THANK YOU CONGRESSMAN JOSE SERRANO!
Your brothers & sisters THANK YOU FOR HELPING PUERTO RICO!
GRACIAS JOSE SERRANO, Tus hermanos y hermanas de Puerto Rico te dan las mas expresivas gracias por siempre ayudarnos!
ESTA GESTION QUE HAS HECHO HACE HISTORIA! Miriam J Ramirez MD
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Congressman Jose Serrano's PUERTO RICO's Tax Evasion situation, introduced by him in HR1158, was approved today, one of two Bills President Trump will sign today:
It outlines reports of tax exemptions for CFCs, laws 20 and 22; and also includes language that eliminates the status of Unincorporated Territory in a federal referendum under PL 113-76:
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SEC. 4. EXPLANATORY STATEMENT.
7 The explanatory statement regarding this Act, print-
8 ed in the House section of the Congressional Record on
9 or about December 17, 2019, and submitted by the Chair-
10 woman of the Committee on Appropriations of the House,
11 shall have the same effect with respect to the allocation
12 of funds and implementation of divisions A through D of
13 this Act as if it were a joint explanatory statement of a
14 committee of conference.
EXPLANATORY STATEMENT
DIVISION B - COMMERCE, JUSTICE, SCIENCE, AND RELATED AGENCIES APPROPRIATIONS ACT, 2020
Report language included in House Report 116-101 ("the House report") or Senate Report 116-127 ("the Senate report") that is not changed by this explanatory statement or the Act is approved.
House Report 116-101
Puerto Rico plebiscite.—In the Consolidated Appropriations Act, 2014 (Public Law 113–76), the Committee provided funding for the Department of Justice to help oversee and administer a plebiscite to ‘resolve Puerto Rico’s future political status.’
The Committee believes that to accomplish this goal, the current territorial/Commonwealth status should be excluded from any future plebiscite, since it fails to address key inequities.
Despite previous requests to use this funding to help administer such a plebiscite, the Department did not certify yet a plebiscite ballot to obligate this funding.
The Committee believes that the Department has a responsibility to address issues of democratic representation and equality in Puerto Rico and the other territories of the United States, including addressing questions of political status.
Therefore, the Committee instructs the Department to expeditiously act upon any request for this funding from the Puerto Rico State Elections Commission, and to notify the Committee of any requests for this funding.
The Committee instructs the Department, within 45 days of enactment of this Act, to provide the Committee, as well as the Puerto Rico State Elections Commission, with a report regarding the acceptable versions of voter education materials, plebiscite ballot formats, and related materials that would allow the Department to obligate this funding for a future plebiscite.
DIVISION C - FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS ACT, 2020
The joint explanatory statement accompanying this division is approved and indicates congressional intent. Unless otherwise noted, the language set forth in House Report 116-122 and Senate Report 116-111 carries the same weight as language included in this joint explanatory statement and should be complied with unless specifically addressed to the contrary in this joint explanatory statement.
House Report 116-122
Controlled Foreign Corporations.—The Committee directs the Department to submit a report within 90 days of the enactment of this Act detailing the amounts of taxes avoided by companies that establish and operate controlled foreign corporations in Puerto Rico during the past five years, as well as the amount of territorial and local taxes paid, the amount of sales per year, and the number of jobs created on the island.
Tax Avoidance.—The Committee is concerned by the interplay between new territorial tax laws (Puerto Rico Acts 20 and 22 of 2012) and section 933 of the U.S. Code that enables tax avoidance and denies revenues to Federal, state, and territorial governments, including Puerto Rico. Therefore, the Committee directs the IRS to submit a report within 180 days of enactment of this Act that provides the number of individuals and businesses that have relocated from each state and the District of Columbia to Puerto Rico since 2012 and have been granted tax exemptions under Puerto Rico Acts 20 and 22.
The report should include the amount of Federal taxes paid by such individuals and businesses by type of tax and jurisdiction of former residences during each of the five years prior to their move. In addition, the Committee directs the IRS to publish a report in a user-friendly format with possible options and policies that would minimize the revenue losses to the Federal, state, and territorial governments.
2. Comunicación de Serrano, Velázquez, Grijalva, Ocasio-Corte sobre Investigación Congresional Políticas de Paraíso Fiscal de Puerto Rico:
Serrano, Velázquez, Grijalva, Ocasio-Cortez Call for Greater Transparency and Oversight of Puerto Rico’s Tax Breaks for Wealthy Individuals and Businesses (Acts 20 and 22) | Congressman José E. Serrano
Serrano, Velázquez, Grijalva, Ocasio-Cortez Call for Greater Transparency and Oversight of Puerto Rico’s Tax Breaks for Wealthy Individuals and Businesses (Acts 20 and 22)
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Washington, DC – Representatives José E. Serrano, Nydia M. Velázquez, Raúl M. Grijalva, and Alexandria Ocasio-Cortez sent a letter to Treasury Secretary Steven T. Mnuchin urging the Treasury Department to conduct greater oversight over existing tax breaks for wealthy individuals and corporations that relocate to Puerto Rico, particularly Puerto Rico’s Acts 20 and 22. These tax policies incentivize federal and state tax avoidance with little apparent benefit to Puerto Rico or the 50 States. (See above)
“The result is that combination of the Federal and territorial laws has enabled high-income individuals and profitable service businesses to avoid any Federal or territorial taxation on some income and to owe extremely low rates of tax on other income. By ‘residing’ on the island for 183 days per year, these individuals now avoid both Federal and local taxes. This results in tax benefits that individuals and businesses could not obtain anywhere else in the world. In other words, Puerto Rico has become a tax haven from the Federal government,” the Members wrote.
