The U.S. Court of Appeals for the First Circuit has affirmed the decision of the lower court siding with Wal-Mart in its challenge of Puerto Rico’s corporate alternative minimum tax (AMT), as amended in 2015.
In its ruling, the court wrote:
The amended AMT is a blunt and unnecessarily overinclusive approach to combatting profit-shifting abuse. It essentially establishes an irrebuttable presumption that all intercorporate transfers to a Puerto Rico branch from related mainland entities are fraudulently priced to evade taxes. In fact, the Secretary all but admits that there are narrower alternatives that target profit-shifting. One example is a unitary tax system that uses a formula to distribute multistate corporations’ income, for tax purposes, to different jurisdictions. Another example is the already existing set of regulations “that authorize the Puerto Rico Treasury to conduct a traditional transfer-pricing audit of interstate transactions between related parties and to adjust specific transfer prices . . . to recapture [improperly shifted] profits.” Having identified numerous less restrictive alternatives to advance Puerto Rico’s legitimate local purpose, we hold that the AMT is a facially discriminatory law that does not survive heightened scrutiny under the dormant Commerce Clause [of the U.S. Constitution].