HB 1333

1	A bill to be entitled
2	An act relating to the corporate income tax; amending s.
3	220.13, F.S.; providing an additional criterion to the
4	definition of the term "adjusted federal income"; imposing
5	restrictions on the deductibility of certain intangible
6	expenses, interest expenses, and management fees;
7	providing definitions; requiring corporations to add to
8	taxable income certain expenses and fees; providing
9	exceptions; providing for nonapplication of such
10	exceptions under certain circumstances; providing
11	additional requirements and limitations; providing
12	construction; specifying required information to be
13	provided to the Department of Revenue; specifying a
14	criterion for negligence; authorizing the department to
15	adopt rules; providing application; providing an effective
16	date.
17
18	Be It Enacted by the Legislature of the State of Florida:
19
20	Section 1.  Subsection (3) is added to section 220.13,
21	Florida Statutes, to read:
22	220.13  "Adjusted federal income" defined.-
23	(3)  The restrictions imposed by this subsection apply to
24	the deductibility of intangible expenses, interest expenses, and
25	management fees paid to or accrued or incurred with a related
26	entity.
27	(a)  As used in this subsection, the term:
28	1.  "Intangible expenses" means the following amounts to
29	the extent such amounts are allowed as deductions in determining
30	federal taxable income under the Internal Revenue Code before
31	the application of any net operating loss deduction and any
32	special deductions for the taxable year:
33	a.  Expenses, losses, and costs directly or indirectly for,
34	related to, or in association with the acquisition, use,
35	maintenance, management, ownership, sale, exchange, or any other
36	disposition of intangible property;
37	b.  Royalty, patent, technical, trademark, and copyright
38	fees;
39	c.  Licensing fees; or
40	d.  Other substantially similar expenses and costs,
41	including, but not limited to, interest and losses from
42	factoring transactions.
43	2.  "Intangible property" means patents, patent
44	applications, trade names, trademarks, service marks,
45	copyrights, trade secrets, and substantially similar types of
46	intangible assets.
47	3.  "Interest expenses" means amounts that are allowed as
48	deductions under s. 163 of the Internal Revenue Code in
49	determining federal taxable income before the application of any
50	net operating loss deductions and special deductions for the
51	taxable year.
52	4.  "Management fees" means expenses and costs paid for
53	services, including, but not limited to, management overhead,
54	management supervision, accounts receivable and payable,
55	employee benefit plans, insurance, legal, payroll, data
56	processing, purchasing, tax, financial and securities, billing,
57	accounting, reporting, and compliance services or similar
58	services, only to the extent that the amounts are allowed as a
59	deduction, cost, or expense in determining taxable net income
60	under the Internal Revenue Code before the application of any
61	net operating loss deduction and special deductions for the
62	taxable year.
63	5.  "Recipient" means a related entity to which is paid an
64	item of income that corresponds to an intangible expense,
65	interest expense, or management fee.
66	6.  "Related entity" means any artificial entity that would
67	be a member of a taxpayer's affiliated group under s. 1504 of
68	the Internal Revenue Code during all or any portion of the
69	taxable year using an ownership percentage of 50 percent instead
70	of 80 percent. A related entity includes any entity, other than
71	a natural person, that would be included in the affiliated group
72	based upon a 50-percent ownership percentage if the entity were
73	organized as a corporation.
74	(b)  Except as provided in paragraph (c), in determining a
75	corporation's adjusted federal income under this section and s.
76	220.131, a corporation subject to the tax imposed by this
77	chapter shall add to its taxable income any intangible expenses,
78	interest expenses, and management fees paid to or accrued or
79	incurred directly or indirectly with one or more related
80	entities. For income received from a pass-through entity or a
81	disregarded entity, the corporation is deemed to have received
82	its share of both the income and expenses of the pass-through
83	entity or disregarded entity for purposes of this subsection.
