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Manufacturers Weigh Prospects Amid Uncertain Future

By on June 3, 2016

SAN JUAN – There is a lot of uncertainty among manufacturers about what the future will bring because the government has not decided to keep or extend the 4% tax paid by foreign manufacturers under Act 154 of 2011, which expires next year.

The tax represents almost $2 billion of the the local government’s revenue at a time when officials are looking for much-needed funds to pay debt and provide services. The island’s budget for next year is $9.1 billion. At the same time, the U.S. Congress is expected to release in coming weeks a new tax reform proposal.

“The uncertainty is killing us,” said Nestor Ortiz, commercial and government affairs director for Abbvie Corp. “Something has to happen…the government is looking for alternatives because that $1.8 billion from the [manufacturing] sector is needed…. We are all waiting to see how this issue will be dealt with,” he added.

The future of the 4% excise tax on foreign manufacturers also hinges on Washington, D.C., decisions.

The excise tax was passed as a temporary measure in 2011 under the administration of former Gov. Luis Fortuño, and was designed to decrease year until it reached 1% in 2016.

But in 2013, Gov. Alejandro García Padilla reimposed the 4% tax until 2017, at which point the method for calculating it changes.

On the other hand, the federal government, which has allowed companies that pay the tax to fully write it off against their federal returns, could stop permitting the write-offs. So far, it has not done so.

However, one of the amendments proposed during a markup hearing of the PROMESA bill, which seeks to create a federal oversight board for Puerto Rico, called for the Treasury Department to decide on the tax, which was described as a bailout in disguise.

Mathew Miller, vice president of the Business Roundtable in Washington, D.C.

Mathew Miller, vice president of the Business Roundtable in Washington, D.C.

Mathew Miller, vice president of the Business Roundtable in Washington, D.C., said a study found that the United States has lagged in carrying out tax reform. He said that if the United States would have lowered corporate tax rates by 10% in the past decade, they would have prevented the loss of some 1,300 companies.

Failure to act on tax reform has also resulted in the loss of 50 Fortune 500 companies. He listed several tax reform efforts over the past few years.

“What is keeping us busy now is that [House] Speaker Paul Ryan has put together a team to get blueprints on different policy issues, and one of them is tax reform. We will see that in two or three weeks,” he said.

Among the notable tax reform initiatives currently taking place in Washington that Miller highlighted were House Ways and Means Committee Chairman Kevin Brady’s effort on comprehensive tax reform while Senate Finance Committee Chairman Orrin Hatch is working on legislation dealing with corporate integration. He said local manufacturers must engage on tax reform, now. “You either get on the train or you lose,” he said.

All of that is taking place while European Union officials are targeting U.S. companies amid new and expansive interpretation of rules about whether companies are unfairly receiving state aid, which could also have an impact on federal tax reform.

 

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