Code section 7701(51), added by Public Law 119-21 on July 4, 2025

SEC. 7701. DEFINITIONS

(51) Prohibited foreign entity.—

(A) In general.—

(i) Definition.—The term “prohibited foreign entity” means a specified foreign entity or a foreign-influenced entity.

(ii) Determination.—

(I) In general.—Subject to subclause (II), for any taxable year, the determination as to whether an entity is a specified foreign entity or foreign-influenced entity shall be made as of the last day of such taxable year.

(II) Initial taxable year.—For purposes of the first taxable year beginning after the date of enactment of this paragraph, the determination as to whether an entity is a specified foreign entity described in clauses (i) through (iv) of subparagraph (B) shall be made as of the first day of such taxable year.

(B) Specified foreign entity.—For purposes of this paragraph, the term “specified foreign entity” means—

(i) a foreign entity of concern described in subparagraph (A), (B), (D), or (E) of section 9901(8) of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Public Law 116–283; 15 U.S.C. 4651),

(ii) an entity identified as a Chinese military company operating in the United States in accordance with section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Public Law 116–283; 10 U.S.C. 113 note),

(iii) an entity included on a list required by clause (i), (ii), (iv), or (v) of section 2(d)(2)(B) of Public Law 117–78 (135 Stat. 1527),

(iv) an entity specified under section 154(b) of the National Defense Authorization Act for Fiscal Year 2024 (Public Law 118–31; 10 U.S.C. note prec. 4651), or

(v) a foreign-controlled entity.

(C) Foreign-controlled entity.—For purposes of subparagraph (B), the term “foreign-controlled entity” means—

(i) the government (including any level of government below the national level) of a covered nation,

(ii) an agency or instrumentality of a government described in clause (i),

(iii) a person who is a citizen or national of a covered nation, provided that such person is not an individual who is a citizen, national, or lawful permanent resident of the United States,

(iv) an entity or a qualified business unit (as defined in section 989(a)) incorporated or organized under the laws of, or having its principal place of business in, a covered nation, or

(v) an entity (including subsidiary entities) controlled (as determined under subparagraph (G)) by an entity described in clause (i), (ii), (iii), or (iv).

(D) Foreign-influenced entity.—

(i) In general.—For purposes of subparagraph (A), the term “foreign-influenced entity” means an entity—

(I) with respect to which, during the taxable year—

(aa) a specified foreign entity has the direct authority to appoint a covered officer of such entity,

(bb) a single specified foreign entity owns at least 25 percent of such entity,

(cc) one or more specified foreign entities own in the aggregate at least 40 percent of such entity, or

(dd) at least 15 percent of the debt of such entity has been issued, in the aggregate, to 1 or more specified foreign entities, or

(II) which, during the previous taxable year, made a payment to a specified foreign entity pursuant to a contract, agreement, or other arrangement which entitles such specified foreign entity (or an entity related to such specified foreign entity) to exercise effective control over—

(aa) any qualified facility or energy storage technology of the taxpayer (or any person related to the taxpayer), or

(bb) with respect to any eligible component produced by the taxpayer (or any person related to the taxpayer)—

(AA) the extraction, processing, or recycling of any applicable critical mineral, or

(BB) the production of an eligible component which is not an applicable critical mineral.

(ii) Effective control.—

(I) In general.—

(aa) General rule.—Subject to subclause (II), for purposes of clause (i)(II), the term “effective control” means 1 or more agreements or arrangements similar to those described in subclauses (II) and (III) which provide 1 or more contractual counterparties of a taxpayer with specific authority over key aspects of the production of eligible components, energy generation in a qualified facility, or energy storage which are not included in the measures of control through authority, ownership, or debt held which are described in clause (i)(I).

(bb) Guidance.—The Secretary shall issue such guidance as is necessary to carry out the purposes of this clause, including the establishment of rules to prevent entities from evading, circumventing, or abusing the application of the restrictions described subparagraph (C) and subclauses (II) and (III) of this clause through a contract, agreement, or other arrangement.

