To amend the Internal Revenue Code of 1986 to treat as an asset acquisition any hostile qualified stock purchase by a foreign person and to limit the deduction for certain interest where a foreign person acquires control of a domestic corporation.

Amend the Internal Revenue Code to require that a hostile stock purchase by a foreign person in a corporate takeover be treated as an asset acquisition by the purchasing corporation.

Disallows an income tax deduction for interest on any indebtedness incurred or continued to purchase or carry corporate stock in the domestic corporation.

 
HR 4646 IH
101st CONGRESS
2d Session
 H. R. 4646
To amend the Internal Revenue Code of 1986 to treat as an asset acquisition
any hostile qualified stock purchase by a foreign person and to limit the
deduction for certain interest where a foreign person acquires control of
a domestic corporation.
IN THE HOUSE OF REPRESENTATIVES
April 26, 1990
Mr. DONNELLY (for himself, Mr. EARLY, Mr. CONTE, Mr. FRANK, Mr. NEAL of
Massachusetts, Mr. MAVROULES, Mr. MARKEY, Mr. ATKINS, Mr. KENNEDY, Mr. STUDDS,
and Mr. MOAKLEY) introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to treat as an asset acquisition
any hostile qualified stock purchase by a foreign person and to limit the
deduction for certain interest where a foreign person acquires control of
a domestic corporation.
  Be it enacted by the Senate and House of Representatives of the United
  States of America in Congress assembled,
SECTION 1. SECTION 338 ELECTION DEEMED MADE IN CASE OF HOSTILE QUALIFIED
STOCK PURCHASES BY FOREIGN PERSONS.
  (a) IN GENERAL- Section 338 of the Internal Revenue Code of 1986 (relating
  to certain stock purchases treated as asset acquisitions) is amended by
  redesignating subsection (i) as subjection (j) and by inserting after
  subsection (h) the following new subsection:
  `(i) ELECTION DEEMED MADE WHERE HOSTILE QUALIFIED STOCK PURCHASE BY
  FOREIGN PERSON-
  `(1) IN GENERAL- In the case of any hostile qualified stock purchase by
  a foreign person directly (or through 1 or more corporations or other
  entities), the election under subsection (a) shall be treated as made with
  respect to the target corporation.
  `(2) HOSTILE QUALIFIED STOCK PURCHASE- For purposes of this subsection--
  `(A) IN GENERAL- The term `hostile qualified stock purchase' means any
  qualified stock purchase if any significant portion of the stock included
  in such purchase is acquired pursuant to a hostile offer.
  `(B) HOSTILE OFFER-
  `(i) IN GENERAL- For purposes of subparagraph (A), the term `hostile
  offer' means any offer to acquire stock of a corporation if a majority
  of the independent members of the board of directors of such corporation
  disapprove such offer.
  `(ii) REVOCATION OF DISAPPROVAL- An offer shall not be treated as a hostile
  offer if--
  `(I) a majority of the independent members of the board of directors of
  such corporation revoke such disapproval, and
  `(II) no stock is acquired pursuant to such offer before such revocation.
  `(iii) INDEPENDENT DIRECTORS- For purposes of this subparagraph, a member
  of a board of directors shall be treated as independent only if--
  `(I) such member is not, and was not at any time during the 1-year period
  ending on the date of his approval or disapproval of the offer, an officer
  or employee of the target corporation, and
  `(II) such member's tenure on the board of directors has lasted for more
  than 18 months as of such date.
  `(3) SPECIAL RULES FOR DETERMINING WHETHER THERE IS A QUALIFIED STOCK
  PURCHASE- In the case of a hostile offer, for purposes of this section--
  `(A) the person (whether or not a corporation) who makes the offer to acquire
  stock of a corporation shall be treated as the purchasing corporation,
  `(B) all stock acquired by--
  `(i) any person acting in concert with such offeror, and
  `(ii) any person who is related (within the meaning of section 5881(c)(2))
  to such offeror or to the person described in clause (i), shall be treated
  as acquired by such offeror, and
  `(C) for purposes of subsection (d)(3), stock shall be treated as meeting
  the requirements of section 1504(a)(2) if--
  `(i) such requirements would be met if section 1504(a)(2) were applied by
  substituting `more than 50 percent' for `at least 80 percent' each place
  it appears, or
  `(ii) the offeror has effective control of the corporation by reason of
  acquiring such stock.'
  (b) TECHNICAL AMENDMENT- Subsection (a) of section 338 of such Code is
  amended by striking `subsection (e)' and inserting `subsection (e) or (i)'.
  (c) EFFECTIVE DATE- The amendments made by this section shall apply to
  hostile qualified stock purchases (as defined in section 338(i) of the
  Internal Revenue Code of 1986 as added by subsection (a)) with respect to
  which the acquisition date (as defined in section 338(h)(2) of such Code)
  is on or after April 25, 1990.
SEC. 2. LIMITATION ON INTEREST DEDUCTION WHERE FOREIGN PERSON ACQUIRES
CONTROL OF DOMESTIC CORPORATION.
  (a) GENERAL RULE- Section 163 of the Internal Revenue Code of 1986 (relating
  to deduction for interest) is amended by redesignating subsection (k)
  as subsection (l) and by inserting after subsection (j) the following
  new subsection:
  `(k) LIMITATION ON DEDUCTION FOR CERTAIN INTEREST WHERE FOREIGN PERSON
  ACQUIRES CONTROL OF DOMESTIC CORPORATION-
  `(1) IN GENERAL- If any foreign person acquires directly (or through 1 or
  more corporations or other entities) control of a domestic corporation in a
  hostile qualified stock purchase, no deduction shall be allowed under this
  chapter for disqualified interest paid or accrued by such foreign person
  (or by any corporation or entity through which such person acquired such
  control) on any indebtedness incurred or continued to purchase or carry
  stock in such domestic corporation.
  `(2) DISQUALIFIED INTEREST- For purposes of this subsection, the term
  `disqualified interest' has the meaning given to such term by subsection (j).
  `(3) OTHER DEFINITIONS- For purposes of this subsection--
  `(A) FOREIGN PERSON- The term `foreign person' means any person who is
  not a United States person.
  `(B) CONTROL- The term `control' means--
  `(i) ownership of stock in a corporation which meets the requirements of
  section 1504(a)(2) (determined by substituting `more than 50 percent' for
  `at least 80 percent' each place it appears), or
  `(ii) effective control of the corporation.
  `(4) COORDINATION WITH SUBSECTION (j)-
  `(A) This subsection shall be applied before the application of subsection
  (j).
  `(B) For purposes of subsection (j)--
  `(i) the determination of whether such subsection applies to any corporation
  shall be made without regard to this subsection, and
  `(ii) the amount of the disqualified interest and excess interest expense
  of the corporation for any taxable year shall be reduced by the amount
  disallowed under this subsection.'
  (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply in cases
  where control (as defined in section 163(k)(3) of the Internal Revenue Code
  of 1986 as added by subsection (a)) is acquired on or after April 26, 1990.