II 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 Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Territory Economic 4 Development Tax Credit Act’’. 5 SEC. 2. CREDIT FOR ECONOMIC ACTIVITY IN POSSESSIONS 6 OF THE UNITED STATES. 7 (a) IN GENERAL.—Subpart B of part IV of sub- 8 chapter A of chapter 1 of the Internal Revenue Code of 9 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 4783 IS 1986 is amended by adding at the end the following new 1 section: 2 ‘‘SEC. 30E. POSSESSION ECONOMIC ACTIVITY CREDIT. 3 ‘‘(a) ALLOWANCE OF CREDIT.— 4 ‘‘(1) IN GENERAL.—Except as otherwise pro- 5 vided in this section, in the case of a qualified do- 6 mestic corporation, there shall be allowed as a credit 7 against the tax imposed by this chapter an amount 8 equal to the amount determined under paragraph 9 (2). 10 ‘‘(2) DETERMINATION OF AMOUNT.—The 11 amount determined under this paragraph is— 12 ‘‘(A) in the case of a qualified domestic 13 corporation described in subsection (b)(1)(A), 14 the lesser of— 15 ‘‘(i) the portion of the tax which is at- 16 tributable to the taxable income, from 17 sources without the United States, from— 18 ‘‘(I) the active conduct of a trade 19 or business within a possession of the 20 United States, or 21 ‘‘(II) the sale or exchange of sub- 22 stantially all of the assets used by the 23 taxpayer in the active conduct of such 24 trade or business, or 25 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 4783 IS ‘‘(ii) the wage and asset limitation 1 with respect to such corporation, and 2 ‘‘(B) in the case of a qualified domestic 3 corporation described in subsection (b)(1)(B), 4 the lesser of— 5 ‘‘(i) the intangible low-taxed income 6 tax amount, or 7 ‘‘(ii) the sum of the qualified domestic 8 corporation’s pro rata share (determined in 9 a manner similar to the manner provided 10 in section 951A(e)(1)) of the wage and 11 asset limitations with respect to each for- 12 eign qualified corporation of which such 13 qualified domestic corporation is a United 14 States shareholder. 15 ‘‘(b) QUALIFIED DOMESTIC CORPORATION; QUALI- 16 FIED CORPORATION.—For purposes of this section— 17 ‘‘(1) IN GENERAL.—The term ‘qualified domes- 18 tic corporation’ means any domestic corporation 19 which is— 20 ‘‘(A) a qualified corporation, or 21 ‘‘(B) a United States shareholder of a for- 22 eign corporation which— 23 ‘‘(i) is a qualified corporation, and 24 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 4783 IS ‘‘(ii) is wholly owned by corporations 1 which are members of the same affiliated 2 group as such United States shareholder. 3 ‘‘(2) QUALIFIED CORPORATION.—The term 4 ‘qualified corporation’ means any corporation if such 5 corporation meets the following requirements: 6 ‘‘(A) SOURCE QUALIFICATION.—80 percent 7 or more of the gross income of the corporation 8 for the 3-year period immediately preceding the 9 close of the taxable year (or for such part of 10 such period immediately preceding the close of 11 such taxable year as may be applicable) was de- 12 rived from sources within a possession of the 13 United States (determined without regard to 14 section 904(f)). 15 ‘‘(B) TRADE OR BUSINESS QUALIFICA- 16 TION.—75 percent or more of the gross income 17 of the corporation for such period or such part 18 thereof was derived from the active conduct of 19 a trade or business within a possession of the 20 United States. 21 ‘‘(3) SPECIAL RULE FOR SEPARATE AND 22 CLEARLY IDENTIFIED UNITS OF FOREIGN CORPORA- 23 TIONS.— 24 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 4783 IS ‘‘(A) IN GENERAL.—In the case of a 1 United States shareholder of a foreign corpora- 2 tion which— 3 ‘‘(i) is not a qualified corporation but 4 with respect to which the ownership re- 5 quirements of paragraph (1)(B)(ii) are 6 met, and 7 ‘‘(ii) has an eligible foreign business 8 unit which, if such unit were a corporation, 9 would be a qualified corporation with re- 10 spect to which such ownership require- 11 ments would be met, 12 then, for purposes of this section, the United 13 States shareholder may elect to treat such unit 14 as a separate foreign corporation which meets 15 the requirements of paragraph (1)(B) and with 16 respect to which such shareholder is a United 17 States shareholder. 18 ‘‘(B) ELIGIBLE FOREIGN BUSINESS 19 UNIT.