Except as otherwise provided in this section, if the conditions of both paragraph (1) and paragraph (2) of subsection (b) are satisfied with respect to a qualified domestic corporation, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the portion of the tax which is attributable to the taxable income, from sources without the United States, from—
(A) the active conduct of a trade or business within Puerto Rico, or
(B) the sale or exchange of substantially all of the assets used by the taxpayer in the active conduct of such trade or business.
In the case of any taxable year beginning after December 31, 2001, the aggregate amount of taxable income taken into account under the preceding sentence (and in applying subsection (d)) shall not exceed the adjusted base period income of such corporation, as determined in the same manner as under section 936(j).
For purposes of paragraph (1), the term "qualified domestic corporation" means a domestic corporation—
(A) which is an existing credit claimant with respect to Puerto Rico, and
(B) with respect to which section 936(a)(4)(B) does not apply for the taxable year.
For purposes of determining—
(A) whether a taxpayer is an existing credit claimant with respect to Puerto Rico, and
(B) the amount of the credit allowed under this section,
this section (and so much of section 936 as relates to this section) shall be applied separately with respect to Puerto Rico.
The conditions referred to in subsection (a) are—
If 80 percent or more of the gross income of the qualified domestic corporation for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession (determined without regard to section 904(f)).
If 75 percent or more of the gross income of the qualified domestic corporation for such period or such part thereof was derived from the active conduct of a trade or business within a possession.
The credit provided by subsection (a) shall not be allowed against the tax imposed by—
(1) section 59A (relating to environmental tax),
(2) section 531 (relating to the tax on accumulated earnings),
(3) section 541 (relating to personal holding company tax), or
(4) section 1351 (relating to recoveries of foreign expropriation losses).
The amount of the credit determined under subsection (a) for any taxable year shall not exceed the sum of the following amounts:
(1) 60 percent of the sum of—
(A) the aggregate amount of the qualified domestic corporation's qualified possession wages for such taxable year, plus
(B) the allocable employee fringe benefit expenses of the qualified domestic corporation for such taxable year.
(2) The sum of—
(A) 15 percent of the depreciation allowances for the taxable year with respect to short-life qualified tangible property,
(B) 40 percent of the depreciation allowances for the taxable year with respect to medium-life qualified tangible property, and
(C) 65 percent of the depreciation allowances for the taxable year with respect to long-life qualified tangible property.
(3) If the qualified domestic corporation does not have an election to use the method described in section 936(h)(5)(C)(ii) (relating to profit split) in effect for the taxable year, the amount of the qualified possession income taxes for the taxable year allocable to nonsheltered income.
For purposes of this title—
(1) the provisions of section 936 (including any applicable election thereunder) shall apply in the same manner as if the credit under this section were a credit under section 936(a)(1)(A) for a domestic corporation to which section 936(a)(4)(A) applies,
(2) the credit under this section shall be treated in the same manner as the credit under section 936, and
(3) a corporation to which this section applies shall be treated in the same manner as if it were a corporation electing the application of section 936.
Any wages or other expenses taken into account in determining the credit under this section may not be taken into account in determining the credit under section 41.
For purposes of this section, any term used in this section which is also used in section 936 shall have the same meaning given such term by section 936.
This section shall apply to taxable years beginning after December 31, 1995, and before January 1, 2006.
(Added Pub. L. 104–188, title I, §1601(b)(1), Aug. 20, 1996, 110 Stat. 1830; amended Pub. L. 105–34, title XVI, §1601(f)(1)(A), Aug. 5, 1997, 111 Stat. 1090; Pub. L. 106–554, §1(a)(7) [title III, §311(a)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–640.)
Sections: Previous 25A 25B 25C 25D 26 27 30 30A 30B 30C 30D 31 32 33 34 Next
Last modified: October 26, 2015