(II) Application of rules prior to issuance of guidance.—During any period prior to the date that the guidance described in subclause (I)(bb) is issued by the Secretary, for purposes of clause (i)(II), the term “effective control” means the unrestricted contractual right of a contractual counterparty to—

(aa) determine the quantity or timing of production of an eligible component produced by the taxpayer,

(bb) determine the amount or timing of activities related to the production of electricity undertaken at a qualified facility of the taxpayer or the storage of electrical energy in energy storage technology of the taxpayer,

(cc) determine which entity may purchase or use the output of a production unit of the taxpayer that produces eligible components,

(dd) determine which entity may purchase or use the output of a qualified facility of the taxpayer,

(ee) restrict access to data critical to production or storage of energy undertaken at a qualified facility of the taxpayer, or to the site of production or any part of a qualified facility or energy storage technology of the taxpayer, to the personnel or agents of such contractual counterparty, or

(ff) on an exclusive basis, maintain, repair, or operate any plant or equipment which is necessary to the production by the taxpayer of eligible components or electricity.

(III) Licensing and other agreements.—

(aa) In general.—In addition to subclause (II), for purposes of clause (i)(II), the term “effective control” means, with respect to a licensing agreement for the provision of intellectual property (or any other contract, agreement or other arrangement entered into with a contractual counterparty related to such licensing agreement) with respect to a qualified facility, energy storage technology, or the production of an eligible component, any of the following:

(AA) A contractual right retained by the contractual counterparty to specify or otherwise direct 1 or more sources of components, subcomponents, or applicable critical minerals utilized in a qualified facility, energy storage technology, or in the production of an eligible component.

(BB) A contractual right retained by the contractual counterparty to direct the operation of any qualified facility, any energy storage technology, or any production unit that produces an eligible component.

(CC) A contractual right retained by the contractual counterparty to limit the taxpayer’s utilization of intellectual property related to the operation of a qualified facility or energy storage technology, or in the production of an eligible component.

(DD) A contractual right retained by the contractual counterparty to receive royalties under the licensing agreement or any similar agreement (or payments under any related agreement) beyond the 10th year of the agreement (including modifications or extensions thereof).

(EE) A contractual right retained by the contractual counterparty to direct or otherwise require the taxpayer to enter into an agreement for the provision of services for a duration longer than 2 years (including any modifications or extensions thereof).

(FF) Such contract, agreement, or other arrangement does not provide the licensee with all the technical data, information, and know-how necessary to enable the licensee to produce the eligible component or components subject to the contract, agreement, or other arrangement without further involvement from the contractual counterparty or a specified foreign entity.

(GG) Such contract, agreement, or other arrangement was entered into (or modified) on or after the date of enactment of this paragraph.

(bb) Exception.—

(AA) In general.—Item (aa) shall not apply in the case of a bona fide purchase or sale of intellectual property.

(BB) Bona fide purchase or sale.—For purposes of item (aa), any purchase or sale of intellectual property where the agreement provides that ownership of the intellectual property reverts to the contractual counterparty after a period of time shall not be considered a bona-fide purchase or sale.

(IV) Persons related to the taxpayer.—For purposes of subclauses (I), (II), and (III), the term “taxpayer” shall include any person related to the taxpayer.

(V) Contractual counterparty.—For purposes of this clause, the term “contractual counterparty” means an entity with which the taxpayer has entered into a contract, agreement, or other arrangement.

(iii) Guidance.—Not later than December 31, 2026, the Secretary shall issue such guidance as is necessary to carry out the purposes of this subparagraph, including establishment of rules to prevent entities from evading, circumventing, or abusing the application of the restrictions against impermissible technology licensing arrangements with specified foreign entities, such as through temporary transfers of intellectual property, retention by a specified foreign entity of a reversionary interest in transferred intellectual property, or otherwise.

(E) Publicly traded entities.—

(i) In general.—

(I) Nonapplication of certain foreign-controlled entity rules.—Subparagraph (C)(v) shall not apply in the case of any entity the securities of which are regularly traded on—

(aa) a national securities exchange which is registered with the Securities and Exchange Commission,

(bb) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or

(cc) any other exchange or other market which the Secretary has determined in guidance issued under section 1296(e)(1)(A)(ii) has rules adequate to carry out the purposes of part VI of subchapter P of chapter 1 of subtitle A.

(II) Nonapplication of certain foreign-influenced entity rules.—Subparagraph (D)(i)(I) shall not apply in the case of any entity—

(aa) the securities of which are regularly traded in a manner described in subclause (I), or

(bb) for which not less than 80 percent of the equity securities of such entity are owned directly or indirectly by an entity which is described in item (aa).

