1Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
2act relating to tax reform and State taxation by codifying
3and enumerating certain subjects of taxation and imposing
4taxes thereon; providing procedures for the payment,
5collection, administration and enforcement thereof; providing
6for tax credits in certain cases; conferring powers and
7imposing duties upon the Department of Revenue, certain
8employers, fiduciaries, individuals, persons, corporations
9and other entities; prescribing crimes, offenses and
10penalties," in corporate net income, further providing for
11definitions and for imposition of tax.

12The General Assembly of the Commonwealth of Pennsylvania
13hereby enacts as follows:

14Section 1. Section 401(3)4(c) of the act of March 4, 1971
15(P.L.6, No.2), known as the Tax Reform Code of 1971, amended
16October 9, 2009 (P.L.451, No.48), is amended, clause (3)1 is
17amended by adding a phrase and the section is amended by adding
18clauses to read:

19Section 401. Definitions.--The following words, terms, and

1phrases, when used in this article, shall have the meaning
2ascribed to them in this section, except where the context
3clearly indicates a different meaning:

4* * *

5(3) "Taxable income." 1. * * *

6(t) (1) Except as provided in paragraph (2), (3) or (4) for
7taxable years beginning after December 31, 2013, no deduction
8shall be allowed for an intangible expense or cost, or an
9interest expense or cost, paid, accrued or incurred directly or
10indirectly in connection with one or more transactions with an
11affiliated entity. In calculating taxable income under this
12paragraph, when the taxpayer is engaged in one or more
13transactions with an affiliated entity that was subject to tax
14in this Commonwealth or another state or possession of the
15United States on a tax base that included the intangible expense
16or cost, or the interest expense or cost, paid, accrued or
17incurred by the taxpayer, the taxpayer shall receive a credit
18against tax due in this Commonwealth in an amount equal to the
19apportionment factor of the taxpayer in this Commonwealth
20multiplied by the greater of the following:

21(A) the tax liability of the affiliated entity with respect
22to the portion of its income representing the intangible expense
23or cost, or the interest expense or cost, paid, accrued or
24incurred by the taxpayer; or

25(B) the tax liability that would have been paid by the
26affiliated entity under subparagraph (A) if that tax liability
27had not been offset by a credit.

28The credit issued under this paragraph shall not exceed the
29taxpayer's liability in this Commonwealth attributable to the
30net income taxed as a result of the adjustment required by this

1paragraph.

2(2) The adjustment required by paragraph (1) shall not apply
3to a transaction that was directly related to a valid business
4purpose.

5(3) The adjustment required by paragraph (1) shall not apply
6to a transaction between a taxpayer and an affiliated entity
7domiciled in a foreign nation which has in force a comprehensive
8income tax treaty with the United States providing for the
9allocation of all categories of income subject to taxation, or
10the withholding of tax, on royalties, licenses, fees and
11interest for the prevention of double taxation of the respective
12nations' residents and the sharing of information.

13(4) The adjustment required by paragraph (1) shall not apply 
14to a transaction where an affiliated entity directly or 
15indirectly paid, accrued or incurred a payment to a person who 
16is not an affiliated entity, if the payment is paid, accrued or 
17incurred on the intangible expense or cost, or interest expense 
18or cost, and is equal to or less than the taxpayer's 
19proportional share of the transaction. The taxpayer's 
20proportional share shall be based on relative sales, assets, 
21liabilities or another reasonable method.

22* * *

234. * * *

24(c) (1) The net loss deduction shall be the lesser of:

25(A) (I) For taxable years beginning before January 1, 2007,
26two million dollars ($2,000,000);

27(II) For taxable years beginning after December 31, 2006,
28the greater of twelve and one-half per cent of taxable income as
29determined under subclause 1 or, if applicable, subclause 2 or
30three million dollars ($3,000,000);

1(III) For taxable years beginning after December 31, 2008,
2the greater of fifteen per cent of taxable income as determined
3under subclause 1 or, if applicable, subclause 2 or three
4million dollars ($3,000,000);

5(IV) For taxable years beginning after December 31, 2009,
6the greater of twenty per cent of taxable income as determined
7under subclause 1 or, if applicable, subclause 2 or three
8million dollars ($3,000,000); [or]

9(V) For taxable years beginning after December 31, 2014, the 
10greater of twenty-nine per cent of taxable income as determined 
11under subclause 1 or, if applicable, subclause 2 or four million 
12dollars ($4,000,000);

