Governor gives details about Puerto Rico proposals to avoid impact of US tax reform
SAN JUAN – Amid the debate taking place in Washington, D.C., regarding the U.S. tax reform proposed by the Trump administration, Gov. Ricardo Rosselló Nevares assured that his administration has already expressed Puerto Rico’s position to both Congress and the White House.
The governor said Friday that the proposal, worked on alongside the U.S. Treasury Department to determine tax treatment the island would receive if reform were approved, was received favorably.
In a La Fortaleza interview with Caribbean Business, Rosselló Nevares seemed sure that the language included in the current tax reform proposals, which would affect manufacturing operations in Puerto Rico, was not final. He added that both the House and Senate are working on their own versions of tax reform and both are “totally different.”
“What does that mean? First, there is very little chance that either of those two versions will become law because the House and Senate apparently are at loggerheads. Therefore, there have to be some discussions to tackle that. Secondly, we have already made efforts, both in the House and particularly the Senate, to articulate the position of Puerto Rico in this whole scenario,” the governor said.
On Thursday, the House Ways and Means Committee approved a version that would impose a 20% import tax on products manufactured abroad. The measure, which is expected to be approved next week by the full House, also proposes reducing the corporate tax rate from 35% to 20% and granting a preferential rate of up to 14% for multinationals to repatriate earnings.
The Senate’s initial version proposes an overall minimum tax of 12.5%, which would impact Puerto Rico exports to the U.S. mainland.
Under both versions, the island would be affected, particularly the manufacturing sector, since for U.S. Internal Revenue Code purposes, Puerto Rico is a foreign jurisdiction.
According to Rosselló Nevares, the government’s proposal on the treatment for Puerto Rico under the reform is divided into three components.
Regarding the preferential repatriation rate, which would be available for eight years, the governor indicated that they seek to exempt Puerto Rico if the companies remain on the island during the period in which the rate is available and invest at least 50% of the amount that would be subject to repatriation. “It helps us,” he said, because it would be “a vehicle to directly invest in Puerto Rico that amount, which would have been repatriated.”
In the case of the 20% tax on foreign imports, the administration is seeking “preferential treatment” for the island.
“If it ends up being 20%…then that Puerto Rico’s [goods] be [taxed] 10%. That puts us at a competitive advantage, allows us to preserve 42% of our economy and allows us to expand because the difference compared with other jurisdictions would be 10%, which makes us more attractive,” the governor said.
Lastly, on the tax on so-called round-trip transactions, whereby companies move abroad but continue “round-tripping,” or selling to U.S. customers, he said a full exemption for Puerto Rico is sought.
“With these three components, Puerto Rico would be in a competitive position equal to or better than what we have now—we believe better—that would not cost the American taxpayer a penny and is a structural reform that would be consistent with the spirit of what has been done in recent years,” the governor said.
During the next few weeks, Rosselló Nevares, Resident Commissioner Jenniffer González and multisectoral group Frente por Puerto Rico will continuing lobbying the local administration’s proposal so the changes in favor of Puerto Rico are included, the governor added.