BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   AB 759|
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                                 THIRD READING


          Bill No:  AB 759
          Author:   Ma (D)
          Amended:  8/5/10 in Senate
          Vote:     21

           
          PRIOR VOTES NOT RELEVANT 


           SUBJECT :    Public contracts with expatriate corporations

           SOURCE  :     Author


           DIGEST  :    This bill revises the definition of an  
          expatriate corporation, and excludes 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.

           Senate Floor Amendments  of 8/5/10 delete the Senate Revenue  
          and Taxation Code provisions of the bill and revise and  
          distinguish cross-border mergers from inversions to  
          determine whether a firm is disqualified from bidding on  
          state contracts.

           ANALYSIS  :    Existing law prohibits the state from entering  
          into any contract with a publicly traded foreign  
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          incorporated entity or its subsidiary if all of the  
          following apply:

          1. The United States is the principal market for the public  
             trading of the foreign incorporated entity.

          2. The foreign incorporated entity has no substantial  
             business activities in the place of incorporation  
             compared to the business activity of its subsidiary or  
             subsidiaries.
           
          3. The foreign entity was incorporated through a  
             transaction or a series of transactions in which it  
             acquired substantially all of the properties held by a  
             domestic corporation or partnership and immediately  
             after the acquisition more than 50 percent of the  
             publicly traded stock was transferred to the same  
             shareholders or partners that owned the domestic  
             corporation or partnership.

          Existing law permits the chief executive of a state agency  
          or a designee to waive the ineligibility of a vendor that  
          meets the above test by making a written finding that the  
          contract is necessary to meet a "compelling public  
          interest."  

          Existing law requires each vendor submitting a bid or  
          contract to certify under penalty of perjury that it is not  
          an ineligible vendor pursuant to the test described above.

          This bill limits the above provisions to firm domiciled in  
          countries that do not have a tax treaty with the United  
          States.

          This bill distinguishes cross-border mergers, transactions  
          intended to gain efficiencies in scale and scope or change  
          a firm's competitive position or profits, from inversions,  
          which provide tremendous tax advantages while not  
          fundamentally changing a firm's business structure.  

          This bill provides that a foreign incorporated entity that  
          is publicly traded in the United States is not an  
          expatriate corporation for purposes of the public contract  
          prohibition if all the following are true:







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          1. The entity or any predecessor entity was originally  
             established in connection with a transaction or series  
             of transactions between unrelated publicly traded  
             corporations.

          2. 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 by former shareholders of  
             the domestic corporation or by former partners of the  
             domestic partnership or related foreign partnership.

          3. 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.

          4. The foreign incorporated entity is created or 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 country for purposes of  
             that treaty or any successor treaty

          This bill additionally states that a foreign incorporated  
          entity that meets the above conditions resulting from two  
          types of corporate reorganization as defined by the  
          Internal Revenue Code shall not be considered an expatriate  
          corporation.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

          DLW:mw  8/9/10   Senate Floor Analyses 

                       SUPPORT/OPPOSITION:  NONE RECEIVED

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