H.R. 363 — Territorial Economic Recovery Act

This section excludes from tested income under the global intangible low-taxed income (GILTI) regime any income of a qualified possession corporation that is effectively connected with the active conduct of a trade or business within a U.S. possession (i.e., Puerto Rico, the Virgin Islands, or a specified possession under IRC §931(c)). (As background, the GILTI regime requires U.S. shareholders of controlled foreign corporations to include in gross income the excess of tested income—generally, gross income minus certain exclusions and a routine return on tangible assets—over foreign taxes paid.) It defines a qualified possession corporation as a controlled foreign corporation that, for the prior three taxable years (or period of existence if shorter), derives 80% or more of gross income from sources within a U.S. possession and 75% or more effectively connected with active business there. The amendments apply to taxable years of foreign corporations beginning after December 31, 2023, and corresponding U.S. shareholder taxable years.