Territory Economic Development Tax Credit Act
This bill establishes a new tax credit for wages and tangible investments made by U.S. domestic corporations with branches operating in U.S. territories. It requires that 80% of credible income must be derived from a territory during a 3-year period, and 75% must come from an active trade or business in a territory. The credit is equal to 40% of eligible wages and benefits paid or provided to employees in the territory, subject to certain limitations.
[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5032 Introduced in House (IH)]
<DOC>
117th CONGRESS
1st Session
H. R. 5032
To amend the Internal Revenue Code of 1986 to provide a credit for
economic activity in possessions of the United States.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
August 13, 2021
Mr. Suozzi (for himself, Ms. Velazquez, and Mr. Pascrell) 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 provide a credit for
economic activity in possessions of the United States.
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 ``Territory Economic Development Tax
Credit Act''.
SEC. 2. CREDIT FOR ECONOMIC ACTIVITY IN POSSESSIONS OF THE UNITED
STATES.
(a) In General.--Subpart B of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 is amended by adding at the end
the following new section:
``SEC. 30E. POSSESSION ECONOMIC ACTIVITY CREDIT.
``(a) Allowance of Credit.--
``(1) In general.--Except as otherwise provided in this
section, in the case of a qualified domestic corporation, there
shall be allowed as a credit against the tax imposed by this
chapter an amount equal to the amount determined under
paragraph (2).
``(2) Determination of amount.--The amount determined under
this paragraph is--
``(A) in the case of a qualified domestic
corporation described in subsection (b)(1)(A), the
lesser of--
``(i) the portion of the tax which is
attributable to the taxable income, from
sources without the United States, from--
``(I) the active conduct of a trade
or business within a possession of the
United States, or
``(II) the sale or exchange of
substantially all of the assets used by
the taxpayer in the active conduct of
such trade or business, or
``(ii) the wage and asset limitation with
respect to such corporation, and
``(B) in the case of a qualified domestic
corporation described in subsection (b)(1)(B), the
lesser of--
``(i) the intangible low-taxed income tax
amount, or
``(ii) the sum of the qualified domestic
corporation's pro rata share (determined in a
manner similar to the manner provided in
section 951A(e)(1)) of the wage and asset
limitations with respect to each foreign
qualified corporation of which such qualified
domestic corporation is a United States
shareholder.
``(b) Qualified Domestic Corporation; Qualified Corporation.--For
purposes of this section--
``(1) In general.--The term `qualified domestic
corporation' means any domestic corporation which is--
``(A) a qualified corporation, or
``(B) a United States shareholder of a foreign
corporation which--
``(i) is a qualified corporation, and
``(ii) is wholly owned by corporations
which are members of the same affiliated group
as such United States shareholder.
``(2) Qualified corporation.--The term `qualified
corporation' means any corporation if such corporation meets
the following requirements:
``(A) Source qualification.--Eighty percent or more
of the gross income of the corporation for the 3-year
period immediately preceding the close of the taxable
year (or for such part of such period immediately
preceding the close of such taxable year as may be
applicable) was derived from sources within a
possession of the United States (determined without
regard to section 904(f)).
``(B) Trade or business qualification.--Seventy-
five percent or more of the gross income of the
corporation for such period or such part thereof was
derived from the active conduct of a trade or business
within a possession of the United States.
``(3) Special rule for separate and clearly identified
units of foreign corporations.--
``(A) In general.--In the case of a United States
shareholder of a foreign corporation which--
``(i) is not a qualified corporation but
with respect to which the ownership
requirements of paragraph (1)(B)(ii) are met,
and
``(ii) has an eligible foreign business
unit which, if such unit were a corporation,
would be a qualified corporation with respect
to which such ownership requirements would be
met,
then, for purposes of this section, the United States
shareholder may elect to treat such unit as a separate
foreign corporation which meets the requirements of
paragraph (1)(B) and with respect to which such
shareholder is a United States shareholder.
``(B) Eligible foreign business unit.--For purposes
of this paragraph, the term `eligible foreign business
unit' means a separate and clearly identified foreign
unit of a trade or business, including a partnership or
an entity treated as disregarded as a separate entity
from its owner (under section 7701 or other provision
under this title), which maintains separate books and
records.
``(C) Special election for affiliated groups.--In
the case of an affiliated group described in paragraph
(1)(B)(ii), the election under subparagraph (A) with
respect to any eligible foreign business unit shall be
made by the common parent of such group and shall apply
uniformly to all members of such group which are United
States shareholders with respect to the foreign
corporation which has such unit.
