Protecting American Advanced Manufacturing Act

Section 45X of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

No credit shall be allowed under subsection (a) with respect to any eligible component which is produced by a disqualified entity.

For purposes of this subsection, the term disqualified entity means any entity described in subparagraphs (B) through (D).

The entities described in this subparagraph consist of the following:

(i) The government of a foreign adversary, any agency or government instrumentality of a foreign adversary, or any entity which is directly or indirectly owned, controlled, or directed by any such government, agency, or government instrumentality.

(ii) Any entity organized under the laws of a foreign adversary (or any political subdivision thereof) or whose headquarters is located within a foreign adversary.

The entities described in this subparagraph consist of the following:

(i) Any entity for which, on any date during the taxable year, not less than 10 percent of the outstanding equity interests (by value, voting, governance, board appointment, or similar rights or influence) are held directly or indirectly by, or on behalf of, 1 or more of the entities described in subparagraph (B), including through interests in co-investment vehicles, joint ventures, or similar arrangements.

(ii) Any entity which is directly or indirectly controlled, directed, or materially influenced by any entity described in subparagraph (B).

(iii) Any entity for which the actions, management, ownership, or operations of such entity are subject to the direct influence of an entity described in subparagraph (B).

(iv) Any entity for which an interest in such entity is held by an entity described in subparagraph (B) (referred to in this clause as the beneficiary firm) as a derivative financial instrument or through a contractual arrangement between the beneficiary firm and such entity, including any financial instrument or other contract between the beneficiary firm and the entity which seeks to replicate any financial return with respect to such entity or interest in such entity.

An entity is described in this subparagraph if, as a result of any prohibited obligation or arrangement—

(I) the actions, management, or operations of such entity are subject to the direct or indirect influence of 1 or more entities described in subparagraph (B) or (C), or

(II) such entity provides a substantial benefit to 1 or more entities described in subparagraph (B) or (C).

For purposes of this subparagraph, the term prohibited obligation or arrangement means any—

(I) debt,

(II) lease or sublease arrangement,

(III) management or operating arrangement,

(IV) contract manufacturing arrangement,

(V) license or sublicense agreement, or

(VI) financial derivative.

For purposes of clause (i)(II), the purchase of equipment or manufacturing inputs in an arm's-length transaction shall not, in and of itself, be deemed to provide a substantial benefit.

For purposes of this paragraph—

The term control has the meaning given in section 800.208 of title 31, Code of Federal Regulations (as in effect on the date of enactment of the Protecting American Advanced Manufacturing Act).

The term foreign adversary has the meaning given the term covered nation in section 4872(d)(2) of title 10, United States Code.

The Secretary may issue such guidance as is necessary to carry out the purposes of this subsection, including establishment of rules for—

(A) implementation of paragraph (2)(C)(i) for determination of whether the percentage requirements with respect to outstanding equity interests have been satisfied in the case of an entity for which the stock of such entity is traded on an established securities market in the United States or any foreign country, and

(B) preventing entities from evading, circumventing, or abusing the application of the requirements under this subsection.

The amendment made by this section shall apply to taxable years beginning after the date of enactment of this Act.