Lost in all the talk of the much-ballyhooed Tax Cuts and Jobs Act of 2017 was any mention of policy regarding improving conditions in the struggling territory of Puerto Rico.
With a crumbling infrastructure that had a 300,000-customer power outage before landfall of any major hurricane this past September, Puerto Rico was losing the economic war to import industry and manufacturing into the picturesque island. It wasn’t a policy failure, as Act No. 20 of 2012, known as the “Export Services Act” provided Puerto Rico an incredibly favorable tax haven for would-be expatriates.
This act had the potential to attract global businesses as it offered a 4 percent corporate tax and 100 percent tax exemption on distributions from earnings and profits, a 90 percent tax exemption from personal property and taxes and a 90 percent tax exemption from property taxes for certain types of businesses.
One would think that with conditions like these, multi-nationals and domestic Americans would be lining up to purchase land and begin development in a strategically prime port country. The Puerto Rican energy monopolist Puerto Rico Energy Power Authority (PREPA) had raised over 9 billion dollars from private sector financing and bond sales with promises of energy infrastructure improvements and wound up embroiled in an endless list of controversies.
o PREPA together with Petrobas and Shell Trading (U.S.) Company, Inspectorate America Corporation, Bureau Veritas Holding, Core Laboratories, Alchem Laboratory, Altol Environmental Services, and others were named in a class action lawsuit filed by the residents and businesses in Puerto Rico for falsifying fuel laboratory results.
o PREPA illegally borrowed $4 billion dollars in a Ponzi scheme that “benefited the financial community” but left PREPA insolvent.
o Allegations that the head of the PREPA fuel purchase office was making direct calls to the former president of Venezuela, the late Hugo Chavez, to set up sludge oil purchases from Venezuela while billing the utility for high grade oil. The difference in value, said to be hundreds of millions per year, was allegedly kicked back to PREPA’s fuel office manager and distributed to politicians and government officials on the island.
o On July 2, 2017 PREPA filed in the United States District Court of Puerto Rico for protection under Title III of the 2016 Puerto Rico rescue law known as PROMESA. This bankruptcy filing occurred after PREPA was already $9 billion in debt.
The uncertainty regarding the ability to consistently engage in energy consuming manufacturing and new industry dissuaded entrepreneurs and CEOs from populating the destination hub. As a result, many American and multi-national businesses that have left the States and its onerous layers of taxation to seek relief have looked elsewhere globally.
One example is Ireland. Ireland sports a corporate tax rate of 12.5 percent. The American Chamber of Commerce’s data shows that corporations continued to flock to the Emerald Isle even during the throes of the recent recession. The ACCI’s 2015 report on foreign direct investment indicated that 700 U.S. companies based in Ireland were employing over 130,000 people. Reports also showed that Ireland has benefited from a whopping $277 billion dollars’ worth of U.S. direct foreign investment in the last 20 years. Those investments could have been made in the better taxation climate Puerto Rico affords. It would have been easier for Americans to bring their businesses to Puerto Rico as well with no naturalization process necessary. The unscrupulousness of Puerto Rico’s PREPA and the enabling corrupt politicians undermined the potential of a resurgence of industry in the island since the passing of Export Services Act or Act No. 20 of 2012. Congress would be wise to make federal oversight a condition of any bailout money that is distributed to either the Puerto Rican government or PREPA. courtesy the washington times
Published in Daily Times, January 8th 2017.