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Territorial Economic Recovery Act
2/8/2025, 5:53 AM
Summary of Bill HR 363
The main purpose of this bill is to provide relief for US companies with controlled foreign corporations by excluding certain amounts from their tested income. This exclusion would help reduce the tax burden on these companies and encourage them to invest and expand their operations overseas.
In addition to excluding certain amounts from tested income, the bill also includes provisions for other purposes related to the taxation of controlled foreign corporations. These provisions are aimed at simplifying the tax code and making it easier for companies to comply with tax laws. Overall, Bill 119 HR 363 seeks to make changes to the tax code that will benefit US companies with controlled foreign corporations. By excluding certain amounts from tested income and simplifying tax laws, this bill aims to promote economic growth and competitiveness in the global marketplace.
Congressional Summary of HR 363
Territorial Economic Recovery Act
This bill excludes the income of certain controlled foreign corporations in U.S. territories from the calculation of global intangible low-taxed income (GILTI) for federal tax purposes.
Under current law, a U.S. shareholder of a controlled foreign corporation is required to include in gross income the GILTI of the shareholder. The calculation of GILTI is based, in part, on the controlled foreign corporation’s tested income (the controlled foreign corporation’s gross income less certain exclusions).
Under the bill, the income from a qualified possession corporation that is effectively connected with an active trade or business within a U.S. territory (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) is excluded from gross income for purposes of calculating a controlled foreign corporation’s tested income.
The bill defines a qualified possession corporation as any controlled foreign corporation if, for a three-year period ending in the prior tax year (or for the existence of the controlled foreign corporation if less than three years) (1) 80% or more of the controlled foreign corporation’s gross income was derived from a U.S. territory, and (2) 75% or more of the controlled foreign corporation’s gross income was effectively connected to the active conduct of a trade or business within a U.S. territory.
