HF 3898

as introduced - 89th Legislature (2015 - 2016) Posted on 04/14/2016 12:45pm

A bill for an act
relating to taxation; corporate franchise; expanding the definition of domestic
corporations to include certain foreign corporations incorporated in tax havens;
amending Minnesota Statutes 2014, sections 290.01, subdivision 5, by adding
a subdivision; 290.17, subdivision 4.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2014, section 290.01, subdivision 5, is amended to read:

Subd. 5.

Domestic corporation.

The term "domestic" when applied to a corporation
means a corporation:

(1) created or organized in the United States, or under the laws of the United
States or of any state, the District of Columbia, or any political subdivision of any of
the foregoing but not including the Commonwealth of Puerto Rico, or any possession
of the United States; deleted text begin or
deleted text end

(2) deleted text begin which deleted text end new text begin that new text end qualifies as a DISC, as defined in section 992(a) of the Internal
Revenue Code deleted text begin . deleted text end new text begin ;
new text end

new text begin (3) that is incorporated in a tax haven;
new text end

new text begin (4) that reports that 20 percent or more of its gross income derive from sources in
one or more tax havens; or
new text end

new text begin (5) that has the average of its property, payroll, and sales factors, as defined under
section 290.191, within the 50 states of the United States and the District of Columbia of
20 percent or more.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2015.
new text end

Sec. 2.

Minnesota Statutes 2014, section 290.01, is amended by adding a subdivision
to read:

new text begin Subd. 5c. new text end

new text begin Tax haven. new text end

new text begin (a) "Tax haven" means the following foreign jurisdictions,
unless the listing of the jurisdiction does not apply under paragraph (b):
new text end

new text begin (1) Andorra;
new text end

new text begin (2) Anguilla;
new text end

new text begin (3) Antigua and Barbuda;
new text end

new text begin (4) Aruba;
new text end

new text begin (5) Bahamas;
new text end

new text begin (6) Bahrain;
new text end

new text begin (7) Barbados;
new text end

new text begin (8) Belize;
new text end

new text begin (9) Bermuda;
new text end

new text begin (10) Bonaire;
new text end

new text begin (11) British Virgin Islands;
new text end

new text begin (12) Cayman Islands;
new text end

new text begin (13) Cook Islands;
new text end

new text begin (14) Curacao;
new text end

new text begin (15) Cyprus;
new text end

new text begin (16) Dominica;
new text end

new text begin (17) Gibraltar;
new text end

new text begin (18) Grenada;
new text end

new text begin (19) Guatemala;
new text end

new text begin (20) Guernsey-Sark-Alderney;
new text end

new text begin (21) Isle of Man;
new text end

new text begin (22) Jersey;
new text end

new text begin (23) Liberia;
new text end

new text begin (24) Liechtenstein;
new text end

new text begin (25) Luxembourg;
new text end

new text begin (26) Malta;
new text end

new text begin (27) Marshall Islands;
new text end

new text begin (28) Mauritius;
new text end

new text begin (29) Monaco;
new text end

new text begin (30) Montserrat;
new text end

new text begin (31) Nauru;
new text end

new text begin (32) Niue;
new text end

new text begin (33) Panama;
new text end

new text begin (34) St. Kitts and Nevis;
new text end

new text begin (35) St. Lucia;
new text end

new text begin (36) St. Vincent and Grenadines;
new text end

new text begin (37) Saba;
new text end

new text begin (38) Samoa;
new text end

new text begin (39) San Marino;
new text end

new text begin (40) Seychelles;
new text end

new text begin (41) Sint Eustatius;
new text end

new text begin (42) Sint Maarten;
new text end

new text begin (43) Trinidad and Tobago;
new text end

new text begin (44) Turks and Caicos;
new text end

new text begin (45) United States Virgin Islands; and
new text end

new text begin (46) Vanuatu.
new text end

new text begin (b) A foreign jurisdiction's listing under paragraph (a) does not apply to the first
taxable year after:
new text end

new text begin (1) the United States enters into a tax treaty or other agreement with the foreign
jurisdiction that provides for prompt, obligatory, and automatic exchange of information
with the United States government relevant to enforcing the provisions of federal tax
laws applicable to both individuals and all corporations and other entities, and the treaty
or other agreement was in effect for the taxable year; and
new text end

new text begin (2) the foreign jurisdiction imposes a tax rate of at least ten percent on a tax base
equal to at least 90 percent of the tax base that applies to corporations under the Internal
Revenue Code.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for returns filed for taxable years
beginning after December 31, 2015.
new text end

Sec. 3.

Minnesota Statutes 2014, section 290.17, subdivision 4, is amended to read:

Subd. 4.

