Territorial Economic Recovery Act
Summary
What This Bill Does
The Territorial Economic Recovery Act amends Internal Revenue Code section 951A, the global intangible low-taxed income rules. It excludes from tested income any income of a qualified possession corporation that is effectively connected with the active conduct of a trade or business in a U.S. possession. A possession means Puerto Rico, the Virgin Islands, and specified possessions described in section 931(c). A qualified possession corporation is a controlled foreign corporation that, over the prior three years or shorter existence period, derived at least 80 percent of gross income from sources within a U.S. possession and at least 75 percent of gross income from active trade or business income effectively connected with a possession. The amendments apply to foreign-corporation taxable years beginning after December 31, 2023, and U.S. shareholder taxable years that include those CFC years. The policy reduces federal GILTI tax pressure on possession-based operating businesses.
Who Benefits and How
Puerto Rico operating businesses benefit if qualifying CFC income is excluded from U.S. shareholders' tested income. U.S. Virgin Islands businesses benefit from the same possession-based active-business exclusion. U.S. shareholders of qualified possession corporations benefit from lower GILTI exposure on eligible income. Territorial economic development agencies benefit from a tax rule intended to support local operating businesses.
Who Bears the Burden and How
Treasury tax staff must administer new possession and qualified possession corporation definitions. IRS examiners must verify 80 percent possession-source income and 75 percent active-business income tests. Federal revenue may decline when income is excluded from tested income. Controlled foreign corporations must substantiate source, connection, and active-business status.
Key Provisions
- Excludes qualified possession corporation active-business income from section 951A tested income.
- Defines possessions to include Puerto Rico, the Virgin Islands, and specified possessions.
- Requires at least 80 percent possession-source gross income.
- Requires at least 75 percent active trade or business income effectively connected with a possession.
- Applies after December 31, 2023.
Evidence Chain:
This summary is generated from the full bill text using AI analysis. Expand "Detailed Analysis" below for identified beneficiaries/burden bearers with clause-level evidence links.
At a Glance
What This Bill Does
Excludes active trade or business income of qualified possession corporations from GILTI tested income when at least 80 percent of gross income comes from Puerto Rico, the Virgin Islands, or another specified U.S. possession and at least 75 percent is effectively connected with an active business there, applying after December 31, 2023.
Key Policy Areas
Tax, U.S. Territories, Economic Development
Primary Purpose
Excludes active trade or business income of qualified possession corporations from GILTI tested income when at least 80 percent of gross income comes from Puerto Rico, the Virgin Islands, or another specified U.S. possession and at least 75 percent is effectively connected with an active business there, applying after December 31, 2023.
Policy Domains
Resolution provisions
Identified Gains
- Puerto Rico operating businesses
- U.S. Virgin Islands businesses
- U.S. shareholders
- Territorial economic development agencies
Identified Costs
- Treasury tax staff
- IRS examiners
- Federal revenue
- Controlled foreign corporations
Legislative Progress
In CommitteeMs. Plaskett introduced the following bill; which was referred to …
Referred to the House Committee on Ways and Means.
Introduced in House
Stakeholder Effects
cui bono?How this legislation distributes effects. Mention counts reflect frequency, not effect magnitude.
Puerto Rico operating businesses, U.S. Virgin Islands businesses
Federal revenue, U.S. shareholders
Positive-direction: U.S. shareholders
Negative-direction: Federal revenue
Territorial economic development agencies
Bill Structure & Actor Mappings
Who is "The Secretary" in each section?
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