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for a more efficient system exempting possessions corporations so
that the possessions would not lose a significant source of
capital. See Coca-Cola Co. & Subs. v. Commissioner, supra at 22.
In place of the exemption mechanism contained in section 931,
Congress enacted section 936 to permit a U.S. corporation to
elect a tax credit to offset the U.S. tax on its possessions
income. Thus, the current version of the investment incentive
takes the form of a tax credit rather than an exemption.
It is clear from the legislative record that Congress was
aware of the highly favorable tax benefits afforded U.S.
corporations operating in Puerto Rico. It is equally clear that
Congress intended to retain and reaffirm such tax benefits by
enacting section 936. The Senate Finance Committee and the House
Ways and Means Committee stated the following, in virtually
identical reports:
The special exemption provided (under sec. 931) in
conjunction with investment incentive programs
established by possessions of the United States,
especially the Commonwealth of Puerto Rico, have been
used as an inducement to U.S. corporate investment in
active trades and businesses in Puerto Rico and the
possessions. Under these investment programs little or
no tax is paid to the possessions for a period as long
as 10 to 15 years and no tax is paid to the United
States as long as no dividends are paid to the parent
corporation.
Because no current U.S. tax is imposed on the
earnings if they are not repatriated, the amount of
income which accumulates over the years from these
business activities can be substantial. The amounts
which may be allowed to accumulate are often beyond
what can be profitably invested within the possession
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