[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 1475 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 1475

 To amend the Internal Revenue Code of 1986 to provide an appropriate 
  and permanent tax structure for investments in the Commonwealth of 
  Puerto Rico and the possessions of the United States, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 26, 2001

 Mr. Breaux (for himself and Mr. Hatch) 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 an appropriate 
  and permanent tax structure for investments in the Commonwealth of 
  Puerto Rico and the possessions of the United States, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Economic 
Revitalization Tax Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. CERTAIN INVESTMENTS IN UNITED STATES PROPERTY BY QUALIFIED 
              POSSESSIONS CORPORATIONS.

    (a) In General.--Section 956 (relating to investment of earnings in 
United States property) is amended by redesignating subsection (e) as 
subsection (f) and inserting after subsection (d) the following:
    ``(e) Separate Application of Section to Qualified Possessions 
Corporations.--
            ``(1) In general.--In the case of a qualified possessions 
        corporation, this section shall be applied separately with 
        respect to such corporation's qualified possessions income.
            ``(2) Definitions.--For purposes of this section--
                    ``(A) Qualified possessions corporation.--The term 
                `qualified possessions corporation' means any foreign 
                corporation which is a controlled foreign corporation 
                and is created or organized under the laws of the 
                Commonwealth of Puerto Rico or a possession of the 
                United States.
                    ``(B) Qualified possessions income.--The term 
                `qualified possessions income' means income earned by a 
                qualified possessions corporation in taxable years 
                beginning after December 31, 2001, from sources outside 
                the United States, from--
                            ``(i) the active conduct of a trade or 
                        business within the Commonwealth of Puerto Rico 
                        or a possession of the United States, or
                            ``(ii) the sale or exchange of 
                        substantially all of the assets used in the 
                        active conduct of such a trade or business.
            ``(3) Taxable years to which subsection is applicable.--
        This subsection shall be applicable with respect to any taxable 
        year of a qualified possessions corporation beginning after 
        December 31, 2001, for which an election under section 245(d) 
        is not in effect.''.
    (b) Certain Investments in United States Property.--Section 951(a) 
(relating to amounts included in gross income of United States 
shareholders) is amended by adding at the end the following:
            ``(4) Certain investments in united states property.--
                    ``(A) In general.--The amount determined under 
                paragraph (1)(B) with respect to a qualified 
                possessions corporation (as defined in section 
                956(e)(2)(A)) shall be reduced (but not below zero) by 
                the lesser of--
                            ``(i) 90 percent of the amount determined 
                        under section 956(e) with respect to such 
                        corporation for the taxable year, or
                            ``(ii) 90 percent of such corporation's 
                        cumulative qualified possessions income (as 
                        defined in section 956(e)(2)(B)), reduced by 
                        amounts (if any) previously allowed as a 
                        deduction under section 245(d).
                    ``(B) Succeeding taxable years.--In applying this 
                section and section 956 to any taxable year, any amount 
                not included in the gross income of a United States 
                shareholder of a qualified possessions corporation in a 
                prior taxable year solely by reason of the application 
                of subparagraph (A) shall be treated as if it had been 
                so included in the gross income of the United States 
                shareholder in such prior taxable year.''.

SEC. 3. DIVIDENDS RECEIVED DEDUCTION WITH RESPECT TO CERTAIN 
              DISTRIBUTIONS BY QUALIFIED POSSESSIONS CORPORATIONS.

    Section 245 (relating to dividends received from certain foreign 
corporations) is amended by adding at the end the following:
    ``(d) Dividends From Qualified Possessions Corporations.--
            ``(1) General rule.--In the case of a dividend described in 
        paragraph (2) received by a domestic corporation from an 
        electing qualified possessions corporation (as defined in 
        section 956(e)(2)(A)), there shall be allowed as a deduction an 
        amount equal to 85 percent of such dividend.
            ``(2) Eligible dividends.--A dividend is described in this 
        paragraph if such dividend is paid out of that portion of the 
        earnings and profits of a qualified possessions corporation 
        which does not exceed such corporation's accumulated qualified 
        possessions income (as defined in section 956(e)(2)(B)).
            ``(3) Elections.--
                    ``(A) In general.--An election under this 
                subsection shall be made by the qualified possessions 
                corporation at such time and in such manner as the 
                Secretary shall prescribe.
                    ``(B) Years for which election is effective.--An 
                election under this subsection shall be effective for 
                the taxable year of the qualified possessions 
                corporation beginning after December 31, 2001, for 
                which such election is made and for all succeeding 
                taxable years of such corporation, unless--
                            ``(i) the corporation ceases to be a 
                        qualified possessions corporation, or
                            ``(ii) the corporation revokes the 
                        election.
                    ``(C) New election by qualified possessions 
                corporation following termination.--If a qualified 
                possessions corporation has made an election under this 
                subsection and if such election has been terminated 
                under subparagraph (B), such corporation (and any 
                successor qualified possessions corporation) shall not 
                be eligible to make an election under this subsection 
                for any taxable year before the 5th taxable year which 
                begins after the 1st taxable year for which such 
                termination is effective, unless the Secretary consents 
                to such election.''.

