6 U.S.C. § 395 - Prohibition on contracts with corporate expatriates

6 USC 395 - Prohibition on contracts with corporate expatriates

(a) In general 
The Secretary may not enter into any contract with a foreign incorporated entity which is treated as an inverted domestic corporation under subsection (b) of this section, or any subsidiary of such an entity.
(b) Inverted domestic corporation 
For purposes of this section, a foreign incorporated entity shall be treated as an inverted domestic corporation if, pursuant to a plan (or a series of related transactions)
(1) the entity completes before, on, or after November 25, 2002, the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership;
(2) after the acquisition at least 80 percent of the stock (by vote or value) of the entity is held
(A) in the case of an acquisition with respect to a domestic corporation, by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation; or
(B) in the case of an acquisition with respect to a domestic partnership, by former partners of the domestic partnership by reason of holding a capital or profits interest in the domestic partnership; and
(3) the expanded affiliated group which after the acquisition includes the entity does not have substantial business activities in the foreign country in which or under the law of which the entity is created or organized when compared to the total business activities of such expanded affiliated group.
(c) Definitions and special rules 

(1) Rules for application of subsection (b) 
In applying subsection (b) of this section for purposes of subsection (a) of this section, the following rules shall apply:
(A) Certain stock disregarded 
There shall not be taken into account in determining ownership for purposes of subsection (b)(2) of this section
(i) stock held by members of the expanded affiliated group which includes the foreign incorporated entity; or
(ii) stock of such entity which is sold in a public offering related to the acquisition described in subsection (b)(1) of this section.
(B) Plan deemed in certain cases 
If a foreign incorporated entity acquires directly or indirectly substantially all of the properties of a domestic corporation or partnership during the 4-year period beginning on the date which is 2 years before the ownership requirements of subsection (b)(2) of this section are met, such actions shall be treated as pursuant to a plan.
(C) Certain transfers disregarded 
The transfer of properties or liabilities (including by contribution or distribution) shall be disregarded if such transfers are part of a plan a principal purpose of which is to avoid the purposes of this section.
(D) Special rule for related partnerships 
For purposes of applying subsection (b) of this section to the acquisition of a domestic partnership, except as provided in regulations, all domestic partnerships which are under common control (within the meaning of section 482 of title 26) shall be treated as I[1] partnership.
(E) Treatment of certain rights 
The Secretary shall prescribe such regulations as may be necessary to
(i) treat warrants, options, contracts to acquire stock, convertible debt instruments, and other similar interests as stock; and
(ii) treat stock as not stock.
(2) Expanded affiliated group 
The term expanded affiliated group means an affiliated group as defined in section 1504 (a) of title 26 (without regard to section 1504(b) of such title), except that section 1504 of such title shall be applied by substituting more than 50 percent for at least 80 percent each place it appears.
(3) Foreign incorporated entity 
The term foreign incorporated entity means any entity which is, or but for subsection (b) of this section would be, treated as a foreign corporation for purposes of title 26.
(4) Other definitions 
The terms person, domestic, and foreign have the meanings given such terms by paragraphs (1), (4), and (5) of section 7701 (a) of title 26, respectively.
(d) Waivers 
The Secretary shall waive subsection (a) of this section with respect to any specific contract if the Secretary determines that the waiver is required in the interest of national security.
[1] So in original.

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