``(c) Wage and Asset Limitation.--
``(1) In general.--The wage and asset limitation with
respect to any qualified corporation for any taxable year is an
amount equal to the sum of the following amounts:
``(A) Forty percent of the sum of--
``(i) the aggregate amount of the qualified
corporation's qualified possession wages for
such taxable year, plus
``(ii) the allocable employee fringe
benefit expenses of the qualified corporation
for such taxable year.
``(B) Twenty-five percent of the depreciation
allowances for the taxable year with respect to
qualified tangible property.
``(C) In the case of a qualified domestic
corporation described in subsection (b)(1)(A), the
amount of the possession income taxes for the taxable
year attributable to income described in subsection
(a)(2)(A)(i).
``(2) Qualified possession wages.--For purposes of this
section--
``(A) In general.--The term `qualified possession
wages' means wages paid or incurred by the qualified
corporation during the taxable year in connection with
the active conduct of a trade or business within a
possession of the United States to any employee for
services performed in such possession, but only if such
services are performed while the principal place of
employment of such employee is within such possession.
``(B) Limitation on amount of wages taken into
account.--
``(i) In general.--The amount of wages
which may be taken into account under
subparagraph (A) with respect to any employee
for any taxable year shall not exceed the
contribution and benefit base determined under
section 230 of the Social Security Act for the
calendar year in which such taxable year
begins.
``(ii) Treatment of part-time employees,
etc.--If--
``(I) any employee is not employed
by the qualified corporation on a
substantially full-time basis at all
times during the taxable year, or
``(II) the principal place of
employment of any employee with the
qualified corporation is not within a
possession at all times during the
taxable year,
the limitation applicable under clause (i) with
respect to such employee shall be the
appropriate portion (as determined by the
Secretary) of the limitation which would
otherwise be in effect under clause (i).
``(C) Treatment of certain employees.--The term
`qualified possession wages' shall not include any
wages paid to employees who are assigned by the
employer to perform services for another person, unless
the principal trade or business of the employer is to
make employees available for temporary periods to other
persons in return for compensation. All qualified
corporations treated as 1 corporation under subsection
(f)(1) shall be treated as 1 employer for purposes of
the preceding sentence.
``(D) Wages.--
``(i) In general.--Except as provided in
clause (ii), the term `wages' has the meaning
given to such term by subsection (b) of section
3306 (determined without regard to any dollar
limitation contained in such section). For
purposes of the preceding sentence, such
subsection (b) shall be applied as if the term
`United States' included all possessions of the
United States.
``(ii) Special rule for agricultural labor
and railway labor.--In any case to which
subparagraph (A) or (B) of paragraph (1) of
section 51(h) applies, the term `wages' has the
meaning given to such term by section 51(h)(2).
``(3) Allocable employee fringe benefit expenses.--
``(A) In general.--The allocable employee fringe
benefit expenses of any qualified corporation for any
taxable year is an amount which bears the same ratio to
the amount determined under subparagraph (B) for such
taxable year as--
``(i) the aggregate amount of the qualified
corporation's qualified possession wages for
such taxable year, bears to
``(ii) the aggregate amount of the wages
paid or incurred by such qualified corporation
during such taxable year.
In no event shall the amount determined under the
preceding sentence exceed 15 percent of the amount
referred to in clause (i).
``(B) Expenses taken into account.--For purposes of
subparagraph (A), the amount determined under this
subparagraph for any taxable year is the aggregate
amount allowable (or, in the case of a foreign
corporation, which would be allowable if such foreign
corporation were a domestic corporation) as a deduction
under this chapter to the qualified corporation for
such taxable year with respect to--
``(i) employer contributions under a stock
bonus, pension, profit-sharing, or annuity
plan,
``(ii) employer-provided coverage under any
accident or health plan for employees, and
``(iii) the cost of life or disability
insurance provided to employees.
Any amount treated as wages under paragraph (2)(D)
shall not be taken into account under this
subparagraph.
``(4) Depreciation rules.--For purposes of this section--
``(A) Depreciation allowances.--The term
`depreciation allowances' means the depreciation
deductions allowable (or, in the case of a foreign
corporation, which would be allowable if such foreign
corporation were a domestic corporation) under section
167 to the qualified corporation.
``(B) Qualified tangible property.--The term
`qualified tangible property' means any tangible
property--
``(i) which is used by the qualified
corporation in a possession of the United
States in the active conduct of a trade or
business within such possession,
``(ii) to which section 168 applies, and
``(iii) which is not 3-year property for
purposes of such section.