“The territorial tax exemptions granted to those wishing to avoid Federal taxes stands in stark, unfavorable contrast with the treatment of long-time Puerto Ricans and most other individual and corporate residents of the territory. Most individuals and locally-owned corporations pay high rates of local tax,” they added in the letter.
“Acts 20 and 22 have turned Puerto Rico into a tax haven with little to no benefit for the vast majority of Puerto Ricans. The Department of the Treasury should conduct greater oversight over how these tax breaks are being implemented and their impact on federal, state, local, and territorial tax revenues. Puerto Ricans need greater transparency and accountability regarding these choices,” said Representative José E. Serrano.
“The evidence strongly suggests certain tax provisions are lining the pockets of wealthy individuals who partially reside in Puerto Rico, while doing nothing to benefit the people of Puerto Rico. The Treasury Department needs to take a hard look at these provisions so we can determine whether they are functioning as intended or inadvertently allowing the wealthy to skirt tax obligations and depriving Puerto Rico and the federal government of needed revenue,” said Rep. Nydia M. Velázquez.
“I am concerned that the people of Puerto Rico are subjected to an unjust tax system that favors the wealthy and business class,” said Chair Grijalva. “I will continue to push the Trump administration for answers until they are able to demonstrate that everyday Puerto Ricans are not being hung out to dry by the tax system. We can and should choose a path that generates economic growth and financial stability for the majority of the population,” said Chair Raúl M. Grijalva.
“It is deeply troubling to learn that wealthy individuals are using Puerto Rico as a tax haven to avoid paying their fair share. The Treasury Department must now take necessary action to ensure Act 20 and 22 support the people of Puerto Rico, and are not just another tax giveaway to millionaires and billionaires,” said Representative Alexandria Ocasio-Cortez.
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PDF of signed letter attached.
Full text of the letter attached:
The Honorable Steven T. Mnuchin
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Dear Secretary Mnuchin:
We write to request that the Department of the Treasury conduct greater oversight over a variety of tax breaks provided to individuals and businesses in Puerto Rico and their impact on Federal tax revenues. In particular, Acts 20 and 22 of Puerto Rico have led to significant tax avoidance by wealthy individuals ‘residing’ in the island. While some have tried to promote these tax breaks as economic development tools, we believe that these giveaways have not resulted in any benefit for Puerto Rico.
As you know, the Federal tax history of Puerto Rico is extremely complicated for both businesses and individuals. Since 1954, Federal income taxes have not been extended to income earned in Puerto Rico, as specified in IRC § 933. Rather, the tax goal has been to allow the territorial government to tax the revenue sources directly at levels necessary to overcome the lack of equal treatment in Federal funding programs.
However, as Puerto Rico’s fiscal status has declined, their recent tax policies appear to undermine the federal goals of IRC § 933. In 2012, the territorial government enacted two laws, Acts 20 and 22—potentially in violation of the uniformity clause of the Constitution of Puerto Rico[1]—with the goal of luring wealthy individuals and businesses providing services in the States to Puerto Rico. These laws exempt these individuals from almost all local taxation if they ‘reside’ on the island for a majority of the year. Under the laws, numerous tax exemptions and rate reductions are granted until 2035, with little economic justification. The beneficiaries are not required to make significant specific economic contributions to the territory, or even any contributions that justify any tax savings at all.
The result is that combination of the Federal and territorial laws has enabled high-income individuals and profitable service businesses to avoid any Federal or territorial taxation on some income and to owe extremely low rates of tax on other income. By ‘residing’ on the island for 183 days per year, these individuals now avoid both Federal and local taxes. This results in tax benefits that individuals and businesses could not obtain anywhere else in the world. In other words, Puerto Rico has become a tax haven from the Federal government.
For example, under Act 20, individuals do not have to pay any tax to any government on gains from buying and selling stocks and bonds in the States. Under Act 22, individuals and their firms that provide services in the States from the territory pay an income tax rate of four percent.
The territorial tax exemptions granted to those wishing to avoid Federal taxes stands in stark, unfavorable contrast with the treatment of long-time Puerto Ricans and most other individual and corporate residents of the territory. Most individuals and locally-owned corporations pay high rates of local tax.
There are many other concerns associated with Acts 20 and 22. The better treatment of Act 20 and 22 beneficiaries is not limited to taxes: They have also been exempted from territorial inheritance laws, which may have implications for Federal estate taxation. There reportedly are more than 1,600 individuals and firms who have relocated from the States to Puerto Rico in order to avoid Federal, State, and local taxes.[2] A few years ago, a territorial official said that the smaller number of individuals then included two billionaires and that the average net worth of Act 20 and 22 beneficiaries was $7 million. We understand that the IRS is aware of cases in which businesses in the States route their services through ‘front’ firms in Puerto Rico that do no real work. We have also heard of a case in which an individual avoids $60 million a year in Federal taxes through these territorial policies. There are also questions as to whether Act 22 beneficiaries are really present in Puerto Rico 183 days a year as required by IRC § 937.
