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II
116TH CONGRESS
2D SESSION
S. 3526
To restrict the authority of the Secretary of the Treasury to purchase or
guarantee assets in response to the coronavirus disease (COVID–19) outbreak.
IN THE SENATE OF THE UNITED STATES
MARCH 18, 2020
Mr. REED introduced the following bill; which was read twice and referred to
the Committee on Finance
A BILL
To restrict the authority of the Secretary of the Treasury
to purchase or guarantee assets in response to the
coronavirus disease (COVID–19) outbreak.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘Protecting Taxpayer’s
4
Return on Investment Act of 2020’’.
5
SEC. 2. AUTHORITY FOR WARRANTS AND DEBT INSTRU-
6
MENTS.
7
(a) DEFINITIONS.—In this section:
8
(1) ASSET.—The term ‘‘asset’’ means any fi-
9
nancial instrument that the Secretary, after con-
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•S 3526 IS
sultation with the Chairman of the Board of Gov-
1
ernors of the Federal Reserve System, determines
2
the purchase of which or the guarantee of which is
3
necessary to promote economic stability.
4
(2) COMPANY.—The term ‘‘company’’ means
5
any entity that is not subject to the prohibitions in
6
subsection (e).
7
(3) SECRETARY.—The term ‘‘Secretary’’ means
8
the Secretary of the Treasury.
9
(b) WARRANT OR SENIOR DEBT INSTRUMENT.—The
10
Secretary may not purchase, or make any commitment to
11
purchase, or guarantee, or make any commitment to guar-
12
antee, any asset in response to the coronavirus disease
13
(COVID–19) outbreak, unless the Secretary receives from
14
the company from which such assets are to be purchased
15
or are to be guaranteed—
16
(1) in the case of a company, the securities of
17
which are traded on a national securities exchange,
18
a warrant giving the right to the Secretary to receive
19
nonvoting common stock or preferred stock in such
20
company, or voting stock with respect to which, the
21
Secretary agrees not to exercise voting power, as the
22
Secretary determines appropriate; or
23
(2) in the case of any company other than one
24
described in paragraph (1), a warrant for common
25
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•S 3526 IS
or preferred stock, or a senior debt instrument from
1
such company, as described in subsection (c)(3).
2
(c) TERMS AND CONDITIONS.—The terms and condi-
3
tions of any warrant or senior debt instrument required
4
under subsection (b) shall meet the following require-
5
ments:
6
(1) PURPOSES.—Such terms and conditions
7
shall, at a minimum, be designed—
8
(A) to provide for reasonable participation
9
by the Secretary, for the benefit of taxpayers,
10
in equity appreciation in the case of a warrant
11
or other equity security, or a reasonable interest
12
rate premium, in the case of a debt instrument;
13
and
14
(B) to provide additional protection for the
15
taxpayer against losses from sale of assets by
16
the Secretary and any associated administrative
17
expenses.
18
(2) AUTHORITY TO SELL, EXERCISE, OR SUR-
19
RENDER.—
20
(A) IN GENERAL.—For the primary benefit
21
of taxpayers, the Secretary may sell, exercise,
22
or surrender a warrant or any senior debt in-
23
strument received under this section, based on
24
the conditions established under paragraph (1).
25
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(B) PROCEEDS.—Of any proceeds received
1
through the sale, exercise, or surrender of any
2
warrant or any senior debt instrument—
3
(i) 65 percent shall be transferred or
4
credited to the Housing Trust Fund estab-
5
lished under section 1338 of the Federal
6
Housing Enterprises Financial Safety and
7
Soundness Act of 1992 (12 U.S.C. 4568);
8
and
9
(ii) 35 percent shall be transferred or
10
credited to the Capital Magnet Fund under
11
section 1339 of the Federal Housing En-
12
terprises Financial Safety and Soundness
13
Act of 1992 (12 U.S.C. 4569).
14
(3) CONVERSION.—The warrant shall provide
15
that if, after the warrant is received by the Sec-
16
retary under this section, the company that issued
17
the warrant is no longer listed or traded on a na-
18
tional securities exchange or securities association,
19
as described in subsection (b)(1), such warrants
20
shall convert to senior debt, or contain appropriate
21
protections for the Secretary to ensure that the
22
Treasury is appropriately compensated for the value
23
of the warrant, in an amount determined by the Sec-
24
retary for the primary benefit of taxpayers.
