The Secretary may not enter into any contract with a foreign incorporated entity which is treated as an inverted domestic corporation under subsection (b), or any subsidiary of such an entity.

For purposes of this section, a foreign incorporated entity shall be treated as an inverted domestic corporation if, pursuant to a plan (or a series of related transactions)—

(1) the entity completes before, on, or after November 25, 2002, the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership;

after the acquisition at least 80 percent of the stock (by vote or value) of the entity is held—

(A) in the case of an acquisition with respect to a domestic corporation, by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation; or

(B) in the case of an acquisition with respect to a domestic partnership, by former partners of the domestic partnership by reason of holding a capital or profits interest in the domestic partnership; and

(3) the expanded affiliated group which after the acquisition includes the entity does not have substantial business activities in the foreign country in which or under the law of which the entity is created or organized when compared to the total business activities of such expanded affiliated group.

In applying subsection (b) for purposes of subsection (a), the following rules shall apply:

In applying subsection (b) for purposes of subsection (a), the following rules shall apply:

(A) Certain stock disregardedThere shall not be taken into account in determining ownership for purposes of subsection (b)(2)— (i) stock held by members of the expanded affiliated group which includes the foreign incorporated entity; or (ii) stock of such entity which is sold in a public offering related to the acquisition described in subsection (b)(1).

(B) Plan deemed in certain cases If a foreign incorporated entity acquires directly or indirectly substantially all of the properties of a domestic corporation or partnership during the 4-year period beginning on the date which is 2 years before the ownership requirements of subsection (b)(2) are met, such actions shall be treated as pursuant to a plan.

(C) Certain transfers disregarded The transfer of properties or liabilities (including by contribution or distribution) shall be disregarded if such transfers are part of a plan a principal purpose of which is to avoid the purposes of this section.

(D) Special rule for related partnerships For purposes of applying subsection (b) to the acquisition of a domestic partnership, except as provided in regulations, all domestic partnerships which are under common control (within the meaning of section 482 of title 26) shall be treated as I [1] partnership.

(E) Treatment of certain rightsThe Secretary shall prescribe such regulations as may be necessary to— (i) treat warrants, options, contracts to acquire stock, convertible debt instruments, and other similar interests as stock; and (ii) treat stock as not stock.

(2) Expanded affiliated group The term “expanded affiliated group” means an affiliated group as defined in section 1504(a) of title 26 (without regard to section 1504(b) of such title), except that section 1504 of such title shall be applied by substituting “more than 50 percent” for “at least 80 percent” each place it appears.

(3) Foreign incorporated entity The term “foreign incorporated entity” means any entity which is, or but for subsection (b) would be, treated as a foreign corporation for purposes of title 26.

(4) Other definitions The terms “person”, “domestic”, and “foreign” have the meanings given such terms by paragraphs (1), (4), and (5) of section 7701(a) of title 26, respectively.

The Secretary shall waive subsection (a) with respect to any specific contract if the Secretary determines that the waiver is required in the interest of national security.

(Pub. L. 107–296, title VIII, § 835, Nov. 25, 2002, 116 Stat. 2227; Pub. L. 108–7, div. L, § 101(2), Feb. 20, 2003, 117 Stat. 528; Pub. L. 108–334, title V, § 523, Oct. 18, 2004, 118 Stat. 1320.)