BILL NUMBER: AB 759	AMENDED
	BILL TEXT

	AMENDED IN SENATE  AUGUST 5, 2010
	AMENDED IN SENATE  SEPTEMBER 2, 2009
	AMENDED IN SENATE  JULY 15, 2009
	AMENDED IN SENATE  JUNE 29, 2009
	AMENDED IN ASSEMBLY  APRIL 14, 2009

INTRODUCED BY   Assembly Member Ma

                        FEBRUARY 26, 2009

   An act to amend Section 10286.1 of the Public Contract Code,
  and to amend Sections 24411 and 25110 of, and to add
Section 25117 to, the Revenue and Taxation Code, relating to
corporations.   relating to public contracts. 


	LEGISLATIVE COUNSEL'S DIGEST


   AB 759, as amended, Ma. Public contracts with expatriate 
corporations: corporation tax law water's-edge election. 
 corporations.  
   (1) Existing 
    Existing  law regarding contracting between state
agencies and private contractors sets forth requirements for the
procurement of materials, supplies, equipment, and services by state
agencies. Existing law sets out the various responsibilities of the
Department of General Services, and other state agencies, in
overseeing and implementing state contracting procedures and
policies.
   Existing law prohibits a state agency from entering into any
contract with an expatriate corporation, as defined, or its
subsidiary, unless certain conditions are met. Existing law defines
an expatriate corporation as a foreign incorporated entity that is
publicly traded in the United States and that meets specified
criteria. 
   This bill would revise the definition of an expatriate
corporation, and would exclude as an expatriate corporation a foreign
incorporated entity that is publicly traded in the United States
that meets specified conditions, including, among others, that the
foreign incorporated entity is created and organized under the laws
of a foreign country with which the United States has a comprehensive
income tax treaty and is considered a resident of that foreign
country for purposes of that treaty or any successor treaty. 

   This bill would revise the definition of an expatriate corporation
to also require that the entity be domiciled in a jurisdiction that
does not have an income tax treaty in force with the United States.
 
   (2) Existing law provides that, in the case of a business with
income derived from, or attributable to, sources both within and
without this state, the income is apportioned between this state and
other states and foreign countries for tax purposes in accordance
with a specified formula based on the property, payroll, and sales
within and without this state, except as otherwise provided. Existing
law permits certain taxpayers, as provided, to elect to determine
their income under a water's-edge election and specifies certain
requirements under that election.  
   This bill would conform specified provisions relating to, among
other things, the water's-edge election to specified federal income
tax laws relating to the taxation of certain shareholders of
controlled foreign corporations, as provided. 
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  It is the intent of the Legislature in enacting this
statute to clarify that an expatriate corporation located in a
foreign jurisdiction that does not have an income tax treaty with the
United States shall not enter into any contracts with a state
agency.
   SEC. 2.    Section 10286.1 of the  Public
Contract Code   is amended to read: 
   10286.1.  (a) For purposes of this part, except as otherwise
provided in subdivisions (b) and (c), a state agency shall not enter
into any contract with an expatriate corporation or its subsidiaries.

   (b) (1) For purposes of this  article  
chapter  , an "expatriate corporation" means a foreign
incorporated entity that is publicly traded in the United States to
which all of the following apply:
   (A) The United States is the principal market for the public
trading of the foreign incorporated entity.
   (B) The foreign incorporated entity has no substantial business
activities in the place of incorporation.
   (C) Either clause (i) or clause (ii) applies:
   (i) The foreign entity was established in connection with a
transaction or series of related transactions pursuant to which (I)
the foreign entity directly or indirectly acquired substantially all
of the properties held by a domestic corporation or all of the
properties constituting a trade or business of a domestic partnership
or related foreign partnership, and (II) immediately after the
acquisition, more than 50 percent of the publicly traded stock, by
vote or value, of the foreign entity is held by former shareholders
of the domestic corporation or by former partners of the domestic
partnership or related foreign partnership. For purposes of subclause
(II), any stock sold in a public offering related to the transaction
or a series of transactions is disregarded.
   (ii) The foreign entity was established in connection with a
transaction or series of related transactions pursuant to which (I)
the foreign entity directly or indirectly acquired substantially all
of the properties held by a domestic corporation or all of the
properties constituting a trade or business of a domestic partnership
or related foreign partnership, and (II) the acquiring foreign
entity is more than 50 percent owned, by vote or value, by domestic
shareholders or partners.
   (iii) For purposes of this subparagraph, indirect acquisition of
property includes the acquisition of a stock share, or any portion
thereof, of the owner of that property. 
   (2) (A) For purposes of this chapter, a foreign incorporated
entity that is publicly traded in the United States is not an
"expatriate corporation" if all of the following are true:  

