Sec. 4212. Denial of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with excess domestic indebtedness
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Section 163 is amended by redesignating subsection
(n)as subsection
(o)and by inserting after subsection
(m)the following new subsection: In the case of any domestic corporation which is a United States shareholder (as defined in section 951(b)) with respect to any foreign corporation both of which are members of the same worldwide affiliated group, the deduction allowed under this chapter for interest paid or accrued by such domestic corporation during the taxable year shall be reduced by the lesser of— the product of— the net interest expense of such domestic corporation, multiplied by the debt-to-equity differential percentage of such worldwide affiliated group, or the excess (if any) of— such net interest expense, over 40 percent of the adjusted taxable income (as defined in subsection (j)(6)(A)) of such domestic corporation. Any amount disallowed under paragraph
(1)for any taxable year shall be treated as interest paid or accrued in the succeeding taxable year (and shall not be treated as disqualified interest for purposes of applying subsection (j)). For purposes of this subsection, the term debt-to-equity differential percentage means, with respect to any worldwide affiliated group, the percentage which the excess domestic indebtedness of such group bears to the total indebtedness of the domestic corporations which are members of such group. For purposes of subparagraph (A), the term excess domestic indebtedness means, with respect to any worldwide affiliated group, the excess (if any) of— the total indebtedness of the domestic corporations which are members of such group, over 110 percent of the amount which the total indebtedness of such domestic corporations would be if the ratio of such indebtedness to the total equity of such domestic corporations equaled the ratio which— the total indebtedness of such group, bears to the total equity of such group. For purposes of subparagraph (B), the term total equity means, with respect to one or more corporations, the excess (if any) of— the money and all other assets of such corporations, over the total indebtedness of such corporations. For purposes of this paragraph— Rules similar to the rules of clauses (i), (ii), and
(iii)of subsection (j)(2)(C) shall apply. The total indebtedness, and the assets, of any group of corporations shall be determined by treating all members of such group as one corporation. The assets of the domestic corporations which are members of any worldwide affiliated group shall be determined by disregarding any interest held by any such domestic corporation in any foreign corporation which is a member of such group. For purposes of this subsection— The term worldwide affiliated group has the meaning which would be given such term by section 864(f)(1)(C) if section 1504(a) were applied by substituting more than 50 percent for at least 80 percent each place it appears. The term net interest expense has the meaning given such term by subsection (j)(6)(B). For purposes of this subsection, all members of the same affiliated group (within the meaning of section 1504(a) applied by substituting more than 50 percent for at least 80 percent each place it appears) shall be treated as 1 taxpayer. The Secretary shall prescribe such regulations or other guidance as may be appropriate to carry out the purposes of this subsection, including regulations or other guidance— to prevent the avoidance of the purposes of this subsection, providing such adjustments in the case of corporations which are members of an affiliated group as may be appropriate to carry out the purposes of this subsection, providing for the coordination of this subsection with section 884, and providing for the reallocation of shares of partnership indebtedness, or distributive shares of the partnership’s interest income or interest expense. . Paragraph
(1)of section 163(j) is amended by adding at the end the following new subparagraph: The amount disallowed under subparagraph
(A)with respect to any corporation for any taxable year shall be reduced by any amount disallowed under subsection (n)(1) with respect to such corporation for such taxable year. . The amendments made by this section shall apply to taxable years beginning after December 31, 2014.