Puerto Rico slaps new tax on offshore business

* Tax on offshore manufacturing firms billed as temporary

* Critics say move could deepen island’s economic crisis

* Government struggling to close massive budget gap

SAN JUAN, Puerto Rico, Oct 24 (BestGrowthStock) – Puerto Rico’s
lawmakers approved legislation over the weekend to implement a
temporary tax on offshore manufacturing firms in the
recession-hit U.S. territory.

Governor Luis Fortuno will elaborate on the tax in a
special address to Congress on Monday night, but administration
officials said it would target between 40 to 50 firms operating
on the island and making more than $75 million annually.

Without the benefit of public hearings, the legislation
cleared both the House and the Senate on Saturday along party
lines, with the pro-statehood New Progressive Party largely
approving the bill and the minority pro-commonwealth Popular
Democratic Party (PDP) opposing it.

“A balanced distribution of the tax burden is fundamental
to the economic future of Puerto Rico,” House Speaker Jennifer
Gonzalez said in defending the measure.

PDP lawmakers and business groups, however, criticized the
measure for being passed without public hearings and without
analysis and warned that it could deepen the economic crisis
confronting the island, which has been in recession since
2006.

In addition to the recession, Fortuno has been battling a
$3.2 billion deficit since he entered office in January 2009,
which has forced him to cut spending across the board and to
fire about 13,000 public sector employees.

“If this is the right alternative, why was it approved in
the middle of the night and in record time,” said PDP Senator
Eduardo Bhatia.

The measure will take effect Jan. 1 and run through 2016.
The first year a 4 percent tax will be levied on the firms,
followed by 3.75 percent in 2012 and 2.75 percent in 2013.

The tax will then shrink gradually from 2.5 percent in 2014
to 2.25 in 2015 and 1 percent in 2016, the final year it will
apply.

While Puerto Rico is a U.S. commonwealth, it operates as a
separate taxing jurisdiction and allows for the deferral of
federal taxes on profits of offshore firms as long as they are
not sent back to the United States.

The new legislation would apparently close some loopholes
by targeting operations involving so-called “local affiliated
corporations.”
(Editing by Tom Brown)

Puerto Rico slaps new tax on offshore business