To amend the Internal Revenue Code of 1986 to provide an appropriate and permanent tax structure for investments in the Commonwealth of Puerto Rico and the possessions of the United States, and for other purposes.

Summary: Economic Revitalization Tax Act of 2001 - Amends Internal Revenue Code provisions concerning investment of earnings in U.S. property to set forth a separate rule governing any foreign corporation which is a controlled foreign corporation and is created or organized under the laws of, or engaged in the active conduct of a trade or business within, the Commonwealth of Puerto Rico or a possession of the United States.Provides that in the case of certain dividends received by a domestic corporation from such a corporation, there shall be allowed as a deduction an amount equal to 85 percent of such dividend.Establishes a safe harbor rule for certain transfers or licenses of intangible property to such a corporation.

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Economic 
Revitalization Tax Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. CERTAIN INVESTMENTS IN UNITED STATES PROPERTY BY QUALIFIED 
              CORPORATIONS.

    (a) In General.--Section 956 is amended by redesignating subsection 
(e) as subsection (f) and adding the following new subsection (e):
    ``(e) Separate Application of Section to Qualified Corporations.--
            ``(1) In general.--In the case of a qualified corporation, 
        this section shall be applied separately with respect to such 
        corporation's qualified income.
            ``(2) Definitions.--For purposes of this section--
                    ``(A) Qualified corporation.--The term `qualified 
                corporation' means any foreign corporation which is a 
                controlled foreign corporation and is created or 
                organized under the laws of, or engaged in the active 
                conduct of a trade or business within, the Commonwealth 
                of Puerto Rico or a possession of the United States.
                    ``(B) Qualified income.--The term `qualified 
                income' means income earned by a qualified corporation 
                in taxable years beginning after December 31, 2001, 
                from sources outside the United States, from--
                            ``(i) the active conduct of a trade or 
                        business within the Commonwealth of Puerto Rico 
                        or a possession of the United States, or
                            ``(ii) the sale or exchange of 
                        substantially all of the assets used in the 
                        active conduct of such a trade or business.
                    ``(C) Possession.--The term `possession of the 
                United States' includes the Virgin Islands, Guam, 
                American Samoa, and the Commonwealth of the Northern 
                Mariana Islands.
            ``(3) Taxable years to which subsection is applicable.--
        This subsection shall be applicable with respect to any taxable 
        year of a qualified corporation beginning after December 31, 
        2001, for which an election under section 245(d) is not in 
        effect.''
    (b) Certain Investments in United States Property.--Section 951(a) 
is amended by adding the following new paragraph at the end thereof:
            ``(4) Certain investments in united states property.--
                    ``(A) In general.--The amount determined under 
                paragraph (1)(B) of this subsection with respect to a 
                qualified corporation (as defined in section 
                956(e)(2)(A)) shall be reduced (but not below zero) by 
                the lesser of--
                            ``(i) 90 percent of the amount determined 
                        under section 956(e) with respect to such 
                        corporation for the taxable year, or
                            ``(ii) 90 percent of such corporation's 
                        cumulative qualified income (as defined in 
                        section 956(e)(2)(B)), reduced by amounts (if 
                        any) previously allowed as a deduction under 
                        section 245(d).
                    ``(B) Succeeding taxable years.--In applying this 
                section and section 956 to any taxable year, any amount 
                not included in the gross income of a United States 
                shareholder of a qualified corporation in a prior 
                taxable year solely by reason of the application of 
                subparagraph (A) of this paragraph shall be treated as 
                if it had been so included in the gross income of the 
                United States shareholder in such prior taxable year.''

SEC. 3. DIVIDENDS RECEIVED DEDUCTION WITH RESPECT TO CERTAIN 
              DISTRIBUTIONS BY QUALIFIED CORPORATIONS.

