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Thursday, March 1, 2012

PRP Continues His Efforts to Advocate for the Puerto Rico Investment Promotion Act and to Ensure Fair Treatment for the Island Under Tax Reform

Washington, DC - Resident Commissioner Pedro Pierluisi used the occasion of a meeting with the Deputy Director of the National Economic Council, Jason Furman, to advocate for his legislation, H.R. 3020, the Puerto Rico Investment Promotion Act (PRIPA), which is designed to attract investment to Puerto Rico and to create American jobs on the Island.

The conversation took place yesterday afternoon when Furman briefed the New Democratic Coalition, a congressional group of which Pierluisi is a member, on “the President’s Framework for Business Tax Reform,” which was released last week.

In advocating for H.R. 3020, the Resident Commissioner asserted that U.S. companies in Puerto Rico, most of whom are presently organized as Controlled Foreign Corporations (CFCs), should have the option of operating as a domestic U.S. corporation if they earn at least 50 percent of their income on the Island. Electing companies would receive essentially the same federal tax treatment that an individual resident of Puerto Rico receives under current law. Specifically, under the proposed Section 933A that H.R. 3020 would create in the Internal Revenue Code (IRC), an electing Puerto Rico company would be subject to federal taxation on its worldwide income, except that the income it earns in Puerto Rico would not be subject to federal taxation. Moreover, as a domestic U.S. firm, the Puerto Rico corporation could distribute its earnings in the form of a dividend to any other U.S. corporation at a favorable tax rate, pursuant to Section 243 of the IRC. In his discussion with Furman, Pierluisi said that H.R. 3020 was appropriate given economic conditions in Puerto Rico and the Island’s lack of parity under many federal programs.

The Resident Commissioner also noted that PRIPA has the potential to generate additional revenue for the U.S. Treasury and to create jobs in the U.S. mainland. Currently, a CFC operating in Puerto Rico can shield its profits from federal taxation indefinitely by not repatriating those profits to its U.S. affiliate. There is a strong incentive not to repatriate because the U.S. parent is subject to full federal taxation on those profits upon receiving them. By contrast, because a U.S. affiliate can deduct all or most of a dividend it receives from a domestic subsidiary, repatriation becomes more attractive under PRIPA. Therefore, earnings that were unlikely to be subject to any federal taxation may now be subject to a reduced but still meaningful level of federal taxation—and, thus, could generate new revenue for the federal government.

This week, a delegation from the Puerto Rico Manufacturers Association is in Washington to promote PRIPA. The delegation met with the Resident Commissioner yesterday. “As we had proposed and agreed, the delegation has been visiting the offices of many Republican members of Congress, while I focus my advocacy efforts on the Democratic leadership,” said Pierluisi.