HB 1002 — Corporate Income Tax Foreign Jurisdictions

NOTE:

This bill has been prepared for the signatures of the appropriate legislative officers and the Governor.

To determine whether the Governor has signed the bill or taken other action on it, please consult the legislative status sheet, the legislative history, or the Session Laws.

CCONCERNING ONCERNING CORPORATE INCOME TAXATION RELATED TO FOREIGN JURISDICTIONSJURISDICTIONS. .

Be it enacted by the General Assembly ofofthe the State ofofColorado: Colorado:

This is a continuation ofofexisting existing tax policy.

(II) Additional foreign jurisdictions must be included in the current list to accurately reflect the foreign jurisdictions that are used by C corporations for the purpose ofoftax tax avoidance.

dashes through words or numbers indicate deletionsdeletionsfrom from existing law andandsuch such material is not part of the act.

(III) The clarification of listed jurisdictions will decrease tax avoidance by creating a more accurate list of foreign jurisdictions used by C corporations for the purpose ofoftax tax avoidance.

115-97, Congress created the Foreign-Derived Intangible Income ("FDII")taxdeduction.FederalPublicLaw119-21loweredtherateforthe("FDII") FDII deduction and renamed it the foreign-derived deduction eligible income ("FDDEI") tax deductiondeduction. for taxable years beginning after December 31, 2025.

(II)Federal TheFDDEIdeductionprovidesataxbenefittocorporationsthatPublic doLaw business119-21 outsidelowered ofthe rate for the UnitedFDII States.deduction and renamed it the foreign-derived deduction eligible income ("FDDEI") tax deduction for taxable years beginning after December 31, 2025.

(II) TheFDDEI deduction provides atax benefitto corporationsthat do business outside of the United States.

In addition, most FDDEI deductionsclaimedforstateincometaxpurposesaredeductions claimed bycorporationsthatmaintainthemajorityoftheirpropertyandinvestmentsfor outsidestate ofincome Colorado.tax purposes are claimed bycorporations that maintainthe majority oftheirproperty and investments outside ofColorado.

The revenue gain from this add-back is incidental to the primary purpose of encouragingtaxcomplianceandpromotingtaxsimplicity,equalization,andencouragingtaxcomplianceandpromotingtaxsimplicity, equalization, and fairness for Colorado taxpayers.

(IV) Any revenue gaingam resulting from the FDDEI deduction add-back is de minimis.

(c) Therefore,consistentwiththeColoradosupremecourt'sholdingTherefore, consistentwith the Colorado supreme court's holding in TABOR Found.

Reg'lReg'! Transp.

Dist., 2018 CO 29, that legislation that causes only an incidental and de minimis tax revenue increase does not amount to a new tax or a tax policy change that requires advance voter approval under section 20 of article X of the Colorado constitution, the FDDEIdeductionadd-backisneitheranewtaxnorataxpolicychangethatFDDEI deduction add-back is neither anew tax nor ataxpolicy change that requires voter approval.

Dividends in a combined report - foreign source income - affiliated groups - definitions - rules - repeal.repeal(8) (b) (II) A C corporation is presumptively incorporated in a foreign jurisdiction for the purpose oftax avoidance if it is incorporated in a listed jurisdiction.

(8) (b) (II) A C corporation is presumptivelynot incorporated in a foreign jurisdiction for the purpose of tax avoidance if itthe taxpayer proves to the satisfaction of the executive director,OR IFTHEEXECUTIVEDIRECTORDETERMINES,thatsuch corporation is incorporated in a listed jurisdiction.jurisdiction for reasons that meet the economic substance doctrine described in section 770I (o) of the internal revenue code.

A C corporation is not incorporated in a foreign jurisdiction for the purpose of tax avoidance if the taxpayer proves to the satisfaction of the executive director,RIFTHEEXECUTIVEDIRECTORDETERMINES ,thatsuchcorporation is incorporated in a listed jurisdiction for reasons that meet the economic substance doctrine described in section 7701 (o) of the internal revenue code.