``(d) Intangible Low-Taxed Income Tax Amount.--For purposes of this
section--
``(1) In general.--The intangible low-taxed income tax
amount is an amount equal to the lesser of--
``(A) the eligible possession intangible low-tax
income tax amount, or
``(B) the global intangible low-taxed income tax
amount.
``(2) Eligible possession intangible low-taxed income tax
amount.--
``(A) In general.--The eligible possession
intangible low-taxed income tax amount is an amount
equal to the excess of--
``(i) the product of--
``(I) the rate in effect under
section 11 for the taxable year, and
``(II) the sum of the possession
intangible low-taxed income amount for
such taxable year and the amount which
would be treated as a dividend under
section 78 if only amounts attributable
to such possession intangible low-tax
income amount were taken into account
under such section for such taxable
year, reduced by the possession ILTI
deduction for such taxable year, over
``(ii) an amount equal to the amount
described in section 960(d), determined--
``(I) by substituting `possession
intangible low-taxed income amount (as
defined in section 30E(d)(2)(B))' for
`global intangible low-taxed income (as
defined in section 951A(b))' in
paragraph (2)(A) thereof, and
``(II) by only taking into account
income from the active conduct of a
trade or business and from sources
(determined under rules similar to the
rules of part I of chapter N) within
possessions of the United States for
purposes of determining the amounts
under paragraphs (2)(B) and (3)
thereof.
``(B) Possession intangible low-taxed income
amount.--The possession intangible low-taxed income
amount is equal to the amount of global intangible low-
taxed income (as defined in section 951A(b)) for the
taxable year, determined--
``(i) by only taking into account income
from the active conduct of a trade or business
and from sources (determined under rules
similar to the rules of part I of chapter N)
within possessions of the United States for
purposes of determining the tested income and
tested loss, and
``(ii) for purposes of determining the
qualified business asset investment, by only
taking into account specified tangible property
which is predominantly used--
``(I) in the production of income
described in clause (i), and
``(II) in possessions of the United
States.
``(C) Possession ilti deduction.--The possession
ILTI deduction is 50 percent (37.5 percent in the case
of taxable years beginning after December 31, 2025)
of--
``(i) the possession intangible low-taxed
income amount (if any) for such taxable year,
and
``(ii) the amount which would be treated as
a dividend under section 78 if only amounts
attributable to the amount described in clause
(i) were taken into account.
Rules similar to the rules of section 250(a)(2)
(applied by substituting `possession intangible low-
taxed income amount (as defined in section
30E(d)(2)(B))' for `global intangible low-taxed income
amount' in subsection (a)(1)(B)(i) for purposes of
determining the amount described and taken into account
therein) shall apply for purposes of this subparagraph.
``(3) Global intangible low-taxed income tax amount.--For
purposes of this subsection, the global intangible low-taxed
income tax amount is an amount equal to the excess of--
``(A) the product of--
``(i) the rate in effect under section 11
for the taxable year, and
``(ii) the sum of global intangible low-
taxed income amount determined under section
951A(b) for such taxable year and the amount
which would be treated as a dividend under
section 78 if only amounts attributable to such
global intangible low-taxed income amount were
taken into account under such section for such
taxable year, reduced by an amount equal to the
amount determined under section 250(a)(1)(B),
over
``(B) an amount equal to the amount described in
section 960(d) (determined after the application of
section 904).
``(e) Possession.--The term `possession of the United States'
includes the Commonwealth of Puerto Rico and the Virgin Islands.
``(f) Credit Not Allowed Against Certain Taxes.--The credit
provided by subsection (a) shall not be allowed against the tax imposed
by--
``(1) section 531 (relating to the tax on accumulated
earnings),
``(2) section 541 (relating to personal holding company
tax), or
``(3) section 1351 (relating to recoveries of foreign
expropriation losses).
``(g) Other Rules.--
``(1) Denial of double benefit.--
``(A) Branches.--In the case of a qualified
domestic corporation described in subsection
(b)(1)(A)--
``(i) no credit or deduction shall be
allowed under this chapter for--
``(I) the portion of the wages or
salaries paid or incurred for the
taxable year which is equal to the
amount of wages taken into account in
determining the wage and asset
limitation under subsection (c)(1)(A),
``(II) the portion of employee
fringe benefit expenses for the taxable
year which is equal to the amount of
such expenses taken into account in
determining the wage and asset
limitation under subsection (c)(1)(A),
and
``(III) the portion of depreciation
allowances for the taxable year which
is equal to the amount of such
allowances taken into account under
subsection (c)(1)(B), and
``(ii) any tax of a foreign country or a
possession of the United States which is paid
or accrued with respect to taxable income which
is taken into account in computing the credit
under subsection (a)(2)(A) shall not be treated
as income, war profits, or excess profits taxes
paid or accrued to a foreign country or
possession of the United States, and no
deduction shall be allowed under this title
with respect to any amounts so paid or accrued.
