HR 368119th CongressIn Committee

Territorial Tax Parity and Fairness Act

Introduced: Jan 13, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

H.R. 368, the Territorial Tax Parity and Fairness Act, would modify the Internal Revenue Code to treat certain bona fide residents of the Virgin Islands who are shareholders in Virgin Islands–organized corporations as not being “United States persons” for specific tax purposes. Specifically, if a dividend received by such a Virgin Islands resident from a Virgin Islands corporation would be treated as income sourced within the Virgin Islands under section 934(b)(1), that resident would not be counted as a United States person for determining certain gross income inclusions related to that corporation. The change is designed to align the tax treatment of Virgin Islands residents with a territorial tax approach for those VI-source dividends. The amendments are prospective, applying to foreign-corporation years beginning after December 31, 2024 and to the corresponding years of individuals.

Key Points

1New provision in Section 957(c): Adds a new paragraph (2) stating that a United States person does not include a bona fide Virgin Islands resident who holds stock in a Virgin Islands–organized corporation if the dividend from that corporation would be VI-source under 934(b)(1).
2Re-numbering adjustment: Removes the old paragraph (2) and renames it as paragraph (3), with the new paragraph (2) inserted as described above, requiring a conforming cross-reference update.
3Effective date: Applies to taxable years of the Virgin Islands’ foreign corporations beginning after December 31, 2024, and to the taxable years of individuals within which such corporate years end.
4Scope of change: Limited to the specific interaction between Virgin Islands residents, VI-source dividends, and the identified provisions (957(c) and 934(b)(1)); not a broad overhaul of all U.S. tax for VI residents.
5Policy aim: Labeled “Territorial Tax Parity and Fairness Act,” signaling an effort to provide parity between Virgin Islands residents and a territorial tax regime, reducing potential U.S. tax implications on VI-source income.

Impact Areas

Primary group/area affected- Bona fide residents of the Virgin Islands who are shareholders of Virgin Islands–organized corporations, and who receive dividends from those VI corporations that would be VI-source for purposes of 934(b)(1).Secondary group/area affected- Virgin Islands–based corporations (by altering how their VI-resident shareholders are treated for certain U.S. tax purposes).- The U.S. tax system’s treatment of VI-source income and related inclusions under sections 957(c) and 934(b)(1).Additional impacts- Potential shifts in how such dividends are taxed or credited (e.g., changes in whether these dividends are treated as U.S.-source income for purposes of subpart F, GILTI, or other cross-border regimes) because the “U.S. person” status would not apply in some VI-source scenarios.- Possible effects on foreign tax credits and interactions with the Virgin Islands tax regime; may influence tax planning for VI residents and VI corporations.- Administrative considerations for IRS guidance, taxpayer education, and VI tax authorities to reflect the new parity, including definitions of “bona fide resident” and confirming VI-source status under 934(b)(1).

Generated by gpt-5-nano on Nov 18, 2025