Thursday, March 23, 2023

Puerto Rico Treasury Secretary Calls for Greater Oversight of Acts 20 and 22

By on July 14, 2021

Puerto Rico Treasury Department (Juan J. Rodríguez / CB)

Says Audits Will Begin to be Conducted in October

SAN JUAN – Puerto Rico Treasury Secretary Francisco Parés Alicea made a recommendation Wednesday to the island’s Legislature that it exert greater control over Acts 20 and 22 of 2012, which attract the export of services and investment through tax incentives, respectively, by amending them, in addition to granting the department certain powers over the decrees.

See the cover story in the July 14 issue of Caribbean Business for an analysis of the tax incentives and how they have gained relevance in the public opinion.

“These two laws represent new money for the treasury; therefore, instead of their repeal, a greater control should be promoted, as well as a detailed analysis to determine where they require adjustments, for the benefit of the treasury,” said the secretary, who was represented by the department’s undersecretary, Ángel Pantoja Rodríguez, before the Senate Committee on Treasury, Federal Affairs and Fiscal Oversight Board at the public hearing on Senate bills 40 and 284.

Parés said the department’s work related to both laws should take the form of an oversight role.
“During the period from 2012 to 2016, the intervention of the Treasury was very poor. The transition report from those years does not reflect, nor does it establish any oversight procedure or mechanism for these laws,” he said.

Puerto Rico Treasury Secretary Francisco Parés Alicea (Jaime Rivera/CB)

The official said that since fiscal year 2017, the department began to take action on the enforcement of these laws. “The preparation of Tax Expenditure Reports, in which the fiscal cost of the different tax incentives is measured, among which are Acts 20 and 22, began that year.”

He added that in fiscal years 2017 and 2018, with the intention of exercising its oversight duty, digitization programs, cost measurement and other strategies were established.

Subsequently, in fiscal years 2019 and 2020, the electronic filing of individuals’ and corporate income tax returns was implemented, Treasury’s press release says, “which meant a great advance and eliminated large paper inventories.”

“To further bolster oversight, we issued Newsletter 21-03 this year on new audit campaigns and investigations that will be carried out by the Internal Revenue Tax Audit Bureau and the Intelligence and Tax Fraud Area,” Parés said.

“Our oversight program included the hiring of a tax expert who is helping us to define an action plan and the scope of the audits that we will work on starting in October. We also started conversations with the IRS [U.S. Internal Revenue Service] to collaborate on the processes they do at the federal level, which is their jurisdiction. We have a Tax Coordination Agreement, which will increase the visibility of the decrees.”

The release says Parés “reminded that among the contingencies that will be worked on with the IRS, regularly sending the names of individuals who claim residence in Puerto Rico and obtain the benefit of the laws is included.” The island’s Treasury said it “will also disclose the exclusion requirements of Section 933 of the U.S. Internal Revenue Code regarding income from Puerto Rico sources and the residence rules under Section 937…to ensure that the interaction of both laws results in appropriate taxation in the United States and Puerto Rico.”

The Puerto Rico Treasury added that it is in the process of integrating the tax decrees under Acts 20 and 22 and any related information available at the Department of Economic Development and Commerce (DDEC by its Spanish acronym) into its Unified Internal Revenue System, know as SURI by its Spanish acronym.

“We are sure that we can implement additional strategies that guarantee faithful compliance with these two laws and…we are strengthening the Tax Policy Area and addressing our human capital with technical training and all the necessary tools,” Parés stressed.

The official asked the Senate committee to make it a requirement to obtain the endorsement and input of the department for the approval of the decrees and to be granted the power to regulate, in conjunction with the DDEC, the tax provisions under the Incentives Code—or Act 60, under which the former Acts 20 and 22 now fall.

“I am confident that the legislature can address our recommendations to, together with the technology implemented, increase compliance with the tax laws of Puerto Rico,” he concluded.

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