25
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(4) PROTECTIONS.—Any warrant representing
1
securities to be received by the Secretary under this
2
section shall contain anti-dilution provisions of the
3
type employed in capital market transactions, as de-
4
termined by the Secretary for the primary benefit of
5
taxpayers. Such provisions shall protect the value of
6
the securities from market transactions such as
7
stock splits, stock distributions, dividends, and other
8
distributions, mergers, and other forms of reorga-
9
nization or recapitalization.
10
(5) EXERCISE PRICE.—The exercise price for
11
any warrant issued pursuant to this section shall be
12
set by the Secretary, for the primary benefit of tax-
13
payers.
14
(6) SUFFICIENCY.—The company shall guar-
15
antee to the Secretary that it has authorized shares
16
of nonvoting stock available to fulfill its obligations
17
under this section. Should the company not have
18
sufficient authorized shares, including preferred
19
shares that may carry dividend rights equal to a
20
multiple number of common shares, the Secretary
21
may, to the extent necessary for the primary benefit
22
of taxpayers, accept a senior debt note in an
23
amount, and on such terms as will compensate the
24
Secretary with equivalent value, in the event that a
25
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•S 3526 IS
sufficient shareholder vote to authorize the necessary
1
additional shares cannot be obtained.
2
(d) EXCEPTIONS.—The Secretary may establish an
3
exception to the requirements of this section and appro-
4
priate alternative requirements for any participating com-
5
pany that is legally prohibited from issuing securities and
6
debt instruments, so as not to allow circumvention of the
7
requirements of this section.
8
(e) PROHIBITIONS OF FOREIGN COMPANIES.—
9
(1) IN GENERAL.—The Secretary may not pur-
10
chase, or make any commitment to purchase, or
11
guarantee, or make any commitment to guarantee,
12
any asset in response to the coronavirus disease
13
(COVID–19) outbreak from—
14
(A) any foreign incorporated entity that
15
the Secretary has determined is an inverted do-
16
mestic corporation or any subsidiary of such en-
17
tity; or
18
(B) any joint venture if more than 10 per-
19
cent of the joint venture (by vote or value) is
20
held by a foreign incorporated entity that the
21
Secretary has determined is an inverted domes-
22
tic corporation or any subsidiary of such entity.
23
(2) INVERTED DOMESTIC CORPORATION.—
24
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(A) IN GENERAL.—For purposes of this
1
subsection, a foreign incorporated entity shall
2
be treated as an inverted domestic corporation
3
if, pursuant to a plan (or a series of related
4
transactions)—
5
(i) the entity completes on or after
6
May 8, 2014, the direct or indirect acquisi-
7
tion of—
8
(I) substantially all of the prop-
9
erties held directly or indirectly by a
10
domestic corporation; or
11
(II) substantially all of the assets
12
of, or substantially all of the prop-
13
erties constituting a trade or business
14
of, a domestic partnership; and
15
(ii) after the acquisition, either—
16
(I) more than 50 percent of the
17
stock (by vote or value) of the entity
18
is held—
19
(aa) in the case of an acqui-
20
sition with respect to a domestic
21
corporation, by former share-
22
holders of the domestic corpora-
23
tion by reason of holding stock in
24
the domestic corporation; or
25
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•S 3526 IS
(bb) in the case of an acqui-
1
sition with respect to a domestic
2
partnership, by former partners
3
of the domestic partnership by
4
reason of holding a capital or
5
profits interest in the domestic
6
partnership; or
7
(II) the management and control
8
of the expanded affiliated group which
9
includes the entity occurs, directly or
10
indirectly, primarily within the United
11
States, as determined pursuant to
12
regulations prescribed by the Sec-
13
retary, and such expanded affiliated
14
group has significant domestic busi-
15
ness activities.
16
(B) EXCEPTION FOR CORPORATIONS WITH
17
SUBSTANTIAL
BUSINESS
ACTIVITIES
IN
FOR-
18
EIGN COUNTRY OF ORGANIZATION.—
19
(i) IN
GENERAL.—A foreign incor-
20
porated entity described in subparagraph
21
(A) shall not be treated as an inverted do-
22
mestic corporation if after the acquisition
23
the expanded affiliated group which in-
24
cludes the entity has substantial business
25
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activities in the foreign country in which or
1
under the law of which the entity is cre-
2
ated or organized when compared to the
3
total business activities of such expanded
4
affiliated group.