``(B) Controlled foreign corporations.--In the case
of a qualified domestic corporation described in
subsection (b)(1)(B), for purposes of determining
tested income or tested loss under section 951A--
``(i) the deductions described in section
951A(c)(2)(A)(ii) attributable to wages shall
be reduced by the amounts described in
subparagraph (A)(i)(I),
``(ii) the deductions described in section
951A(c)(2)(A)(ii) attributable to employee
fringe benefit expenses shall be reduced by the
amounts described in subparagraph (A)(i)(II),
and
``(iii) the deductions described in section
951A(c)(2)(A)(ii) attributable to depreciation
allowances shall be reduced by the amounts
described in subparagraph (A)(i)(III).
``(2) Carryover of certain unused limitation.--
``(A) Branches.--
``(i) In general.--In the case of a
qualified domestic corporation described in
subsection (b)(1)(A), if the wage and asset
limitation with respect to such corporation
exceeds the amount described in subsection
(a)(2)(A)(i), then such excess shall be a
carryover to the first preceding taxable year
and to any of the first 10 succeeding taxable
years, in that order, and, subject to the
limitations of clause (ii), shall be added to
the wage and asset limitation for the taxable
year to which it is carried.
``(ii) Limitation.--The unused amount which
may be taken into account under clause (i) for
any taxable year shall not exceed the amount
(if any) by which the amount described in
subsection (a)(2)(A)(i) for such taxable year
exceeds the sum of--
``(I) the wage and asset limitation
with respect to such corporation for
such taxable year determined without
regard to this paragraph, and
``(II) the amounts which, by reason
of this paragraph, are carried to such
taxable year and are attributable to
taxable years before the unused amount.
``(B) Controlled foreign corporations.--
``(i) In general.--In the case of a
qualified domestic corporation described in
subsection (b)(1)(B), if the amount described
in subsection (a)(2)(B)(ii) for any taxable
year exceeds the intangible low-taxed income
tax amount, then such excess shall be a
carryover to the first preceding taxable year
and to any of the first 10 succeeding taxable
years, in that order, and, subject to the
limitations of clause (ii), shall be added to
the amount described in subsection
(a)(2)(B)(ii) for the taxable year to which it
is carried.
``(ii) Limitation.--The unused amount which
may be taken into account under clause (i) for
any taxable year shall not exceed the amount
(if any) by which the intangible low-taxed
income tax amount for such taxable year exceeds
the sum of--
``(I) the amount described in
subsection (a)(2)(B)(ii) for such
taxable year determined without regard
to this paragraph, and
``(II) the amounts which, by reason
of this paragraph, are carried to such
taxable year and are attributable to
taxable years before the unused amount.
``(3) Separate application to each possession.--For
purposes of determining the amount of the credit allowed under
this section, this section shall be applied separately with
respect to each possession.''.
(b) Conforming Amendments.--
(1) Section 904(b) of the Internal Revenue Code of 1986 is
amended by redesignating paragraph (4) as paragraph (5) and by
inserting after paragraph (3) the following new paragraph:
``(4) Coordination with section 30e.--For purposes of
subsection (a), in the case of a qualified domestic corporation
described in section 30E(b)(1)(A), the taxable income shall not
include any portion thereof taken into account for purposes of
the credit (if any) allowed by section 30E (without regard to
subsection (c) thereof).''.
(2) Section 904(f)(1) of such Code is amended by inserting
``and section 30E'' after ``For purposes of this subpart''.
(3) Section 904(g)(1) of such Code is amended by striking
``section 936'' and inserting ``section 30E''.
(4) The table of sections for subpart B of part IV of
subchapter A of chapter 1 of such Code is amended by adding at
the end the following:
``Sec. 30E. Possession economic activity credit.''.
(c) Treatment of Credit Under BEAT.--Section 59A(b)(1)(B)(ii) of
the Internal Revenue Code of 1986 is amended by redesignating subclause
(II) as subclause (III) and by inserting after subclause (I) the
following new subclause:
``(II) the credit allowed under
section 30E, plus''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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