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This bill would change federal tax rules for certain foreign companies owned by U.S. shareholders, especially those that do most of their business in U.S. possessions like Puerto Rico and the U.S. Virgin Islands. In simple terms, it would let some income from those companies be left out of a tax calculation that can raise taxes on foreign business income. The goal appears to be to give a tax break or adjustment for companies actively operating in U.S. possessions, as part of economic recovery support.
- The bill adds a new rule for “qualified possession corporations,” which are foreign companies that meet certain business and income tests in a U.S. possession.
- To qualify, most of the company’s income must come from a U.S. possession, and most of that income must be tied to active business there.
- The term “U.S. possession” here includes Puerto Rico, the Virgin Islands, and other listed possessions.
- The change would apply to foreign company tax years starting after December 31, 2023, and to the related tax years of U.S. shareholders.
Official Summaries
Territorial Economic Recovery Act
This bill excludes the income of certain controlled foreign corporations in U.S. territories from the calculation of global intangible low-taxed income (GILTI) for federal tax purposes.
Under current law, a U.S. shareholder of a controlled foreign corporation is required to include in gross income the GILTI of the shareholder. The calculation of GILTI is based, in part, on the controlled foreign corporation’s tested income (the controlled foreign corporation’s gross income less certain exclusions).
Under the bill, the income from a qualified possession corporation that is effectively connected with an active trade or business within a U.S. territory (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) is excluded from gross income for purposes of calculating a controlled foreign corporation’s tested income.
The bill defines a qualified possession corporation as any controlled foreign corporation if, for a three-year period ending in the prior tax year (or for the existence of the controlled foreign corporation if less than three years) (1) 80% or more of the controlled foreign corporation’s gross income was derived from a U.S. territory, and (2) 75% or more of the controlled foreign corporation’s gross income was effectively connected to the active conduct of a trade or business within a U.S. territory.
Current Full Text
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 363 Introduced in House (IH)]
<DOC>
119th CONGRESS
1st Session
H. R. 363
To amend the Internal Revenue Code of 1986 to exclude certain amounts
from the tested income of controlled foreign corporations, and for
other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 13, 2025
Ms. Plaskett introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to exclude certain amounts
from the tested income of controlled foreign corporations, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Territorial Economic Recovery Act''.
SEC. 2. INCOME OF CERTAIN QUALIFIED POSSESSION CORPORATIONS EXCLUDED
FROM TESTED INCOME.
(a) In General.--Section 951A of the Internal Revenue Code of 1986
is amended--
(1) in subsection (c)(2)(A)(i), by striking ``and'' at the
end of subclause (IV), by striking ``over'' at the end of
subclause (V) and inserting ``and'', and by adding at the end
the following new subclause:
``(VI) any income of a qualified
possession corporation that is
effectively connected with the active
conduct of a trade or business within a
possession of the United States,
over''; and
(2) by adding at the end the following new subsections:
``(g) Possession of the United States.--For purposes of this
section, the term `possession of the United States' means Puerto Rico,
the Virgin Islands, and any specified possession described in section
931(c).
``(h) Qualified Possession Corporation.--For purposes of this
section, the term `qualified possession corporation' means any
controlled foreign corporation for any taxable year, if, for the 3-year
period (or the period during which the controlled foreign corporation
has been in existence, if shorter) ending in the taxable year preceding
the taxable year in which the determination is made--
``(1) 80 percent or more of the gross income of such
corporation was derived from sources within a possession of the
United States, and
``(2) 75 percent or more of the gross income of such
corporation was effectively connected with the active conduct
of a trade or business within a possession of the United
States.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2023, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
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