Territory Economic Development Tax Credit Act
Bill: S.2485 | Sponsor: Sen. Menendez, Robert (D-NJ)
Policy area: Taxation

Summary:
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.

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.--80 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.--75 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) 40 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) 25 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.
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