(b) "Listed"Listedjurisdiction" jurisdiction" means:

(I) FRINCOMETAXYEARSCOMMENCINGBEFOREFORINCOMETAXYEARSCOMMENCINGBEFOREJANUARY1,2026, JANUARY 1,2026, Andorra, Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Bahrain, Barbados, Belize, Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Cook Islands, Curaçao,Curac;ao, Cyprus, Dominica, Gibraltar, Grenada, Guernsey-Sark-Alderney,IsleofMan,Jersey,Liberia,Luxembourg,Malta,Guernsey-Sark-Alderney, IsleofMan, Jersey,Liberia,Luxembourg,Malta, Marshall Islands, Mauritius, Monaco, Montserrat, Nauru, Niue, Panama, Saba, Samoa, San Marino, Seychelles, Sint Eustatius, Sint Maarten, St.

Virgin Islands, and Vanuatu;DVanuatu; (II) OR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY 1, 2026, THE JURISDICTIONS LISTED IN SUBSECTION (12)(b)(I)OF THIS SECTION AND HONG KONG , R EPUBLIC OF RELAND , LIECHTENSTEIN , N ETHERLANDS ,AND SINGAPORE .

AND (II) FOR INCOMETAXYEARSCOMMENCINGONORAFTERJANUARY 1, 2026, THE JURISDICTIONS LISTED IN SUBSECTION (12)(b)(I) OF THIS SECTION AND HONG KONG, REPUBLIC OF IRELAND, LIECHTENSTEIN, NETHERLANDS, ANDSINGAPORE.

In Colorado Revised Statutes, 39-22-304, amend (3)(j)(3)U) and (3)(q)(II);

andanadd add(2)(1) (2)(l) as follows:

Net income ofofcorporation corporation - legislative declaration - definitions - repeal.repeal.(2) There shall be added to federal taxable income:

(2)(I) ThereFORINCOMETAXYEARSCOMMENCINGONORAFTERJANUARY1, shall2026, beAN addedAMOUNT toEQUAL federalTO taxableA income:FEDERAL DEDUCTION CLAIMED FOR THE INCOME TAX YEAR FOR FOREIGN-DERIVED DEDUCTION ELIGIBLE INCOME PURSUANTTOSECTION250 OFTHEINTERNALREVENUECODE.

(l) FR INCOME TAX YEARS COMMENCINGONORAFTER JANUARY 1, 2026, AN AMOUNT EQUAL TO A FEDERAL DEDUCTION CLAIMED FOR THE INCOME TAX YEAR FOR FOREIGN -DERIVED DEDUCTION ELIGIBLE INCOME PURSUANT TO SECTION 250 OF THE INTERNAL REVENUE CODE .

(j)U) AnyamountAny amount treated as a section 78 dividend under section 78 of the internal revenue code;

excluding any amount treated under section 78 as a dividend received fromftom a C corporatione01poration incorporatedine01p01ated in a foreignfureign jurisdiction for thepurposeofthe taxavoidancepursuanttopmpose oftax avoidance pursuantto section 39-22-303 (8)(b)(II) (q) (II) The amount of any global intangible low-taxed income included in federal taxable income pursuant to section 951A95IA (a) of the internal revenue code with respect to a controlled foreign corporation that is a C corporation incorporated in a foreign jurisdiction for the purpose of tax avoidance pursuant to section 39-22-303 (8)(b)(II), less any amount deducted under section 250 (a)(1)(B)(a)(l)(B) of the internal revenue code with respect to such global intangible low-taxedincome.low-taxed income.

The general assembly finds, determines, and declares that this act is necessary for the immediate preservation ofofthe the public peace, health, or safety or for appropriations for PAGE 4-HOUSE BILL 25B-1002 the support and maintenance of the departments of the state and state institutions.

____________________________Ju~ ____________________________ Julie McCluskie James Rashad Coleman, Sr.

SPEAKER OF THE HOUSE PRESIDENT OF OF REPRESENTATIVES THE SENATE ____________________________Co~ ____________________________ Connor Randall Esther van Mourik ACTING CHIEF CLERK OF THE HOUSE SECRETARY OF OF REPRESENTATIVES THE SENATE APPROVED________________________________________APPROVED on "Thvv-sdC\i Jqv~vst 2.<ofh2J)_S P\1q :4 S-0tm (Date and Time) _________________________________________PAGE Jared5-HOUSE S.BILL 25B-1002

Polis GOVERNOR OF THE STATE OF COLORADO PAGE 5-HOUSE BILL 25B-1002