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: 8/18/10 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SENATE REVENUE & TAXATION COMMITTEE : 4-0, 8/11/10
AYES: Wolk, Alquist, Ashburn, Padilla
NO VOTE RECORDED: Walters
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 8/18/10 clarify that the
definition of "expatriate corporation" does not include
corporations that result from corporate reorganizations
under specified sections of the Internal Revenue Code as
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long as the corporation is considered a resident of a
country with which the United States has a comprehensive
tax 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
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
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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:
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.
The amendments of August 18, 2010 clarify the above
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paragraph by placing provisions relative to successor
corporations into a separate subparagraph defining entities
that are not expatriate corporations. The amendments
resolve an ambiguity by specifying that successor
corporations must be resident of a country with which the
United States has a comprehensive tax treaty, instead of
meeting all the requirements listed above. The change is
necessary because successor corporations are foreign
entities, and therefore cannot meet measurements specific
to domestic corporations which become foreign corporations
to determine whether a tax motivated inversion has taken
place.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
DLW:mw 8/18/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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