article: SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE. (a) Short Title.--This Act may be cited as the ``Puerto Rico Economic Activity Credit Improvement Act of 1999''. (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. MODIFICATIONS OF PUERTO RICO ECONOMIC ACTIVITY CREDIT. (a) Corporations Eligible To Claim Credit.--Section 30A(a)(2) (defining qualified domestic corporation) is amended to read as follows: ``(2) Qualified domestic corporation.--For purposes of paragraph (1)-- ``(A) In general.--A domestic corporation shall be treated as a qualified domestic corporation for a taxable year if it is actively conducting within Puerto Rico during the taxable year-- ``(i) a line of business with respect to which the domestic corporation is an existing credit claimant under section 936(j)(9), or ``(ii) an eligible line of business not described in clause (i). ``(B) Limitation to lines of business.--A domestic corporation shall be treated as a qualified domestic corporation under subparagraph (A) only with respect to the lines of business described in subparagraph (A) which it is actively conducting in Puerto Rico during the taxable year. ``(C) Exception for corporations electing reduced credit.--A domestic corporation shall not be treated as a qualified domestic corporation if such corporation (or any predecessor) had an election in effect under section 936(a)(4)(B)(iii) for any taxable year beginning after December 31, 1996.'' (b) Application on Separate Line of Business Basis; Eligible Line of Business.--Section 30A is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection: ``(g) Application on Line of Business Basis; Eligible Lines of Business.--For purposes of this section-- ``(1) Application to separate line of business.-- ``(A) In general.--In determining the amount of the credit under subsection (a), this section shall be applied separately with respect to each substantial line of business of the qualified domestic corporation. ``(B) Exceptions for existing credit claimant.-- This paragraph shall not apply to a substantial line of business with respect to which the qualified domestic corporation is an existing credit claimant under section 936(j)(9). ``(C) Allocation.--The Secretary shall prescribe rules necessary to carry out the purposes of this paragraph, including rules-- ``(i) for the allocation of items of income, gain, deduction, and loss for purposes of determining taxable income under subsection (a), and ``(ii) for the allocation of wages, fringe benefit expenses, and depreciation allowances for purposes of applying the limitations under subsection (d). ``(2) Eligible line of business.--The term `eligible line of business' means a substantial line of business in any of the following trades or businesses: ``(A) Manufacturing. ``(B) Agriculture. ``(C) Forestry. ``(D) Fishing. ``(3) Substantial line of business.--For purposes of this subsection, the determination of whether a line of business is a substantial line of business shall be determined by reference to 2-digit codes under the North American Industry Classification System (62 Fed. Reg. 17288 et seq., formerly known as `SIC codes').'' (c) Repeal of Base Period Cap.-- (1) In general.--Section 30A(a)(1) (relating to allowance of credit) is amended by striking the last sentence. (2) Conforming amendment.--Section 30A(e)(1) is amended by inserting ``but not including subsection (j)(3)(A)(ii) thereof'' after ``thereunder''. (d) Application of Credit.--Section 30A(h) (relating to applicability of section), as redesignated by subsection (b), is amended by striking ``January 1, 2006'' and inserting ``January 1, 2009''. (e) Conforming Amendments.-- (1) Section 30A(b) is amended by striking ``within a possession'' each place it appears and inserting ``within Puerto Rico''. (2) Section 30A(d) is amended by striking ``possession'' each place it appears. (3) Section 30A(f) is amended to read as follows: ``(f) Definitions.--For purposes of this section-- ``(1) Qualified income taxes.--The qualified income taxes for any taxable year allocable to nonsheltered income shall be determined in the same manner as under section 936(i)(3). ``(2) Qualified wages.--The qualified wages for any taxable year shall be determined in the same manner as under section 936(i)(1). ``(3) Other terms.--Any term used in this section which is also used in section 936 shall have the same meaning given such term by section 936.'' (f) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1998. SEC. 3. COMPARABLE TREATMENT FOR OTHER ECONOMIC ACTIVITY CREDIT. (a) Corporations Eligible To Claim Credit.--Section 936(j)(2)(A) (relating to economic activity credit) is amended to read as follows: ``(A) Economic activity credit.-- ``(i) In general.--In the case of a domestic corporation which, during the taxable year, is actively conducting within a possession other than Puerto Rico-- ``(I) a line of business with respect to which the domestic corporation is an existing credit claimant under paragraph (9), or ``(II) an eligible line of business not described in subclause (I), the credit determined under subsection (a)(1)(A) shall be allowed for taxable years beginning after December 31, 1995, and before January 1, 2002. ``(ii) Limitation to lines of business.-- Clause (i) shall only apply with respect to the lines of business described in clause (i) which the domestic corporation is actively conducting in a possession other than Puerto Rico during the taxable year. ``(iii) Exception for corporations electing reduced credit.--Clause (i) shall not apply to a domestic corporation if such corporation (or any predecessor) had an election in effect under subsection (a)(4)(B)(iii) for any taxable year beginning after December 31, 1996.'' (b) Application on Separate Line of Business Basis; Eligible Line of Business.