    Section 245 is amended by adding the following new subsection at 
the end thereof:
    ``(d) Dividends From Qualified Corporations.--
            ``(1) General rule.--In the case of a dividend described in 
        paragraph (2) received by a domestic corporation from an 
        electing qualified corporation (as defined in section 
        956(e)(2)(A)), there shall be allowed as a deduction an amount 
        equal to 85 percent of such dividend.
            ``(2) Eligible dividends.--Paragraph (1) shall apply only 
        to dividends which are paid out of that portion of the earnings 
        and profits of a qualified corporation which does not exceed 
        such corporation's accumulated qualified income (as defined in 
        section 956(e)(2)(B)).
            ``(3) Application of section 316 ordering rule.--For 
        purposes of this subsection, a dividend shall be deemed to be 
        made out of the most recently accumulated earnings and profits 
of the qualified corporation.
            ``(4) Elections.--
                    ``(A) In general.--An election under this 
                subsection shall be made by the qualified corporation 
                at such time and in such manner as the Secretary shall 
                prescribe.
                    ``(B) Years for which election is effective.--An 
                election under this subsection shall be effective for 
                the taxable year of the qualified corporation beginning 
                after December 31, 2001, for which such election is 
                made and for all succeeding taxable years of such 
                corporation, unless--
                            ``(i) the corporation ceases to be a 
                        qualified corporation, or
                            ``(ii) the corporation revokes the 
                        election.
                    ``(C) New election by qualified corporation 
                following termination.--If a qualified corporation has 
                made an election under this subsection and if such 
                election has been terminated under subparagraph (B), 
                such corporation (and any successor qualified 
                corporation) shall not be eligible to make an election 
                under this subsection for any taxable year before the 
                5th taxable year which begins after the 1st taxable 
                year for which such termination is effective, unless 
                the Secretary consents to such election.
            ``(5) Coordination with foreign tax credit.--To the extent 
        provided by the Secretary in regulations, the principles of 
        sections 245(a)(8) and (9) shall apply to dividends described 
        in paragraph (1) of this subsection.''

SEC. 4. SAFE HARBOR RULE FOR CERTAIN TRANSFERS OR LICENSES OF 
              INTANGIBLE PROPERTY TO A QUALIFIED CORPORATION.

    Section 367 is amended by the following new subsection at the end 
thereof:
    ``(g) Safe Harbor for Certain Transfers or Licenses of Intangible 
Property.--
            ``(1) General rule.--If subsection (d)(2)(A)(ii) or section 
        482 is otherwise applicable to the transfer or license of 
        qualified intangible property to an electing qualified 
        corporation (as defined in section 956(e)(2)(A)), the 
        requirements of subsection (d)(2)(A)(ii) or section 482, as the 
        case may be, shall be treated as satisfied for all purposes 
        under this subtitle, with respect to the qualified income 
        attributable to the qualified intangible property, for any 
        taxable year for which the electing qualified corporation 
        computes its qualified income (as defined in section 
        956(e)(2)(B)) with respect to its products or services 
        involving the use of the qualified intangible property in 
        accordance with the same method specified in section 936(h) (as 
        in effect on the date of enactment of this subsection) which 
        was used by the domestic corporation referred to in paragraph 
        (2)(A) for its last taxable year beginning before the transfer 
        or license to the qualified corporation.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Qualified intangible property.--The term 
                `qualified intangible property' means any intangible 
                property owned by a domestic corporation on the date of 
                enactment of this section, but only if such property 
                was--
                            ``(i) developed or purchased by the 
                        domestic corporation, and
                            ``(ii) used directly in the active conduct 
                        by the domestic corporation of a trade or 
                        business for which credits were allowed under 
                        either section 30A or section 936 for the 
                        taxable year within which the transfer or 
                        license occurs.
                    ``(B) Intangible property.--The term `intangible 
                property' means any intangible property (within the 
                meaning of subsection (d)) but only if such property 
                was used directly in connection with a manufacturing or 
                similar process within the taxable year referred to in 
                paragraph (2)(A)(ii).
            ``(3) Elections.--
                    ``(A) In general.--An election under this 
                subsection shall be made by the qualified corporation, 
                in such manner as the Secretary may prescribe by 
                regulations, only before the 15th day of the 3d month 
                following the close of the first taxable year of such 
                corporation beginning after December 31, 2001.
                    ``(B) Years for which effective.--An election under 
                this subsection shall apply to the taxable year for 
                which made and all subsequent years unless--
                            ``(i) the foreign corporation which is the 
                        transferee or licensee ceases to be a qualified 
                        corporation, or
                            ``(ii) the Secretary consents to the 
                        revocation of the election.''

SEC. 5. TECHNICAL AND CONFORMING CHANGES.

    (a) Imputed Interest.--Notwithstanding any provision of the 
Internal Revenue Code of 1986, no interest shall be imputed, and no 
original issue discount shall be accrued, for any purpose under such 
Code with respect to any obligation issued to a qualified corporation 
(as defined in section 956(e)(2)(A) of such Code) as part of a 
transaction to which section 956(e) of such Code is applicable.
    (b) Constructive Dividends.--Notwithstanding any provision of the 
Internal Revenue Code of 1986, no amount of United States property held 
by a qualified corporation (as defined in section 956(e) of such Code) 
pursuant to sections 951(a)(4) and 956(e) of such Code shall be treated 
as a dividend for any purpose under the Code.

SEC. 6. REGULATIONS.

    The Secretary shall prescribe such regulations as are necessary or 
appropriate to carry out the purposes of this Act.

SEC. 7. EFFECTIVE DATE.

    The amendments made by this Act shall take effect on the date of 
enactment of this Act.