—For purposes of this paragraph, the 20 term ‘eligible foreign business unit’ means a 21 separate and clearly identified foreign unit of a 22 trade or business, including a partnership or an 23 entity treated as disregarded as a separate enti- 24 ty from its owner (under section 7701 or other 25 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 4783 IS provision under this title), which maintains sep- 1 arate books and records. 2 ‘‘(C) SPECIAL ELECTION FOR AFFILIATED 3 GROUPS.—In the case of an affiliated group de- 4 scribed in paragraph (1)(B)(ii), the election 5 under subparagraph (A) with respect to any eli- 6 gible foreign business unit shall be made by the 7 common parent of such group and shall apply 8 uniformly to all members of such group which 9 are United States shareholders with respect to 10 the foreign corporation which has such unit. 11 ‘‘(c) WAGE AND ASSET LIMITATION.— 12 ‘‘(1) IN GENERAL.—The wage and asset limita- 13 tion with respect to any qualified corporation for any 14 taxable year is an amount equal to the sum of the 15 following amounts: 16 ‘‘(A) 40 percent of the sum of— 17 ‘‘(i) the aggregate amount of the 18 qualified corporation’s qualified possession 19 wages for such taxable year, plus 20 ‘‘(ii) the allocable employee fringe 21 benefit expenses of the qualified corpora- 22 tion for such taxable year. 23 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 4783 IS ‘‘(B) 25 percent of the depreciation allow- 1 ances for the taxable year with respect to quali- 2 fied tangible property. 3 ‘‘(C) In the case of a qualified domestic 4 corporation described in subsection (b)(1)(A), 5 the amount of the possession income taxes for 6 the taxable year attributable to income de- 7 scribed in subsection (a)(2)(A)(i). 8 ‘‘(2) QUALIFIED POSSESSION WAGES.—For 9 purposes of this section— 10 ‘‘(A) IN GENERAL.—The term ‘qualified 11 possession wages’ means wages paid or incurred 12 by the qualified corporation during the taxable 13 year in connection with the active conduct of a 14 trade or business within a possession of the 15 United States to any employee for services per- 16 formed in such possession, but only if such 17 services are performed while the principal place 18 of employment of such employee is within such 19 possession. 20 ‘‘(B) LIMITATION ON AMOUNT OF WAGES 21 TAKEN INTO ACCOUNT.— 22 ‘‘(i) IN GENERAL.—The amount of 23 wages which may be taken into account 24 under subparagraph (A) with respect to 25 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 4783 IS any employee for any taxable year shall 1 not exceed the contribution and benefit 2 base determined under section 230 of the 3 Social Security Act for the calendar year 4 in which such taxable year begins. 5 ‘‘(ii) TREATMENT OF PART-TIME EM- 6 PLOYEES, ETC.—If— 7 ‘‘(I) any employee is not em- 8 ployed by the qualified corporation on 9 a substantially full-time basis at all 10 times during the taxable year, or 11 ‘‘(II) the principal place of em- 12 ployment of any employee with the 13 qualified corporation is not within a 14 possession at all times during the tax- 15 able year, 16 the limitation applicable under clause (i) 17 with respect to such employee shall be the 18 appropriate portion (as determined by the 19 Secretary) of the limitation which would 20 otherwise be in effect under clause (i). 21 ‘‘(C) TREATMENT OF CERTAIN EMPLOY- 22 EES.—The term ‘qualified possession wages’ 23 shall not include any wages paid to employees 24 who are assigned by the employer to perform 25 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 4783 IS services for another person, unless the principal 1 trade or business of the employer is to make 2 employees available for temporary periods to 3 other persons in return for compensation. All 4 qualified corporations treated as 1 corporation 5 under subsection (f)(1) shall be treated as 1 6 employer for purposes of the preceding sen- 7 tence. 8 ‘‘(D) WAGES.— 9 ‘‘(i) IN GENERAL.—Except as pro- 10 vided in clause (ii), the term ‘wages’ has 11 the meaning given to such term by sub- 12 section (b) of section 3306 (determined 13 without regard to any dollar limitation 14 contained in such section). For purposes of 15 the preceding sentence, such subsection (b) 16 shall be applied as if the term ‘United 17 States’ included all possessions of the 18 United States. 19 ‘‘(ii) SPECIAL RULE FOR AGRICUL- 20 TURAL LABOR AND RAILWAY LABOR.