Tax Breaks in Puerto Rico Exceeded $20 billion in 2017

The Government of Puerto Rico gave businesses and individuals $20.614 billion in tax breaks during calendar year 2017, a territorial Treasury Department report released over the weekend shows.

The savings to taxpayers through 302 exemptions, exclusions, credits, and deductions was more than twice the $8,986,994 in tax revenue that the Government collected.

More than three-quarters of the savings – $15,691,500 – was enjoyed by companies with special long-term tax deals with the Government, mostly a few dozen subsidiaries of U.S. pharmaceutical and other corporations organized as foreign. Instead of the 37.5% domestic corporate income tax, they pay from nothing to two percent in income tax. Their parent companies pay a four percent excise tax on purchases of products from them that totaled about $2 billion in 2017. As of 2018, the subsidiaries are liable for a 10.5% Federal tax on income derived from work in the States – more than 80% of their income – but still pay no Federal tax on income earned in Puerto Rico.

The $15.69+ billion was most of the $16.097 billion in corporate tax savings in 2017. Individual tax breaks cost the Government $1.26 billion. Exemptions and reductions from the Sales and Use Tax, $2.765 billion.

The territory’s controversial “Act 22,” which excuses high income individuals who move from the States from most taxes through 2035, was said to only have cost $29 million in revenue. Since the Government has recently reported that there are some 1,000 individuals who have been awarded the law’s tax benefits and said in 2016 that the average net worth of the beneficiaries was $7 million, the average tax savings of $29,000 per individual — which includes the 33% income tax rate being lowered to four percent — appears to be extremely low and hardly enough to justify moving from the States.

The report claimed that the also controversial “Act 20,” which reduces the 37.5% corporate income tax rate to four percent for income of businesses that relocate from the States but continue to provide services in the States from Puerto Rico, cost $111.3 million in revenue.

The report came after the U.S. House of Representatives Appropriations Committee directed the U.S. Treasury Department to report on tax savings information related to the territory, including the costs to the Federal, State, and territorial governments and quantifiable benefits to the territorial economy.

The PROMESA Financial Board has also pressed the territorial administration to make information of this nature public. PROMESA required the governor of Puerto Rico to submit information on all tax abatements to the Board.

See the report, “Puerto Rico: Tax Expenditure Report for Tax Year 2017,” Department of Treasury, Office of Economic and Financial Affairs, September 2019.”

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