-- (1) In general.--Section 936(j) is amended by adding at the end the following new paragraph: ``(11) Application on line of business basis; eligible lines of business.--For purposes of this section-- ``(A) Application to separate line of business.-- ``(i) In general.--In determining the amount of the credit under subsection (a)(1)(A) for a corporation to which paragraph (2)(A) applies, this section shall be applied separately with respect to each substantial line of business of the corporation. ``(ii) Exceptions for existing credit claimant.--This paragraph shall not apply to a line of business with respect to which the qualified domestic corporation is an existing credit claimant under paragraph (9). ``(iii) Allocation.--The Secretary shall prescribe rules necessary to carry out the purposes of this subparagraph, including rules-- ``(I) for the allocation of items of income, gain, deduction, and loss for purposes of determining taxable income under subsection (a)(1)(A), and ``(II) for the allocation of wages, fringe benefit expenses, and depreciation allowances for purposes of applying the limitations under subsection (a)(4)(A). ``(B) Eligible line of business.--For purposes of this subsection, the term `eligible line of business' means a substantial line of business in any of the following trades or businesses: ``(i) Manufacturing. ``(ii) Agriculture. ``(iii) Forestry. ``(iv) Fishing.'' (2) New lines of business.--Section 936(j)(9)(B) is amended to read as follows: ``(B) New lines of business.--A corporation shall not be treated as an existing credit claimant with respect to any substantial new line of business which is added after October 13, 1995, unless such addition is pursuant to an acquisition described in subparagraph (A)(ii).'' (3) Separate lines of business.--Section 936(j), as amended by paragraph (1), is amended by adding at the end the following new paragraph: ``(12) Substantial line of business.--For purposes of this subsection (other than paragraph (9)(B) thereof), the determination of whether a line of business is a substantial line of business shall be determined by reference to 2-digit codes under the North American Industry Classification System (62 Fed. Reg. 17288 et seq., formerly known as `SIC codes').'' (c) Repeal of Base Period Cap for Economic Activity Credit.-- (1) In general.--Section 936(j)(3) is amended to read as follows: ``(3) Additional restricted reduced credit.-- ``(A) In general.--In the case of an existing credit claimant to which paragraph (2)(B) applies, the credit determined under subsection (a)(1)(A) shall be allowed for any taxable year beginning after December 31, 1998, and before January 1, 2006, except that the aggregate amount of taxable income taken into account under subsection (a)(1)(A) for such taxable year shall not exceed the adjusted base period income of such claimant. ``(B) Coordination with subsection (a)(4)(B).--The amount of income described in subsection (a)(1)(A) which is taken into account in applying subsection (a)(4)(B) shall be such income as reduced under this paragraph.'' (2) Conforming amendments.-- (A) Section 936(j)(2)(A), as amended by subsection (a), is amended by striking ``2002'' and inserting ``2006''. (B) Section 30A(e)(1), as amended by section 2(c)(2), is amended by striking ``subsection (j)(3)(A)(ii)'' and inserting ``the exception under subsection (j)(3)(A)''. (d) Application of Credit.-- (1) In general.--Section 936(j)(2)(A), as amended by this section, is amended by striking ``January 1, 2006'' and inserting ``January 1, 2009''. (2) Special rules for applicable possessions.--Section 936(j)(8)(A) is amended to read as follows: ``(A) In general.--In the case of an applicable possession-- ``(i) this section (other than the preceding paragraphs of this subsection) shall not apply for taxable years beginning after December 31, 1995, and before January 1, 2006, with respect to any substantial line of business actively conducted in such possession by a domestic corporation which is an existing credit claimant with respect to such line of business, and ``(ii) this section (including this subsection) shall apply-- ``(I) with respect to any substantial line of business not described in clause (i) for taxable years beginning after December 31, 1998, and before January 1, 2009, and ``(II) with respect to any substantial line of business described in clause (i) for taxable years beginning after December 31, 2006, and before January 1, 2009.'' (e) Effective Dates.-- (1) In general.--The amendments made by this section shall apply to taxable years beginning after December 31, 1998. (2) New lines of business.--The amendment made by subsection (b)(2) shall apply to taxable years beginning after December 31, 1995.
summary: Puerto Rico Economic Activity Credit Improvement Act of 1999 - Amends the Internal Revenue Code to modify the requirements for corporations to be eligible for the Puerto Rico economic activity credit. Requires that, in determining the credit amount, the credit provisions be applied separately to each substantial line of business of the corporation. Removes provisions limiting, in taxable years beginning after 2001, the aggregate taxable income taken into account in determining the amount of the credit. Amends provisions relating to the Puerto Rico and possession tax credit to modify, with respect to possessions other than Puerto Rico, corporate eligibility requirements. Requires that, in determining the credit amount, the credit provisions be applied separately to each substantial line of business of the corporation. Modifies additional restricted credit requirements. Sets forth credit rules applicable to Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.