Unitary business principle.

(a) If a trade or business conducted wholly
within this state or partly within and partly without this state is part of a unitary business,
the entire income of the unitary business is subject to apportionment pursuant to section
290.191. Notwithstanding subdivision 2, paragraph (c), none of the income of a unitary
business is considered to be derived from any particular source and none may be allocated
to a particular place except as provided by the applicable apportionment formula. The
provisions of this subdivision do not apply to business income subject to subdivision 5,
income of an insurance company, or income of an investment company determined under
section 290.36.

(b) The term "unitary business" means business activities or operations which
result in a flow of value between them. The term may be applied within a single legal
entity or between multiple entities and without regard to whether each entity is a sole
proprietorship, a corporation, a partnership or a trust.

(c) Unity is presumed whenever there is unity of ownership, operation, and use,
evidenced by centralized management or executive force, centralized purchasing,
advertising, accounting, or other controlled interaction, but the absence of these
centralized activities will not necessarily evidence a nonunitary business. Unity is also
presumed when business activities or operations are of mutual benefit, dependent upon or
contributory to one another, either individually or as a group.

(d) Where a business operation conducted in Minnesota is owned by a business
entity that carries on business activity outside the state different in kind from that
conducted within this state, and the other business is conducted entirely outside the state, it
is presumed that the two business operations are unitary in nature, interrelated, connected,
and interdependent unless it can be shown to the contrary.

(e) Unity of ownership does not exist when two or more corporations are involved
unless more than 50 percent of the voting stock of each corporation is directly or indirectly
owned by a common owner or by common owners, either corporate or noncorporate, or
by one or more of the member corporations of the group. For this purpose, the term
"voting stock" shall include membership interests of mutual insurance holding companies
formed under section 66A.40.

(f) The net income and apportionment factors under section 290.191 or 290.20 of
foreign corporations and other foreign entities which are part of a unitary business shall not
be included in the net income or the apportionment factors of the unitary business; except
that the income and apportionment factors of a foreign entity, other than an entity treated
as a C corporation for federal income tax purposes, that are included in the federal taxable
income, as defined in section 63 of the Internal Revenue Code as amended through the
date named in section 290.01, subdivision 19, of a domestic corporation, domestic entity,
or individual must be included in determining net income and the factors to be used in the
apportionment of net income pursuant to section 290.191 or 290.20. A foreign corporation
or other foreign entity which is not included on a combined report and which is required to
file a return under this chapter shall file on a separate return basis. new text begin The legislature intends
that the provisions of this paragraph are not severable from the provisions of section
290.01, subdivision 5, clauses (3) to (5), and if any of those provisions are found to be
unconstitutional, the provisions of this paragraph are void for the respective taxable years.
new text end

(g) For purposes of determining the net income of a unitary business and the factors
to be used in the apportionment of net income pursuant to section 290.191 or 290.20, there
must be included only the income and apportionment factors of domestic corporations
or other domestic entities that are determined to be part of the unitary business pursuant
to this subdivision, notwithstanding that foreign corporations or other foreign entities
might be included in the unitary business; except that the income and apportionment
factors of a foreign entity, other than an entity treated as a C corporation for federal
income tax purposes, that is included in the federal taxable income, as defined in section
63 of the Internal Revenue Code as amended through the date named in section 290.01,
subdivision 19, of a domestic corporation, domestic entity, or individual must be included
in determining net income and the factors to be used in the apportionment of net income
pursuant to section 290.191 or 290.20.

(h) Each corporation or other entity, except a sole proprietorship, that is part of a
unitary business must file combined reports as the commissioner determines. On the
reports, all intercompany transactions between entities included pursuant to paragraph
(g) must be eliminated and the entire net income of the unitary business determined in
accordance with this subdivision is apportioned among the entities by using each entity's
Minnesota factors for apportionment purposes in the numerators of the apportionment
formula and the total factors for apportionment purposes of all entities included pursuant
to paragraph (g) in the denominators of the apportionment formula. Except as otherwise
provided by paragraph (f), all sales of the unitary business made within this state pursuant
to section 290.191 or 290.20 must be included on the combined report of a corporation or
other entity that is a member of the unitary business and is subject to the jurisdiction of
this state to impose tax under this chapter.

(i) If a corporation has been divested from a unitary business and is included in a
combined report for a fractional part of the common accounting period of the combined
report:

(1) its income includable in the combined report is its income incurred for that part
of the year determined by proration or separate accounting; and

(2) its sales, property, and payroll included in the apportionment formula must
be prorated or accounted for separately.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for returns filed for taxable years
beginning after December 31, 2015.
new text end