13(VI) For taxable years beginning after December 31, 2015, 
14the greater of thirty-eight per cent of taxable income as 
15determined under subclause 1 or, if applicable, subclause 2 or 
16five million dollars ($5,000,000);

17(VII) For taxable years beginning after December 31, 2016, 
18the greater of forty-seven per cent of taxable income as 
19determined under subclause 1 or, if applicable, subclause 2 or 
20six million dollars ($6,000,000);

21(VIII) For taxable years beginning after December 31, 2017, 
22the greater of fifty-six per cent of taxable income as 
23determined under subclause 1 or, if applicable, subclause 2 or 
24seven million dollars ($7,000,000);

25(IX) For taxable years beginning after December 31, 2018, 
26the greater of sixty-four per cent of taxable income as 
27determined under subclause 1 or, if applicable, subclause 2 or 
28eight million dollars ($8,000,000);

29(X) For taxable years beginning after December 31, 2019, the 
30greater of seventy-three per cent of taxable income as 

1determined under subclause 1 or, if applicable, subclause 2 or 
2nine million dollars ($9,000,000);

3(XI) For taxable years beginning after December 31, 2020, 
4the greater of eighty-two per cent of taxable income as 
5determined under subclause 1 or, if applicable, subclause 2 or 
6ten million dollars ($10,000,000);

7(XII) For taxable years beginning after December 31, 2021, 
8the greater of ninety-one per cent of taxable income as 
9determined under subclause 1 or, if applicable, subclause 2 or 
10eleven million dollars ($11,000,000);

11(XIII) For taxable years beginning after December 31, 2022,
12taxable income as determined under subclause 1 or, if
13applicable, subclause 2; or

14(B) The amount of the net loss or losses which may be
15carried over to the taxable year or taxable income as determined
16under subclause 1 or, if applicable, subclause 2.

17(1.1) In no event shall the net loss deduction include more
18than five hundred thousand dollars ($500,000), in the aggregate,
19of net losses from taxable years 1988 through 1994.

20(2) (A) A net loss for a taxable year may only be carried
21over pursuant to the following schedule:

22Taxable Year	Carryover
231981	1 taxable year
241982	2 taxable years
251983-1987	3 taxable years
261988 27 28 29	2 taxable years plus 1 taxable year starting with the 1995 taxable year
301989 20130HB0440PN0497 -5-     1 2 3	1 taxable year plus 2 taxable years starting with the 1995 taxable year
41990-1993 5 6	3 taxable years starting with the 1995 taxable year
71994	1 taxable year
81995-1997	10 taxable years
91998 and thereafter	20 taxable years

10(B) The earliest net loss shall be carried over to the
11earliest taxable year to which it may be carried under this
12schedule. The total net loss deduction allowed in any taxable
13year shall not exceed:

14(I) Two million dollars ($2,000,000) for taxable years
15beginning before January 1, 2007.

16(II) The greater of twelve and one-half per cent of the
17taxable income as determined under subclause 1 or, if
18applicable, subclause 2 or three million dollars ($3,000,000)
19for taxable years beginning after December 31, 2006.

20(III) The greater of fifteen per cent of the taxable income
21as determined under subclause 1 or, if applicable, subclause 2
22or three million dollars ($3,000,000) for taxable years
23beginning after December 31, 2008.

24(IV) The greater of twenty per cent of the taxable income as
25determined under subclause 1 or, if applicable, subclause 2 or
26three million dollars ($3,000,000) for taxable years beginning
27after December 31, 2009.

28(V) The greater of twenty-nine per cent of taxable income as 
29determined under subclause 1 or, if applicable, subclause 2 or 
30four million dollars ($4,000,000) for taxable years beginning 

1after December 31, 2014.

2(VI) The greater of thirty-eight per cent of taxable income 
3as determined under subclause 1 or, if applicable, subclause 2 
4or five million dollars ($5,000,000) for taxable years beginning 
5after December 31, 2015.

6(VII) The greater of forty-seven per cent of taxable income 
7as determined under subclause 1 or, if applicable, subclause 2 
8or six million dollars ($6,000,000) for taxable years beginning 
9after December 31, 2016.

10(VIII) The greater of fifty-six per cent of taxable income 
11as determined under subclause 1 or, if applicable, subclause 2 
12or seven million dollars ($7,000,000) for taxable years 
13beginning after December 31, 2017.

