Tax Reforms In Puerto Rican Financial obligation Relief Plan
by Mike Godfrey, Tax-News. com, Washington
11 September 2015
The Working Group for the Fiscal and Financial Recovery of Puerto Rico, which
was appointed by Guv Garc a Padilla, has delivered a Fiscal and
Financial Development Plan (FEGP) that includeswhich contains more corporate tax reforms.
The FEGP advances recommendations to assistto aid the Puerto Rican Government rebalance
its finances, and to form the basis of its negotiations for financial obligation relief from
its creditors. It is believed that, even if its proposals are put into resultexecuted,.
substantial recurring monetary deficits will continue.
The advancing funding space for Puerto Rico is projected to be USD27.8 bn from.
monetary year (FY) 2016 to FY2020, absent corrective action. Even with the approximated.
effect of the proposed procedures, the Working Group still projects an advancing.
financing gap during the very same duration of USD14bn.
It has actually been calculated that Puerto Ricos total loanings (which have actually been.
boosted in the past by its bonds being tax exempt) have currently reached US72bn,.
or over One Hundred Percent of gross national item. The Working Group thinks both.
the level and the maintenance of that public financial obligation is not sustainable.
The FEGP therefore recommends steps to resolve financing spaces and.
the financial obligation load; ensure budget compliance; offer greater financial transparency;.
and bring out structural reforms required to restore economic competitiveness.
In particular, the Working Group thinks about that Puerto Ricos existing corporate.
tax code is too intricate, misshapes economic options, and produces horizontal.
inequities, and it advises the execution of a pro-growth.
business tax routine.
The FEGP proposes a decrease in headline corporate tax rates and the elimination.
of ineffective business deductions and tax credits, to produce a flatter,.
lower-rate corporate tax routine for both brand-new and existing companies.
In addition, after a discussion with existing US multinationals in an effort.
to keep and attract their investment, it suggests that the existing four.
percent excise tax be extended for an added five-year period. That tax.
presently provides around 20 percent of Puerto Ricos tax revenue, and its upkeep.
is considered required to make sure profits certainty during the monetary.
and economic adjustment period.
However, the new tax program would also look for to substitute that tax and its.
revenues gradually without increasing the general tax liability to existing.
business, including multinationals that currently do not credit the excise.
tax versus United States federal earnings.
With respect to foreign multinationals, the existing tax incentive structure.
would be modified for all new companies going to Puerto Rico, and for all existing.
business after the expiration of their existing tax grants.
It is also suggested that the US Congress be asked for to supply Puerto.
Rico with tax treatment that motivates further United States investment on the island,.
such as permitting US-owned companies in Puerto Rico to choose to be treated.
as United States domestic corporations; and, in the occasionin case the United States moves to a territorial.
tax system, exempting Puerto Rico from base erosion and/or minimum tax.
The FEGP likewise tries to find an improvement in tax administration and enforcement.
to provide significant extra income for the Federal government. In particular,.
the usagemaking use of tax amnesties and closing agreements would be restricted, to.
boost revenue certainty and decrease tax evasion.