article: SECTION 1. SHORT TITLE. This Act may be cited as the ``World Trade Center Zone Tax Incentive Act''. SEC. 2. TAX TREATMENT OF FOREIGN CORPORATIONS RELOCATING TO WORLD TRADE CENTER AREA. (a) In General.--Subchapter Y of chapter 1 of the Internal Revenue Code of 1986 (relating to New York Liberty Zone benefits) is amended by adding at the end the following new section: ``SEC. 1400M. NO ADDITIONAL CORPORATE INCOME TAXES ON FOREIGN CORPORATIONS RELOCATING HEADQUARTERS OPERATIONS TO NEW YORK LIBERTY ZONE. ``(a) General Rule.--If there is a qualified headquarters relocation of an eligible foreign corporation, any qualified headquarters activities of the corporation conducted in the New York Liberty Zone shall be treated as conducted outside the United States for purposes of determining-- ``(1) the amount of any tax imposed by this chapter, or the amount of withholding tax under chapter 3, on the corporation, or ``(2) whether the corporation has a permanent establishment within the United States for purposes of any applicable income tax treaty between the United States and any foreign country. ``(b) Qualified Headquarters Relocation.--For purposes of this section-- ``(1) In general.--The term `qualified headquarters relocation' means any relocation of an eligible foreign corporation's qualified headquarters activities to the New York Liberty Zone but only if the corporation with respect to such relocation-- ``(A) before September 11, 2007, enters into a contract-- ``(i) under which the corporation agrees to acquire, lease, sublease, or otherwise occupy office space located in the New York Liberty Zone for use in the conduct of the activities to be relocated, and ``(ii) which requires a substantial financial commitment or provides a substantial cancellation penalty, and ``(B) before September 11, 2009-- ``(i) transfers to the New York Liberty Zone qualified headquarters activities meeting the requirements of paragraph (2), and ``(ii) locates employees in the New York Liberty Zone in accordance with the requirements of paragraph (3). ``(2) Transfer of qualified headquarters activities.--The requirements of this paragraph are met if the transfer of qualified headquarters activities includes at least the transfer of a substantial part of the following activities which the eligible foreign corporation was performing for members of its expanded affiliated group immediately before the requirement of paragraph (1)(A) is met: ``(A) The activities described in clause (ii) of subsection (c)(2)(A). ``(B) High-level activities described in clause (iii) of subsection (c)(2)(A). ``(C) The activities described in clause (iv) of subsection (c)(2)(A). ``(3) Transfer of employees.-- ``(A) In general.--The requirements of this paragraph are met if the eligible foreign corporation locates in the New York Liberty Zone a number of employees equal to or greater than the lesser of-- ``(i) 200 employees, or ``(ii) the greater of-- ``(I) 10 percent of the employees of the corporation and the members of its expanded affiliated group for which the corporation performs headquarters activities (as of the date the requirements of paragraph (1)(B) are first met), or ``(II) 50 employees. ``(B) High-level employees.--The requirements of this paragraph shall be treated as met only if the eligible foreign corporation locates in the New York Liberty Zone at least-- ``(i) 50 percent of the senior officers of the corporation, and ``(ii) 50 percent of the senior business development personnel of the corporation. ``(C) Current united states employees not counted.--For purposes of determining whether the requirements of this paragraph are first met, and continue to be met during the 2-year period after the date on which the requirements are first met, there shall not be taken into account any individual who was an employee of the eligible foreign corporation or any member of its expanded affiliated group who was located in the United States at any time during the 1-year period ending on the later of-- ``(i) the date the requirements of subsection (b)(1)(B) are first met, or ``(ii) the date the employee is first located in the New York Liberty Zone. Any period during which an individual was located in the New York Liberty Zone solely as part of a qualified headquarters relocation shall not be taken into account for purposes of the preceding sentence. ``(D) Located.--An employee shall be treated as located in the New York Liberty Zone or the United States for any period if the services performed by the employee during the period are performed primarily in the New York Liberty Zone or the United States, respectively. ``(c) Eligible Foreign Corporation; Qualified Headquarters Activities.--For purposes of this section-- ``(1) Eligible foreign corporation.--The term `eligible foreign corporation' means a foreign corporation which-- ``(A) performs qualified headquarters activities for 1 or more members of an expanded affiliated group including such corporation, and ``(B) agrees to furnish to the Secretary (at such time and in such manner as the Secretary may prescribe) such information as the Secretary may require to carry out this section, including the gross revenue of the corporation derived from qualified headquarters activities. ``(2) Qualified headquarters activities.-- ``(A) In general.--The term `qualified headquarters activities' means, with respect to any eligible foreign corporation-- ``(i) the ownership and management of any member of the expanded affiliated group of which it is a member, ``(ii) the conduct of any treasury function of a member of the expanded affiliated group of which it is a member, including the borrowing of funds, financing of members of the group and related entities, and investment of excess corporate funds, but not including the taking of deposits from, or the making of loans to, the public, ``(iii) marketing and branding functions, ``(iv) senior business management and development, and ``(v) any other activity incidental to any activity described in clauses (i) through (iv). ``(B) Certain activities previously conducted in united states not included.-- ``(i) In general.--Such term shall not include any activity which the eligible foreign corporation or any member of its expanded affiliated group engaged in through an office or fixed place of business in the United States at any time during the 3-year period ending on the date the requirements of subsection (b)(1)(B) are first met. ``(ii) Exception for relocation activities.--The conduct of any activity as part of a qualified headquarters relocation shall not be taken into account in determining whether clause (i) applies to the activity. ``(iii) Exclusion ceases to apply if activity not conducted in united states for 5 years.-- ``(I) In general.--Clause (i) shall not apply to any activity conducted in the New York Liberty Zone during the taxable year described in subclause (II) or any succeeding taxable year. ``(II) Applicable taxable year.