Territorial Economic Recovery Act

This bill amends the Internal Revenue Code of 1986 to provide tax relief for businesses operating in U.S. possessions by modifying the calculation of "tested income" for controlled foreign corporations (CFCs). It specifically introduces an exclusion for income of a qualified possession corporation that is effectively connected with the active conduct of a trade or business within a U.S. possession, such as Puerto Rico or the Virgin Islands. To be considered a qualified possession corporation, a CFC must derive at least 80 percent of its gross income from sources within a U.S. possession and 75 percent from an active trade or business there over a specified period. These amendments are slated to apply to taxable years of foreign corporations beginning after December 31, 2023, aiming to incentivize economic activity in these territories.