   (i) The foreign incorporated entity, or any predecessor entity,
was originally established in connection with a transaction or series
of related transactions between unrelated publicly traded
corporations.  
   (ii) Immediately after the transaction or series of related
transactions, not more than 70 percent of the publicly traded stock,
by vote or value, of the foreign incorporated entity is held in the
manner described in clause (i) of subparagraph (C) of paragraph (1).
 
   (iii) The transaction or series of related transactions that
originally established the foreign incorporated entity, or any
predecessor entity, was a taxable transaction for any United States
shareholders of any domestic corporation that was a party to such
transaction.  
   (iv) The foreign incorporated entity is both of the following:
 
   (I) Created or organized under the laws of a foreign country with
which the United States has a comprehensive income tax treaty. 

   (II) Considered a resident of that foreign country for purposes of
that treaty, or any successor treaty with that foreign country
meeting the requirements of this paragraph.  
   (B) A foreign incorporated entity meeting the requirements of
subparagraph (A) shall include any successor corporation resulting
from a corporate reorganization, as defined in Section 368 of the
Internal Revenue Code, or a transaction satisfying the requirements
of Section 351 of the Internal Revenue Code.  
   (2) 
    (3)  Notwithstanding subdivision (a), a state agency may
contract with an expatriate corporation, or its subsidiary, if it
was an expatriate corporation before January 1, 2004, to which both
of the following apply:
   (A) The foreign entity provides, by operation of law, by
provisions of its governing documents, by resolution of its board of
directors, or in any other manner, at least the following
shareholders' rights:
   (i) Shareholders of the entity have the right to inspect, at a
principal place of business in the United States, copies of the
entity's books and records, including, but not limited to,
shareholder names, addresses, and shareholdings in accordance with
the corporation law, as amended from time to time and as that law is
interpreted by the courts, of the United States jurisdiction in which
the entity was previously incorporated, or, if the entity was not
previously incorporated, in accordance with the terms set forth in
the Model Business Corporation Act, as that act may be amended from
time to time, provided that, if the corporate law of the United
States jurisdiction in which the entity was previously incorporated
or the Model Business Corporation Act does not provide access to the
shareholder names, addresses, and shareholdings, these books and
records are available for inspection by shareholders for purposes
properly related to their status as shareholders of the entity.
   (ii) The entity permits its shareholders to bring derivative
proceedings on behalf of the entity, provided that these derivative
proceedings are brought on a basis and under the terms applicable
under the law, as amended from time to time and as interpreted by, or
required by, the courts of the United States jurisdiction in which
the entity was previously incorporated, or, if the entity was not
previously incorporated, on a basis and under the terms set forth in
the Model Business Corporations Act as that act may be amended from
time to time and as it is interpreted by, or required by, the courts.

