Text: S.4783 — 116th Congress (2019-2020)All Information (Except Text)

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Introduced in Senate (10/01/2020)


116th CONGRESS
2d Session
S. 4783


To amend the Internal Revenue Code of 1986 to provide a credit for economic activity in possessions of the United States.


IN THE SENATE OF THE UNITED STATES

October 1, 2020

Mr. Menendez (for himself and Mr. Wicker) introduced the following bill; which was read twice and referred to the Committee on Finance


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.—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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