--A taxable year is described in this subclause with respect to any activity if such year is the first taxable year in which ends a consecutive 5-year period which begins after the date the requirements of subsection (b)(1)(B) are first met and during which the eligible foreign corporation or any member of its expanded affiliated group did not engage in such activity through an office or fixed place of business within the United States. ``(iv) Special rules for acquired entities.-- ``(I) In general.--If an acquired entity engaged in an activity described in subparagraph (A) through an office or fixed place of business in the United States (other than an activity which was a qualified headquarters activity of the acquired entity for purposes of subsection (a)) at any time during the 1-year period preceding the first date on which the acquired entity became a member of the expanded affiliated group of the eligible foreign corporation, such activity shall be treated as an activity engaged in by the eligible foreign corporation on the day preceding the first day the requirements of subsection (b)(1)(B) are met. ``(II) Activities not conducted in united states for 5 years.--If subclause (I) applies to an activity, clause (iii) shall be applied to the activity by substituting the date the acquired entity became a member of the expanded affiliated group of the eligible foreign corporation for the first day the requirements of subsection (b)(1)(B) are met. ``(III) Acquired entity.--The term `acquired entity' means any corporation or partnership which became a member of the eligible foreign corporation's expanded affiliated group after the first date the requirements of subsection (b)(1)(B) are met. ``(v) Predecessor entities.--For purposes of this subparagraph, any activity conducted by a predecessor or related person with respect to a member of an expanded affiliated group shall be treated as conducted by the member. ``(d) Termination and Recapture of Tax Benefits.-- ``(1) In general.--This section shall not apply to any qualified headquarters activities of an eligible foreign corporation for any taxable year if the corporation at any time during the taxable year or any preceding taxable year fails to-- ``(A) conduct the qualified headquarters activities described in subsection (b)(2), or ``(B) meet the requirements of subsection (b)(3). The Secretary may waive the application of this paragraph in the case of a de minimis or inadvertent failure which is corrected within a reasonable period of time after discovery. ``(2) Recapture of tax on certain eligible foreign corporations.-- ``(A) In general.--In addition to any tax imposed by this chapter for the first taxable year during which this section does not apply to an eligible foreign corporation by reason of paragraph (1), there is hereby imposed on the eligible foreign corporation a tax equal to the recapture amount described in subparagraph (B). ``(B) Recapture amount.-- ``(i) In general.--The recapture amount described in this subparagraph shall be the sum of the amounts determined for each of the 4 taxable years preceding the first taxable year to which this section does not apply by reason of paragraph (1) by multiplying the qualified tax benefits for each such year by the following recapture percentage: ``In the case of-- The recapture percentage is-- The immediately preceding taxable year........ 80% The second preceding taxable year............. 60% The third preceding taxable year.............. 40% The fourth preceding taxable year............. 20%. ``(ii) Qualified tax benefits.--For purposes of this subparagraph, the term `qualified tax benefits' means, with respect to any taxable year described in clause (i), an amount equal to the excess (if any) of-- ``(I) the amount of the tax liability which a foreign corporation would have had for the taxable year under this chapter and chapter 3 if this section had not applied, over ``(II) the amount of such tax liability for such corporation for such taxable year without regard to this paragraph. ``(C) Interest.-- ``(i) In general.--In addition to the tax imposed by subparagraph (A), an eligible foreign corporation shall pay interest on the recapture amount. ``(ii) Calculation of interest.--The amount of interest under clause (i) shall be determined-- ``(I) at the underpayment rate specified in section 6621, ``(II) separately for each taxable year, and ``(III) for the period beginning on the due date for the tax return of the corporation for such taxable year (without regard to extensions) and ending on the due date for the tax return of the corporation for the first taxable year to which this section ceases to apply. ``(e) Expanded Affiliated Group.--For purposes of this section-- ``(1) In general.--The term `expanded affiliated group' means an affiliated group as defined in section 1504(a) but without regard to paragraphs (2) and (3) of section 1504(b), except that section 1504(a) shall be applied by substituting `50 percent' for `80 percent' each place it appears. ``(2) Partnerships.--Such term includes any partnership in which the eligible foreign corporation or its expanded affiliated group owns directly or indirectly more than 50 percent of the capital or profit interests. ``(f) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations-- ``(1) which exclude from qualified headquarters activities any activities of a type not ordinarily performed by a corporation performing headquarters activities, ``(2) to apply this section in the case of eligible foreign corporations that conduct activities in the United States other than qualified headquarters activities, and ``(3) which prevent qualified foreign corporations from expanding the benefits available by reason of this paragraph through intercompany transactions.'' (b) Conforming Amendment.--The table of sections for subchapter Y of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item: ``Sec. 1400M. No additional corporate income taxes on foreign corporations relocating headquarters operations to New York Liberty Zone.''
summary: World Trade Center Zone Tax Incentive Act - Amends the Internal Revenue Code to state that if there is a qualified headquarters relocation of an eligible foreign corporation, any qualified headquarters activities of the corporation conducted in the New York Liberty Zone shall be treated as conducted outside the United States for purposes of determining: (1) the amount of any tax or withholding tax; or (2) whether the corporation has a permanent establishment within the United States for purposes of any applicable income tax treaty between the United States and any foreign country.Sets forth "qualified headquarters relocation" criteria with respect to transfers of employees and headquarters activities.Provides for termination and recapture of tax benefits for failure to meet such requirements.Defines "expanded affiliated group" for purposes of this Act.