text: 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.''
target: 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.
feat_title: A bill to amend the Internal Revenue Code of 1986 to attract foreign corporations to relocate to the area in New York City surrounding the former World Trade Center.