The combination of the Federal and territorial tax exemptions is not only depriving the territorial government of revenue intended by IRC § 933, but it also appears to do so without any showing of economic benefits. Additionally, Acts 20 and 22 deprive the Federal, State, and local governments of needed revenue.
In order to better understand the impact of these policies, we respectfully request that the Department:
Evaluate whether the Sec. 933 benefit should apply to individuals and firms that relocate from the States and obtain Acts 20 and 22 benefits;
Examine the enforcement of Sec. 937 by the IRS and territorial officials;
Determine whether Sec. 933 is accomplishing its purpose, specifically in the case of these avoiders of taxes in the States, or whether it should be amended;
Calculate the revenue costs to the territorial government, as well as to the Federal, State, and local governments;
Investigate how the Sec. 937 183 days a year presence in the territory requirement is being enforced by the IRS and the territorial government and the effectiveness of their monitoring;
Analyze whether Sec. 937 should be amended to enhance its effectiveness; whether the territorial inheritance law exemption for Act 22 beneficiaries is adversely affecting Federal estate and generation-skipping taxation and whether U.S. law should be amended; and
Consider whether the territory’s tax exemptions comply with the requirement in its constitution that taxes be uniform.
Thank you for your cooperation and we look forward to working with you on this important matter.
Sincerely,
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Congressman José E. Serrano has represented The Bronx in Congress since 1990.
[1] PR Const. art. VI, § 3.
[2] See Performance of Incentive Programs Act 20-2012 and Act 22-2012, PR Department of Economic Development and Commerce, https://www.ddec.pr.gov/wp-
3. Miami Herald: Congressional Democrats take aim at Puerto Rico’s role as tax haven for the wealthy
Congressional Democrats on Friday took aim at Puerto Rico’s role as a tax haven, asking the U.S. Treasury to investigate if the struggling island is helping the wealthy dodge federal and state taxes with little apparent benefit to the local economy.
In a letter to Treasury Secretary Steven Mnunchin, four representatives asked for information regarding two Puerto Rican tax incentives, Acts 20 and 22, that were passed in 2012 with the goal of luring wealthy individuals and service-providing companies to the island.
Beneficiaries of the measures pay virtually no local income tax if they reside in Puerto Rico at least half the year; in addition, most Puerto Rican residents are exempt from federal income tax.
The laws have “enabled high-income individuals and profitable service businesses to avoid any Federal or territorial taxation on some income and to owe extremely low rates of tax on other income,” the lawmakers wrote. “By ‘residing’ on the island for 183 days per year, these individuals now avoid both Federal and local taxes. This results in tax benefits that individuals and businesses could not obtain anywhere else in the world. In other words, Puerto Rico has become a tax haven from the Federal government.”
The letter was signed by Representatives José E. Serrano, Nydia M. Velázquez, Raúl M. Grijalva, and Alexandria Ocasio-Cortez.
“Acts 20 and 22 have turned Puerto Rico into a tax haven with little to no benefit for the vast majority of Puerto Ricans,” Rep. Serrano (D-NY) said in a statement. “The Department of the Treasury should conduct greater oversight over how these tax breaks are being implemented and their impact on federal, state, local, and territorial tax revenues. Puerto Ricans need greater transparency and accountability regarding these choices.”
Puerto Rico, a U.S. territory of 3.2 million, is staggering under more than $70 billion in debt and has been caught in a decade-long recession. The economic malaise, particularly in the wake of Hurricane Maria in 2017, has led to an exodus from the island.
When they were rolled out in 2012, the tax incentives were seen as a way to attract companies and individuals who might create jobs on the island, where unemployment is running about twice the national average.
According to a report issued by Puerto Rico’s Department of Economic Development and Trade, 2,202 individuals have moved to Puerto Rico to take advantage of Act 22. Of those, 1,233 were from the United States, including 122 Floridians, more than any other state.
The study found that Act 22 grantees had bought $1.3 billion worth of real estate and planned to make $679 million in capital investments. In addition, the grantees generated an additional $40 million in tax revenue during the life of the incentive.
But the lawmakers said the wealthy are receiving breaks not available to all Puerto Ricans and at a time when the island needs the tax revenue. And they questioned if some individuals and companies were gaming the system by lying about the time they spent on the island and creating pass through companies that did little real work in exchange for the hefty incentives.
“The evidence strongly suggests certain tax provisions are lining the pockets of wealthy individuals who partially reside in Puerto Rico, while doing nothing to benefit the people of Puerto Rico,” Rep. Nydia M. Velázquez (D-NY) said. “The Treasury Department needs to take a hard look at these provisions so we can determine whether they are functioning as intended or inadvertently allowing the wealthy to skirt tax obligations and depriving Puerto Rico and the federal government of needed revenue.
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