5
(ii) SUBSTANTIAL
BUSINESS
ACTIVI-
6
TIES.—The Secretary shall establish regu-
7
lations for determining whether an affili-
8
ated group has substantial business activi-
9
ties for purposes of clause (i), except that
10
such regulations may not treat any group
11
as having substantial business activities if
12
such group would not be considered to
13
have substantial business activities under
14
the regulations prescribed under section
15
7874 of the Internal Revenue Code of
16
1986, as in effect on January 18, 2017.
17
(C) SIGNIFICANT DOMESTIC BUSINESS AC-
18
TIVITIES.—
19
(i) IN
GENERAL.—For purposes of
20
subparagraph (A)(ii)(II), an expanded af-
21
filiated group has significant domestic
22
business activities if at least 25 percent
23
of—
24
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(I) the employees of the group
1
are based in the United States;
2
(II) the employee compensation
3
incurred by the group is incurred with
4
respect to employees based in the
5
United States;
6
(III) the assets of the group are
7
located in the United States; or
8
(IV) the income of the group is
9
derived in the United States.
10
(ii)
DETERMINATION.—Determina-
11
tions pursuant to clause (i) shall be made
12
in the same manner as such determina-
13
tions are made for purposes of determining
14
substantial business activities under regu-
15
lations referred to in subparagraph (B) as
16
in effect on January 18, 2017, but applied
17
by treating all references in such regula-
18
tions to ‘‘foreign country’’ and ‘‘relevant
19
foreign country’’ as references to ‘‘the
20
United States’’. The Secretary may issue
21
regulations decreasing the threshold per-
22
cent in any of the tests under such regula-
23
tions for determining if business activities
24
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constitute significant domestic business ac-
1
tivities for purposes of this subparagraph.
2
(3) WAIVER.—
3
(A) IN
GENERAL.—The Secretary may
4
waive paragraph (1) if the Secretary determines
5
that the waiver is—
6
(i) required in the interest of national
7
security; or
8
(ii) necessary for the efficient or effec-
9
tive administration of Federal or federally
10
funded—
11
(I) programs that provide health
12
benefits to individuals; or
13
(II) public health programs.
14
(B) REPORT
TO
CONGRESS.—The Sec-
15
retary shall, not later than 14 days after
16
issuing such waiver, submit a written notifica-
17
tion of the waiver to the relevant authorizing
18
committees of Congress and the Committees on
19
Appropriations of the Senate and the House of
20
Representatives.
21
(4) DEFINITIONS AND SPECIAL RULES.—
22
(A) DEFINITIONS.—In this subsection, the
23
terms ‘‘expanded affiliated group’’, ‘‘foreign in-
24
corporated entity’’, ‘‘domestic’’, and ‘‘foreign’’
25
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have the meaning given those terms in section
1
835(c) of the Homeland Security Act of 2002
2
(6 U.S.C. 395(c)).
3
(B) SPECIAL
RULES.—In applying para-
4
graph (2) of this subsection for purposes of
5
paragraph (1) of this subsection, the rules de-
6
scribed under 835(c)(1) of the Homeland Secu-
7
rity Act of 2002 (6 U.S.C. 395(c)(1)) shall
8
apply.
9
(5) REGULATIONS
REGARDING
MANAGEMENT
10
AND CONTROL.—
11
(A) IN GENERAL.—The Secretary shall, for
12
purposes of this subsection, prescribe regula-
13
tions for purposes of determining cases in which
14
the management and control of an expanded af-
15
filiated group is to be treated as occurring, di-
16
rectly or indirectly, primarily within the United
17
States. The regulations prescribed under the
18
preceding sentence shall apply to periods after
19
May 8, 2014.
20
(B) EXECUTIVE
OFFICERS
AND
SENIOR
21
MANAGEMENT.—The
regulations
prescribed
22
under subparagraph (A) shall provide that the
23
management and control of an expanded affili-
24
ated group shall be treated as occurring, di-
25
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rectly or indirectly, primarily within the United
1
States if substantially all of the executive offi-
2
cers and senior management of the expanded
3
affiliated group who exercise day-to-day respon-
4
sibility for making decisions involving strategic
[Text truncated for display. Full text available on Congress.gov.]