—In 21 any case to which subparagraph (A) or (B) 22 of paragraph (1) of section 51(h) applies, 23 the term ‘wages’ has the meaning given to 24 such term by section 51(h)(2). 25 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 4783 IS ‘‘(3) ALLOCABLE EMPLOYEE FRINGE BENEFIT 1 EXPENSES.— 2 ‘‘(A) IN GENERAL.—The allocable em- 3 ployee fringe benefit expenses of any qualified 4 corporation for any taxable year is an amount 5 which bears the same ratio to the amount de- 6 termined under subparagraph (B) for such tax- 7 able year as— 8 ‘‘(i) the aggregate amount of the 9 qualified corporation’s qualified possession 10 wages for such taxable year, bears to 11 ‘‘(ii) the aggregate amount of the 12 wages paid or incurred by such qualified 13 corporation during such taxable year. 14 In no event shall the amount determined under 15 the preceding sentence exceed 15 percent of the 16 amount referred to in clause (i). 17 ‘‘(B) EXPENSES TAKEN INTO ACCOUNT.— 18 For purposes of subparagraph (A), the amount 19 determined under this subparagraph for any 20 taxable year is the aggregate amount allowable 21 (or, in the case of a foreign corporation, which 22 would be allowable if such foreign corporation 23 were a domestic corporation) as a deduction 24 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 4783 IS under this chapter to the qualified corporation 1 for such taxable year with respect to— 2 ‘‘(i) employer contributions under a 3 stock bonus, pension, profit-sharing, or an- 4 nuity plan, 5 ‘‘(ii) employer-provided coverage 6 under any accident or health plan for em- 7 ployees, and 8 ‘‘(iii) the cost of life or disability in- 9 surance provided to employees. 10 Any amount treated as wages under paragraph 11 (2)(D) shall not be taken into account under 12 this subparagraph. 13 ‘‘(4) DEPRECIATION RULES.—For purposes of 14 this section— 15 ‘‘(A) DEPRECIATION ALLOWANCES.—The 16 term ‘depreciation allowances’ means the depre- 17 ciation deductions allowable (or, in the case of 18 a foreign corporation, which would be allowable 19 if such foreign corporation were a domestic cor- 20 poration) under section 167 to the qualified cor- 21 poration. 22 ‘‘(B) QUALIFIED TANGIBLE PROPERTY.— 23 The term ‘qualified tangible property’ means 24 any tangible property— 25 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 4783 IS ‘‘(i) which is used by the qualified cor- 1 poration in a possession of the United 2 States in the active conduct of a trade or 3 business within such possession, 4 ‘‘(ii) to which section 168 applies, and 5 ‘‘(iii) which is not 3-year property for 6 purposes of such section. 7 ‘‘(d) INTANGIBLE LOW-TAXED INCOME TAX 8 AMOUNT.—For purposes of this section— 9 ‘‘(1) IN GENERAL.—The intangible low-taxed 10 income tax amount is an amount equal to the lesser 11 of— 12 ‘‘(A) the eligible possession intangible low- 13 tax income tax amount, or 14 ‘‘(B) the global intangible low-taxed in- 15 come tax amount. 16 ‘‘(2) ELIGIBLE POSSESSION INTANGIBLE LOW- 17 TAXED INCOME TAX AMOUNT.— 18 ‘‘(A) IN GENERAL.—The eligible possession 19 intangible low-taxed income tax amount is an 20 amount equal to the excess of— 21 ‘‘(i) the product of— 22 ‘‘(I) the rate in effect under sec- 23 tion 11 for the taxable year, and 24 VerDate Sep 11 2014 02:07 Oct 21, 2020 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S4783.IS S4783 pamtmann on DSKBC07HB2PROD with BILLS 13 •S 4783 IS ‘‘(II) the sum of the possession 1 intangible low-taxed income amount 2 for such taxable year and the amount 3 which would be treated as a dividend 4 under section 78 if only amounts at- 5 tributable to such possession intan- 6 gible low-tax income amount were 7 taken into account under such section 8 for such taxable year, reduced by the 9 possession ILTI deduction for such 10 taxable year, over 11 ‘‘(ii) an amount equal to the amount 12 described in section 960(d), determined— 13 ‘‘(I) by substituting ‘possession 14 intangible low-taxed income amount 15 (as defined in section 30E(d)(2)(B))’ 16 for ‘global intangible low-taxed income 17 (as defined in section 951A(b))’ in 18 paragraph (2)(A) thereof, and 19 ‘‘(II) by only taking into account 20 income from the active conduct of a 21 trade or business and from sources 22 (determined under rules similar to the 23 rules of part [Text truncated for display. 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