Would Tax Benefits Bring New Business to Puerto Rico?
Partner Ari Alvarez was included in Latin America Advisor's featured Q&A discussing the potential reinstatement of Section 936 of the U.S. tax code. Puerto Rico, which has struggled with crushing levels of debt, has also faced multiple economic shocks in recent years, including hurricanes, earthquakes and now the COVID-19 pandemic. The U.S. territory’s financial situation has led to calls for the reinstatement of Section 936 of the U.S. tax code, which was enacted in 1976 and allowed U.S. manufacturers to avoid corporate income taxes on profits made in the country’s territories, including Puerto Rico. However, the provision was phased out beginning in 1996, and factory closures and job losses followed. To what extent did Puerto Rico’s economic difficulties result from the end of the provision? Should Section 936 be revived, and how much of an economic impact would its return have on the U.S. territory? How likely is the provision to return?
"It is reasonable to anticipate that a significant number of U.S. corporations would establish operations in Puerto Rico in order to take advantage of the favorable tax treatment if Section 936 is reinstated. Many of these companies historically paid high wages, and the reintroduction of high-paying jobs would expand the tax base in Puerto Rico. The trickle-down effect this could potentially have on the small businesses cannot be understated," said Ms. Alvarez.
READ: Would Tax Benefits Bring New Business to Puerto Rico? (Page 4)