934. Limitation on reduction in income tax liability incurred to the Virgin Islands
(a) General rule. -- Tax liability incurred to the Virgin Islands pursuant to this subtitle, as made applicable in the Virgin Islands by the Act entitled "An Act making appropriations for the naval service for the fiscal year ending June 30, 1922, and for other purposes", approved July 12, 1921 (48 U.S.C. 1397), or pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, approved July 22, 1954 (48 U.S.C. 1642), shall not be reduced or remitted in any way, directly or indirectly, whether by grant, subsidy, or other similar payment, by any law enacted in the Virgin Islands, except to the extent provided in subsection (b).
(b) Reductions permitted with respect to certain income. --
(1) In general. -- Except as provided in paragraph (2), subsection (a) shall not apply with respect to so much of the tax liability referred to in subsection (a) as is attributable to income derived from sources within the Virgin Islands or income effectively connected with the conduct of a trade or business within the Virgin Islands.
(2) Exception for liability paid by citizens or residents of the United States. -- Paragraph (1) shall not apply to any liability payable to the Virgin Islands under section 932(b).
(3) Special rule for non-United States income of certain foreign corporations. --
(A) In general. -- In the case of a qualified foreign corporation, subsection (a) shall not apply with respect to so much of the tax liability referred to in subsection (a) as is attributable to income which is derived from sources outside the United States and which is not effectively connected with the conduct of a trade or business wihtin the United States.
(B) Qualified foreign corporation. -- For purposes of subparagraph (A), the term "qualified foreign corporation" means any foreign corporation if less than 10 percent of --
(i) the total voting power of the stock of such corporation, and
(ii) the total value of the stock of such corproation, is onwed or treated as owned (wihtin the meaning of section 958) by 1 or more United States persons.
(4) Determination of income source, etc. -- The determination as to whether income is derived from sources within the Virgin Islands or the United States or is effectively connected with the conduct of a trade or business within the Virgin Islands or the United States shall be made under regulations prescribed by the Secretary.
934A. Repealed.
935. Repealed.
936. Puerto Rico and possession tax credit
(a) Allowance of credit. --
(1) In general. -- Except as provided in paragraph (3), if a domestic corproation elects the application of this section and if the conditions of both subparagraph (A) and subparagraph (B) of paragraph (2) are satisfied, 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 sum of --
(A) the taxable income, from sources without the United States, from --
(i) the active conduct of a trade or business within a possession of the United States, or
(ii) the sale or exchange of substantially all of the assets used by the taxpayer in the active conduct of such trade or business, and
(B) the qualified possession source investment income.
(2) Conditions which must be satisfied. -- The conditions referred to in paragraph (1) are:
(A) 3-year period. -- If 80 percent or more of the gross income of such domestic corporation for the 3-year period immeidatley preceding the close fo the taxable eyar (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 of the United States (determined without regard to section 904(f); and
(B) Trade or business. -- If 75 percent or more of the gross income of such domestic corporation for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States.
(3) Credit not allowed against certain taxes. -- The credit provided by paragraph (1) shall not be allowed against the tax imposed by --
(A) section 59A (relating to environmental tax),
(B) section 531 (relating to the tax on accumulated earnings),
(C) section 541 (relating to personal holding company tax), or
(D) section 1351 (relating to recoveries of foreign expropriation losses).
(b) Amounts received in United States. -- In determining taxable income for purposes of subsection (a), there shall not be taken into account as income from sources without the United States any gross income which was received by suchdomestic corporation within the United states, whether derived from sources within or wihtout the United states. The subsection shall not apply to any amount described in subsectin (a)(1)(A)(i) received from a person who is not a realted person (within the meaning of subsection (h)(3) but without regard to subparagraphs (D)(ii)(I) and (E)(i) thereof) with respect to the domestic corporation.
(c) Treatment of certain foreign taxes. -- For purposes of this title, any tax of a foreign country or a possession of the United States which is paid or accrued with respect to taxable income which is taken into account in computing the credit under subsection (a) shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amounts so paid or accrued.
(d) Definitions and special rules. -- For purposes of this section --
(1) Possession. -- The term "possession of the United States" includes the Commonwealth of Puerto Rico and the Virgin Islands.
(2) Qualified possession source investment income. -- The term "qualified posession source investment income" means gross income which --
(A) is from sources within a possession of the United States in which a trade or business is actively conducted, and
(B) the taxpayer established to the satisfaction of the Secretary is attributable to the investment in such possession (for use therein) of funds derived from the active conduct of a trade or business in such possession, or from such investment,
less the deductins properly apportioned or allocated thereto.
(3) Carryover basis property. --
(A) In general. -- Income from the sale or exchange of any asset the basis of which is determined in whole or in part by reference to its basis in the hands of another person shall not be treated as income described in subparagraph (A) or (B) of subsection (a)(1).
(B) Exception for possessions corporations, etc. -- For purposes of subparagraph (A), the holding of any asset by another person shall not be taken incot account if throughout the period for which such asset was held by such person section 931, this section, or secction 957(c) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) applied to such person.
(4) Investment in qualified Caribbean Basin countries. --
(A) In general. -- For purposes of paragraph (2)(B), an investment in a financial institution shall, subject to such conditions as the Secretary may prescribe by regulations, be treated as for use in Puerto Rico to the extent used by such financial institution (or by the Government Development Bank for Puerto Rico or the Puerto Rico Ecnomic Development Bank) --
(i) for investment, consistent with the golas and purposes of the Caribbean Basin Economic Recovery Act, in --
(I) active business assets in a qualified Caribbena Basin country, or
(II) development projects in a qualified Caribbean Basin country, and
(ii) in accordance with a specific authorization granted by the Commissioner of Financial Institutions of Puerto Rico pursuant to regulations issued by such Commissioner.
A similar rule shall apply in the case of a direct investment in the Government Development Bank for Puerto Rico or the Puerto Rico Economic Development Bank.
(B) Qualified Caribbean Basin country. -- For purposes of this subsection, the ter
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