84	(c)  Except as provided in paragraph (d), the addition of
85	intangible expenses, interest expenses, and management fees
86	otherwise required in a taxable year under this subsection for a
87	specific related entity transaction is not required if:
88	1.  The taxpayer and the recipient are both included in the
89	same Florida consolidated tax return filed under s. 220.131 for
90	the taxable year;
91	2.  The taxpayer and the executive director or his or her
92	designee agree in writing to alternative computations or
93	adjustments. The executive director or his or her designee may
94	consider approval of such agreement only if the taxpayer has
95	clearly established to the satisfaction of the executive
96	director or his or her designee that the addition is
97	unreasonable and that the proposed alternative method of
98	determining the measure of the tax accurately reflects the
99	activity, business, income, and capital of the taxpayers within
100	this state. The agreement must be signed by the executive
101	director or his or her designee and may not exceed 4 years;
102	3.  The taxpayer makes a disclosure on its return and
103	establishes by clear and convincing evidence that:
104	a.  The recipient was subject to an income tax or franchise
105	tax measured in whole or in part by net income in its state or
106	country of commercial domicile or in the state of commercial
107	domicile in which an intangible property is required by contract
108	to be held. If the recipient receives a credit, exemption, or
109	exclusion in excess of 75 percent of such income, or otherwise
110	does not pay an income tax or franchise tax measured by net
111	income to the recipient's state of commercial domicile or the
112	state in which the intangible property is required by contract
113	to be held on its receipt of intangible income, management fee
114	income, or interest income, the recipient does not qualify for
115	this exception. If the recipient is a foreign corporation, the
116	foreign nation must have in force a comprehensive income tax
117	treaty with the United States;
118	b.  The tax base for such tax included the intangible
119	expense, management fee, or interest expense paid, accrued, or
120	incurred by the taxpayer;
121	c.  The aggregate effective tax rate applied is no less
122	than 5.5 percent;
123	d.  The transaction did not have avoidance of this state's
124	tax as a principle purpose;
125	e.  The recipient regularly engages in the same business
126	with third parties; and
127	f.  The transaction was made at a commercially reasonable
128	rate and at arm's length terms similar to those with third
129	parties; or
130	4.  The taxpayer makes a disclosure on its return and
131	establishes by clear and convincing evidence that:
132	a.  The related entity, during the same taxable year,
133	directly or indirectly incurred and paid the amount of the
134	intangible expense, interest expense, and management fee to a
135	person or entity that is not a related entity;
136	b.  The transaction was executed for a valid business
137	purpose;
138	c.  The payments are limited to a reimbursement of the
139	amounts paid to a person or entity that is not a related entity;
140	and
141	d.  The unrelated person or entity regularly engages in the
142	same business with third parties on a substantial basis.
143	(d)  The exceptions described in subparagraphs (c)3. and 4.
144	shall not apply:
145	1.  To interest paid by a taxpayer in connection with a
146	debt incurred to acquire the taxpayer's or a related entity's
147	assets or stock in a transaction referenced in s. 368 of the
148	Internal Revenue Code. For purposes of this subparagraph,
149	acquisition interest paid by a taxpayer to a person or entity
150	that is not a related entity shall be treated as if paid to a
151	related entity;
152	2.  To intangible property acquired directly or indirectly
153	from the taxpayer or from a related entity;
154	3.  When the related entity is primarily engaged in
155	managing, acquiring, or maintaining intangible property or
156	related party financing and a primary purpose of the transaction
157	was the avoidance of tax by this state; or
158	4.  When the taxpayer files with the related entity or the
159	related entity files with another related entity an income tax
160	return or report when such return or report is due because of
161	the imposition of a tax on or measured by income, or when such
162	income tax return or report results in the elimination of the
163	tax effects from transactions directly or indirectly between the
164	taxpayer and the related entity.
165	(e)  To the extent a taxpayer is required to make an
166	adjustment under paragraphs (b) and (c) for a specific related
167	entity transaction, the corresponding related entity shall make
168	a corresponding subtraction to its taxable income, if subject to
169	tax in this state.
170	(f)  The amount of a taxpayer's net operating loss
171	carryover from tax years ending prior to December 31, 2010, to a
172	tax year ending on or after December 31, 2010, shall be adjusted
173	to account for adding back any intangible expenses, interest
174	expenses, and management fees under this subsection. Under no
175	circumstance may this recalculation increase the amount of a net
176	operating loss carryover.
177	(g)  Nothing in this subsection requires a taxpayer to add
178	to its Florida taxable income more than once any amount of
179	interest expenses, intangible expenses, and management fees that
180	the taxpayer pays to or accrues or incurs with a related entity.
181	(h)  Nothing in this subsection shall be construed to allow
182	any item to be subtracted from adjusted federal income more than
183	once or to allow a subtraction for any item that is excluded
184	from income or to allow any item to be included in the adjusted
185	federal income of more than one taxpayer.
186	(i)  Nothing in this subsection shall be construed to limit
187	or negate the executive director's or his or her designee's
188	authority to make adjustments under s. 220.131(2), s. 220.152,
189	or s. 220.44.
190	(j)  Each taxpayer shall provide the following information
191	to the department with its tax return regarding each related
192	entity transaction:
193	1.  The name of the recipient.
194	2.  The state or country of domicile of the recipient.
195	3.  The amount paid to the recipient.
196	4.  A complete description of the payment made to the
197	recipient.
198	(k)  A failure to add back any amount paid directly or
199	indirectly to a related party or a failure to provide complete
200	information with the tax return shall be evidence of negligence
201	as described in s. 220.803(1).
202	Section 2.  The Department of Revenue may adopt rules and
203	forms necessary to administer the amendment to section 220.13,
204	Florida Statutes, made by this act, including, but not limited
205	to, forms and rules for reporting intercompany transactions.
206	Section 3.  This act shall take effect July 1, 2010, and
207	shall apply to tax years ending on or after December 31, 2010.

CODING: Words stricken are deletions; words underlined are additions.