   (iii) Entity transactions in which any director is interested are
approved in accordance with the applicable law, as amended from time
to time and as interpreted by the courts, of the United States
jurisdiction in which the entity was previously incorporated, or, if
the entity was not previously incorporated, in accordance with the
terms set forth in the Model Business Corporations Act, as may be
amended from time to time and as interpreted by the courts.
   (iv) The entity has consented to the jurisdiction, for any
otherwise available cause of action by or on behalf of the entity's
shareholders, including any pendent state causes of action, of all of
the following courts:
   (I) The state courts of one or more states.
   (II) The United States federal courts in any state in which the
entity consents to the jurisdiction of that state's courts pursuant
to subclause (I).
   (v) The entity has appointed an agent for service of process in
the state or states in which the entity has consented to
jurisdiction, as described in clause (iv), and the entity meets at
least one of the following conditions:
   (I) The entity has unencumbered assets in the United States, which
assets may include equity or debt investments in United States
companies, with a book value in excess of fifty million dollars
($50,000,000), and the entity delivers to the Secretary of State an
opinion of an attorney licensed in the United States that judgments
rendered against the entity may be satisfied by using these assets.
   (II) The entity posts a bond or similar security in an amount of
at least fifty million dollars ($50,000,000).
   (III) The entity has directors' and officers' insurance in an
amount of at least fifty million dollars ($50,000,000).
   (vi) The entity agrees that, in connection with any lawsuit
brought against it by its shareholders in any court in which the
entity has consented to jurisdiction as described in clause (iv), the
entity will provide to the court notice of the manner in which the
entity complied with clause (v) and, if the entity complied with that
clause in the manner specified in subclause (I) of clause (v), a
copy of the opinion described in that subclause.
   (vii) Shareholder approval is required for any sale of all or
substantially all of the entity's assets in accordance with the law,
as amended from time to time and as it is interpreted by the courts,
of the United States jurisdiction in which it was previously
incorporated, or, if it was not previously incorporated, in
accordance with the terms set forth in the Model Business
Corporations Act, as it may be amended from time to time.
   (viii) The directors and officers of the entity occupy a fiduciary
relationship with the entity and its shareholders and these
directors and officers, in performing their duties, act in good faith
in a manner that a director or officer believes to be in the best
interests of the entity and its shareholders, as that standard of
care is interpreted by the courts.
   (ix) The entity agrees to hold no more than one of every four
annual shareholder meetings in a location outside the United States
and, in the event that the entity holds an annual meeting outside the
United States, the entity agrees to provide access to that meeting
through a Web cast or other technology that allows the entity's
shareholders to do both of the following:
   (I) Listen to the meeting, watch the meeting, or both.
   (II) Send questions that will be addressed at the meeting.
   (x) The entity provides a description of the shareholder rights
described in clauses (i) to (ix), inclusive, and any subsequent
changes to these rights, on the entity's Web site or in its 10K
filings with the United States Securities and Exchange Commission.
   (B) The entity uses worldwide combined reporting to calculate the
income on which it pays taxes to the state.
   (c) The chief executive officer of a state agency or his or her
designee may waive the prohibition specified in subdivision (a) if
the executive officer or his or her designee has made a written
finding that the contract is necessary to meet a compelling public
interest. For purposes of this section, a "compelling public interest"
includes, but is not limited to, ensuring the provision of essential
services, ensuring the public health and safety, or an emergency as
defined in Section 1102. If a waiver is granted to a vendor pursuant
to this subdivision, the requirement to submit a declaration of
compliance, as set forth in paragraph (1) of subdivision (d), does
not apply to that vendor.
   (d) (1) For purposes of this chapter, "state agency" means every
state office, department, division, bureau, board, commission, and
the California State University, but does not include the University
of California, the Legislature, the courts, or any agency in the
judicial branch of government.
   (2) On or after January 1, 2004, all state agencies shall, as a
condition of the contract, require any vendor that is offered a
contract to do business with the state to submit a declaration
stating that the vendor is eligible to contract with the state
pursuant to this section.
   (3) A vendor that declares as true any material matter in a
declaration described in this subdivision that he or she knows to be
false is guilty of a misdemeanor.
   (e) (1) Except as provided in paragraph (2) and subdivision (f),
this section applies to contracts that are entered into on or after
January 1, 2004.
   (2) With respect to an entity that was an expatriate corporation,
as defined in paragraph (1) of subdivision (b), before January 1,
2004, this section applies to contracts that are entered into on or
after April 1, 2004.
   (f) (1) The declaration requirement set forth in subdivision (d)
does not apply to a credit card purchase of goods of two thousand
five hundred dollars ($2,500) or less.
   (2) The total amount of exemption authorized herein shall not
exceed seven thousand five hundred dollars ($7,500) per year for each
company from which a state agency is purchasing goods by credit
card. It shall be the responsibility of each state agency to monitor
the use of this exemption and adhere to these restrictions on these
purchases. All matter omitted in this version of the bill appears in
the bill as amended in the Senate, September 2, 2009. (JR11)