I
107TH CONGRESS
1ST SESSION
H. R. 2550
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.
IN THE HOUSE OF REPRESENTATIVES
JULY 18, 2001
Mr. CRANE (for himself, Mr. RANGEL, Mr. ACEVEDO-VILA´, Mr. RAMSTAD,
Mr. MATSUI, Mr. NEAL of Massachusetts, Mr. MCNULTY, Mr. JEFFER-
SON, Mr. BECERRA, Mr. SENSENBRENNER, Mr. WICKER, Mr. GREEN of
Wisconsin, Mrs. CHRISTENSEN, Ms. PELOSI, Mr. RAHALL, Mr. MENEN-
DEZ, Mr. HOYER, Mr. SERRANO, Mr. GUTIERREZ, Ms. VELA´ZQUEZ, Mr.
TOWNS, Mr. CLEMENT, Mr. BRADY of Pennsylvania, Mr. UNDERWOOD,
Mr. FALEOMAVAEGA, and Mr. WELLER) 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
an appropriate and permanent tax structure for invest-
ments in the Commonwealth of Puerto Rico and the
possessions of the United States, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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 other-
wise expressly provided, whenever in this Act an amend-
ment 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 provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. CERTAIN INVESTMENTS IN UNITED STATES PROP-
ERTY BY QUALIFIED CORPORATIONS.
(a) IN GENERAL.—Section 956 is amended by redes-
ignating subsection (e) as subsection (f) and adding the
following new subsection (e):
‘‘(e) SEPARATE APPLICATION OF SECTION TO QUALI-
FIED 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 cor-
poration 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 substan-
tially 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 Is-
lands, Guam, American Samoa, and the Com-
monwealth 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 cor-
poration beginning after December 31, 2001, for
which an election under section 245(d) is not in ef-
fect.’’
(b) CERTAIN INVESTMENTS
IN UNITED STATES
PROPERTY.—Section 951(a) is amended by adding the fol-
lowing new paragraph at the end thereof:
‘‘(4) 
CERTAIN
INVESTMENTS
IN
UNITED
STATES PROPERTY.—
‘‘(A) IN
GENERAL.—The amount deter-
mined under paragraph (1)(B) of this sub-
section with respect to a qualified corporation
(as defined in section 956(e)(2)(A)) shall be re-
duced (but not below zero) by the lesser of—
‘‘(i) 90 percent of the amount deter-
mined 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 subpara-
graph (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
CORPORA-
TIONS.—
‘‘(1) GENERAL RULE.—In the case of a divi-
dend described in paragraph (2) received by a do-
mestic corporation from an electing qualified cor-
poration (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 quali-
fied corporation which does not exceed such corpora-
tion’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 cor-
poration at such time and in such manner as
the Secretary shall prescribe.
‘‘(B) YEARS FOR WHICH ELECTION IS EF-
FECTIVE.—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 corpora-
tion, unless—
‘‘(i) the corporation ceases to be a
qualified corporation, or
‘‘(ii) the corporation revokes the elec-
tion.
‘‘(C) NEW ELECTION BY QUALIFIED COR-
PORATION
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 cor-
poration) shall not be eligible to make an elec-
tion 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 CRED-
IT.—To the extent provided by the Secretary in reg-
ulations, 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 sub-
section 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 prop-
erty to an electing qualified corporation (as defined
in section 956(e)(2)(A)), the requirements of sub-
section (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 in-
come attributable to the qualified intangible prop-
erty, 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 cor-
poration.
‘‘(2) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) 
QUALIFIED
INTANGIBLE
PROP-
ERTY.—The term ‘qualified intangible property’
means any intangible property owned by a do-
mestic corporation on the date of enactment of
this section, but only if such property was—
‘‘(i) developed or purchased by the do-
mestic corporation, and
‘‘(ii) used directly in the active con-
duct 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 prop-
erty (within the meaning of subsection (d)) but
only if such property was used directly in con-
nection 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 cor-
poration, 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 pro-
vision 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 de-
fined in section 956(e)(2)(A) of such Code) as part of a
transaction to which section 956(e) of such Code is appli-
cable.
(b) CONSTRUCTIVE
DIVIDENDS.—Notwithstanding
any provision of the Internal Revenue Code of 1986, no
amount of United States property held by a qualified cor-
poration (as defined in section 956(e) of such Code) pur-
suant 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.
Æ