats, signaling partisan divide on international tax policy.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Doggett, Lloyd [D-TX-37]

Cosponsors (135)

Rep. Adams, Alma S. [D-NC-12], Rep. Ansari, Yassamin [D-AZ-3], Rep. Balint, Becca [D-VT-At Large], Rep. Barragán, Nanette Diaz [D-CA-44], Rep. Beatty, Joyce [D-OH-3], Rep. Bishop, Sanford D. [D-GA-2], Rep. Bonamici, Suzanne [D-OR-1], Rep. Boyle, Brendan F. [D-PA-2], Rep. Brown, Shontel M. [D-OH-11], Rep. Brownley, Julia [D-CA-26], Rep. Budzinski, Nikki [D-IL-13], Rep. Carson, André [D-IN-7], Rep. Carter, Troy A. [D-LA-2], Rep. Casar, Greg [D-TX-35], Rep. Case, Ed [D-HI-1], Rep. Chu, Judy [D-CA-28], Rep. Clarke, Yvette D. [D-NY-9], Rep. Cleaver, Emanuel [D-MO-5], Rep. Cohen, Steve [D-TN-9], Rep. Conaway, Herbert [D-NJ-3], Rep. Crockett, Jasmine [D-TX-30], Rep. Crow, Jason [D-CO-6], Rep. Davis, Danny K. [D-IL-7], Rep. Davis, Donald G. [D-NC-1], Rep. Dean, Madeleine [D-PA-4], Rep. McClain Delaney, April [D-MD-6], Rep. DeLauro, Rosa L. [D-CT-3], Rep. DelBene, Suzan K. [D-WA-1], Rep. Deluzio, Christopher R. [D-PA-17], Rep. DeSaulnier, Mark [D-CA-10], Rep. Dexter, Maxine [D-OR-3], Rep. Dingell, Debbie [D-MI-6], Rep. Escobar, Veronica [D-TX-16], Rep. Espaillat, Adriano [D-NY-13], Rep. Evans, Dwight [D-PA-3], Rep. Leger Fernandez, Teresa [D-NM-3], Rep. Foster, Bill [D-IL-11], Rep. Foushee, Valerie P. [D-NC-4], Rep. Frankel, Lois [D-FL-22], Rep. Frost, Maxwell [D-FL-10], Rep. Garamendi, John [D-CA-8], Rep. García, Jesús G. "Chuy" [D-IL-4], Rep. Garcia, Robert [D-CA-42], Rep. Garcia, Sylvia R. [D-TX-29], Rep. Golden, Jared F. [D-ME-2], Rep. Goldman, Daniel S. [D-NY-10], Rep. Gomez, Jimmy [D-CA-34], Rep. Green, Al [D-TX-9], Rep. Grijalva, Raúl M. [D-AZ-7], Rep. Hayes, Jahana [D-CT-5] and 85 more