SEC. 4. SAFE HARBOR RULE FOR CERTAIN TRANSFERS OR LICENSES OF 
              INTANGIBLE PROPERTY TO A QUALIFIED POSSESSIONS 
              CORPORATION.

    Section 367 (relating to foreign corporations) is amended by adding 
at the end the following:
    ``(g) Safe Harbor for Certain Transfers or Licenses of Intangible 
Property.--
            ``(1) General rule.--If subsection (d)(2)(A)(ii) or section 
        482 is otherwise applicable to the transfer or license of 
        qualified intangible property to an electing qualified 
        possessions corporation (as defined in section 956(e)(2)(A)), 
        the requirements of subsection (d)(2)(A)(ii) or section 482, as 
        the case may be, shall be treated as satisfied for all purposes 
        under this subtitle for any taxable year for which the electing 
        qualified possessions corporation computes its qualified 
        possessions income (as defined in section 956(e)(2)(B)) with 
        respect to its products or services involving the use of the 
        qualified intangible property in accordance with the same 
        method specified in section 936(h) (as in effect on the date of 
        the enactment of this subsection) which was used by the 
        domestic corporation referred to in paragraph (2)(A) for its 
        last taxable year beginning before the transfer or license to 
        the qualified possessions corporation.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Qualified intangible property.--The term 
                `qualified intangible property' means any intangible 
                property owned by a domestic corporation on the date of 
                the enactment of this section, but only if such 
                property was--
                            ``(i) developed or purchased by the 
                        domestic corporation, and
                            ``(ii) used directly in the active conduct 
                        by the domestic corporation of a trade or 
                        business for which credits were allowed under 
                        either section 30A or 936 for the taxable year 
                        within which the transfer or license occurs.
                    ``(B) Intangible property.--The term `intangible 
                property' means any intangible property (within the 
                meaning of subsection (d)) but only if such property 
                was used directly in connection with a manufacturing or 
                similar process within the taxable year referred to in 
                paragraph (2)(A)(ii).
            ``(3) Election.--
                    ``(A) In general.--An election under this 
                subsection shall be made by the qualified possessions 
                corporation, in such manner as the Secretary may 
                prescribe by regulations, prior to the 15th day of the 
                3d month following the close of the first taxable year 
                of such corporation beginning after December 31, 2001.
                    ``(B) Years for which effective.--An election under 
                this subsection shall apply to the taxable year for 
                which made and all subsequent years unless--
                            ``(i) the foreign corporation which is the 
                        transferee or licensee ceases to be a qualified 
                        possessions corporation, or
                            ``(ii) the Secretary consents to the 
                        revocation of the election.''.

SEC. 5. TECHNICAL AND CONFORMING CHANGES.

    (a) Imputed Interest.--Notwithstanding any provision of the 
Internal Revenue Code of 1986, no interest shall be imputed for any 
purpose under such Code with respect to any obligation issued to a 
qualified possessions corporation (as defined in section 956(e)(2)(A) 
of such Code, as added by section 2(a)) as part of a transaction to 
which section 956(e) of such Code (as so added) is applicable.
    (b) Constructive Dividends.--Notwithstanding any provision of the 
Internal Revenue Code of 1986, no amount of United States property held 
by a qualified possessions corporation (as defined in such section 
956(e)) pursuant to sections 951(a)(4) and 956(e) of such Code shall be 
treated as a dividend for any purpose under such Code.

SEC. 6. EFFECTIVE DATE.

    The amendments made by this Act shall take effect on the date of 
the enactment of this Act.
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