To amend the Internal Revenue Code of 1986 to exclude certain amounts from the tested income of controlled foreign corporations, and for other purposes.
Legislative Progress
IntroducedMs. Plaskett introduced the following bill; which was referred to …
Summary
What This Bill Does
The Territorial Economic Recovery Act creates a tax break for U.S. multinational corporations that operate controlled foreign corporations in U.S. territories like Puerto Rico and the Virgin Islands. The bill excludes certain income earned by these territorial operations from the Global Intangible Low-Taxed Income (GILTI) tax, which normally taxes foreign corporate profits at a minimum rate. To qualify, a corporation must derive at least 80% of its income from U.S. territories and have at least 75% of that income come from active business operations (not passive investments).
Who Benefits and How
The primary beneficiaries are large multinational corporations, particularly pharmaceutical and manufacturing companies with substantial operations in Puerto Rico. These companies will pay less federal tax on profits earned by their territorial subsidiaries, as this income will be excluded from GILTI calculations. For example, a pharmaceutical company with a manufacturing plant in Puerto Rico that meets the 80%/75% thresholds would no longer owe GILTI tax on those profits, potentially saving millions in annual tax liability. U.S. parent companies of qualifying controlled foreign corporations in territories will see their overall tax burden reduced.
Who Bears the Burden and How
The U.S. Treasury will lose tax revenue from this exclusion, as qualifying corporations will pay less in GILTI taxes. The cost is ultimately borne by American taxpayers, who may see this revenue loss offset through other means such as reduced government services or higher taxes elsewhere. The Congressional Budget Office has not yet scored this bill, so the exact revenue impact is unknown, but similar territorial tax preferences have cost billions in foregone revenue.
Key Provisions
• Amends Internal Revenue Code Section 951A to exclude income of "qualified possession corporations" from GILTI calculations
• Defines "possession of the United States" as Puerto Rico, the Virgin Islands, and any specified possession under Section 931(c)
• Creates a new "qualified possession corporation" category requiring 80% of income from territorial sources and 75% from active business conduct
• Applies to tax years beginning after December 31, 2023, meaning it affects 2024 tax returns and beyond
• Uses a 3-year average to determine if a corporation qualifies, preventing temporary tax structuring
Evidence Chain:
This summary is derived from the structured analysis below. See "Detailed Analysis" for per-title beneficiaries/burden bearers with clause-level evidence links.
Primary Purpose
Exclude certain income of qualified possession corporations from Global Intangible Low-Taxed Income (GILTI) calculations to provide tax relief for corporations operating in U.S. territories
Policy Domains
Legislative Strategy
"Reduce tax burden on controlled foreign corporations operating in U.S. territories by excluding their income from GILTI calculations, thereby incentivizing business activity in Puerto Rico, Virgin Islands, and other specified possessions"
Likely Beneficiaries
- Multinational corporations with operations in Puerto Rico
- Multinational corporations with operations in Virgin Islands
- U.S. parent companies of controlled foreign corporations in territories
- Territory-based pharmaceutical manufacturers
- Territory-based manufacturing companies
Likely Burden Bearers
- U.S. Treasury (reduced tax revenue)
- Taxpayers (who may bear costs of reduced revenue)
Bill Structure & Actor Mappings
Who is "The Secretary" in each section?
- "the_secretary"
- → Secretary of the Treasury
Key Definitions
Terms defined in this bill
Puerto Rico, the Virgin Islands, and any specified possession described in section 931(c)
Any controlled foreign corporation where (1) 80% or more of gross income was derived from sources within a possession of the United States, and (2) 75% or more of gross income was effectively connected with active conduct of trade or business within a possession, measured over a 3-year period
We use a combination of our own taxonomy and classification in addition to large language models to assess meaning and potential beneficiaries. High confidence means strong textual evidence. Always verify with the original bill text.
Learn more about our methodology