(III) Exclusion of exchanges or markets in covered nations.—Subclause (I)(cc) shall not apply with respect to any exchange or market which—

(aa) is incorporated or organized under the laws of a covered nation, or

(bb) has its principal place of business in a covered nation.

(ii) Additional foreign-controlled entity requirements for publicly traded companies.—In the case of an entity described in clause (i)(I), such entity shall be deemed to be a foreign-controlled entity under subparagraph (C)(v) if such entity is controlled (as determined under subparagraph (G)) by—

(I) 1 or more specified foreign entities (as determined without regard to subparagraph (B)(v)) that are each required to report their beneficial ownership pursuant to a rule described in clause (iii)(I)(bb), or

(II) 1 or more foreign-controlled entities (as determined without regard to subparagraph (C)(v)) that are each required to report their beneficial ownership pursuant to a rule described in such clause.

(iii) Additional foreign-influenced entity requirements for publicly traded companies.—In the case of an entity described in clause (i)(II), such entity shall be deemed to be a foreign-influenced entity under subparagraph (D)(i)(I) if—

(I) during the taxable year—

(aa) a specified foreign entity has the authority to appoint a covered officer of such entity,

(bb) a single specified foreign entity required to report its beneficial ownership under Rule 13d-3 of the Securities and Exchange Act of 1934 (or, in the case of an exchange or market described in clause (i)(I)(cc), an equivalent rule) owns not less than 25 percent of such entity, or

(cc) 1 or more specified foreign entities that are each required to report their beneficial ownership under Rule 13d-3 of the Securities and Exchange Act of 1934 own, in the aggregate, not less than 40 percent of such entity, or

(II) such entity has issued debt, as part of an original issuance, in excess of 15 percent of its publicly-traded debt to 1 or more specified foreign entities.

(F) Covered officer.—For purposes of this paragraph, the term “covered officer” means, with respect to an entity—

(i) a member of the board of directors, board of supervisors, or equivalent governing body,

(ii) an executive-level officer, including the president, chief executive officer, chief operating officer, chief financial officer, general counsel, or senior vice president, or

(iii) an individual having powers or responsibilities similar to those of officers or members described in clause (i) or (ii).

(G) Determination of control.—For purposes of subparagraph (C)(v), the term “control” means—

(i) in the case of a corporation, ownership (by vote or value) of more than 50 percent of the stock in such corporation,

(ii) in the case of a partnership, ownership of more than 50 percent of the profits interests or capital interests in such partnership, or

(iii) in any other case, ownership of more than 50 percent of the beneficial interests in the entity.

(H) Determination of ownership.—For purposes of this paragraph, section 318(a)(2) shall apply for purposes of determining ownership of stock in a corporation. Similar principles shall apply for purposes of determining ownership of interests in any other entity.

(I) Other definitions.—For purposes of this paragraph—

(i) Applicable critical mineral.—The term “applicable critical mineral” has the same meaning given such term under section 45X(c)(6).

(ii) Covered nation.—The term “covered nation” has the same meaning given such term under section 4872(f)(2) of title 10, United States Code.

(iii) Eligible component.—The term “eligible component” has the same meaning given such term under section 45X(c)(1).

(iv) Energy storage technology.—The term “energy storage technology” has the same meaning given such term under section 48E(c)(2).

(v) Qualified facility.—The term “qualified facility” means—

(I) a qualified facility, as defined in section 45Y(b)(1), and

(II) a qualified facility, as defined in section 48E(b)(3).

(vi) Related.—The term “related” shall have the same meaning given such term under sections 267(b) and 707(b).

(J) Beginning of construction.—For purposes of applying any provision under this paragraph, the beginning of construction with respect to any property shall be determined pursuant to rules similar to the rules under Internal Revenue Service Notice 2013–29 and Internal Revenue Service Notice 2018-59 (as well as any subsequently issued guidance clarifying, modifying, or updating either such Notice), as in effect on January 1, 2025.

(K) Regulations and guidance.—The Secretary may prescribe such regulations and guidance as may be necessary or appropriate to carry out the provisions of this paragraph, including rules to prevent the circumvention of any rules or restrictions with respect to prohibited foreign entities.