14(IX) The greater of sixty-four per cent of taxable income as 
15determined under subclause 1 or, if applicable, subclause 2 or 
16eight million dollars ($8,000,000) for taxable years beginning 
17after December 31, 2018.

18(X) The greater of seventy-three per cent of taxable income 
19as determined under subclause 1 or, if applicable, subclause 2 
20or nine million dollars ($9,000,000) for taxable years beginning 
21after December 31, 2019.

22(XI) The greater of eighty-two per cent of taxable income as 
23determined under subclause 1 or, if applicable, subclause 2 or 
24ten million dollars ($10,000,000) for taxable years beginning 
25after December 31, 2020.

26(XII) The greater of ninety-one per cent of taxable income 
27as determined under subclause 1 or, if applicable, subclause 2 
28or eleven million dollars ($11,000,000) for taxable years 
29beginning after December 31, 2021.

30(XIII) For taxable years beginning after December 31, 2022,

1taxable income as determined under subclause 1 or, if
2applicable, subclause 2.

3* * *

4(8) "Intangible expense or cost." Royalties, licenses or
5fees paid for the acquisition, use, maintenance, management,
6ownership, sale, exchange or other disposition of patents,
7patent applications, trade names, trademarks, service marks,
8copyrights, mask works or other similar expenses or costs.

9(9) "Interest expense or cost." A deduction allowed under
10section 163 of the Internal Revenue Code of 1986 (26 U.S.C. §
11163) to the extent that such deduction is directly related to an
12intangible expense or cost.

13(10) "Affiliated entity." A person with a relationship to 
14the taxpayer during all or any portion of the taxable year that 
15is any of the following:

16(i) a stockholder who is an individual, or a member of the 
17stockholder's family as set forth in section 318 of the Internal 
18Revenue Code of 1986 (26 U.S.C. § 318), if the stockholder and 
19the members of the stockholder's family own, directly, 
20indirectly, beneficially or constructively, in the aggregate, 
21more than fifty per cent of the value of the taxpayer's 
22outstanding stock;

23(ii) a stockholder, or a stockholder's partnership, limited 
24liability company, estate, trust or corporation, if the 
25stockholder and the stockholder's partnerships, limited 
26liability companies, estates, trusts and corporations own 
27directly, indirectly, beneficially or constructively, in the 
28aggregate, more than fifty per cent of the value of the 
29taxpayer's outstanding stock;

30(iii) a corporation, or a party related to the corporation 

1in a manner that would require an attribution of stock from the 
2corporation to the party or from the party to the corporation 
3under the attribution rules of the Internal Revenue Code of 
41986, if the taxpayer owns, directly, indirectly, beneficially 
5or constructively, more than fifty per cent of the value of the 
6corporation's outstanding stock. The attribution rules of 
7section 318 of the Internal Revenue Code of 1986 shall apply for 
8purposes of determining whether the ownership requirements of 
9this definition have been met;

10(iv) a component member as defined in section 1563(b) of the
11Internal Revenue Code of 1986 (26 U.S.C. § 1563(b)); or

12(v) a person to or from whom there is attribution of stock
13ownership in accordance with section 1563(e) of the Internal
14Revenue Code of 1986.

15(11) "Valid business purpose." A purpose, other than the 
16avoidance or reduction of taxation, which alone or in 
17combination with other purposes constitute the primary 
18motivation for a business activity or transaction. A transaction 
19done at arm's length terms shall be presumed to be directly 
20related to a valid business purpose.

21Section 2. Section 402(b) of the act, amended June 29, 2002 
22(P.L.559, No.89), is amended to read:

23Section 402. Imposition of Tax.--* * *

24(b) The annual rate of tax on corporate net income imposed
25by subsection (a) for taxable years beginning for the calendar
26year or fiscal year on or after the dates set forth shall be as
27follows:

28Taxable Year	Tax Rate
29[January 1, 1995, and each 30taxable year thereafter	9.99%]
20130HB0440PN0497 -9-
1January 1, 1995, and each 2taxable year through December 331, 2013	9.99%
4January 1, 2014, through 5December 31, 2014	9.75%
6January 1, 2015, through 7December 31, 2015	9.25%
8January 1, 2016, through 9December 31, 2016	8.75%
10January 1, 2017, through 11December 31, 2017	8.25%
12January 1, 2018, through 13December 31, 2018	7.75%
14January 1, 2019, and each 15taxable year thereafter	6.99%

16* * *

17Section 3. This act shall take effect immediately.