Delegation Presents Manufacturing-Related Tax Incentive Proposals in Washington
SAN JUAN – A team led by the president of the Puerto Rico Manufacturers Association, Carlos Rivera Vélez, was meeting with congress members in Washington, D.C., Tuesday to discuss the group’s tax incentive proposals.
Rivera Vélez is accompanied by Carlos Serrano, CPA; Pedro Costa, president and member of the Government Affairs Committee; and Amaya Iraolagoitia, president of the Manufacture’s’ Tax Committee.
The delegation scheduled meetings with tax attorneys of the House Ways and Means Committee and the Senate Finance Committee, as well as both their workgroups. They will also meet with Mark J. Mazur, assistant secretary for Tax Policy.
The Manufacturers’ federal tax incentive proposals aim to revitalize manufacturing in Puerto Rico through preferential tax rates for the repatriation of dividends from subsidiaries of U.S. companies. The idea is to stimulate investment on the island while providing benefits to companies in the U.S.
The repatriation of dividends is subject to reinvestment requirements, including local banks and local purchases, and increased investment in research and development, as well as equipment and machinery.
The proposal aims to address the problems and criticisms faced by Section 936.
The proposed measure prevents the tax base on U.S. soil from being motivated to look to foreign jurisdictions to establish operations. At the same time, companies benefiting from the measure do not have to be multinationals, and is aimed particularly at midsize companies.
Rivera Vélez said it is estimated the proposal could have an impact of about 50,000 direct jobs and increase the economy by several percentage points over a 10-year period.
The proposal has four main components. First, a federal tax exemption on 85% of the dividends repatriated to the U.S. mainland. Second is the collection of half the federal tax rate applicable to the remaining 15% of the repatriated dividends.
In addition, federal tax exemption is proposed for passive income equivalent to 25% of a corporation’s investment in the island and R&D. Passive income that does not qualify for dividend exemption may be held in Puerto Rico up to five years under a deferred status. After that period, it would be subject to regular taxing.