Experts in taxes and economics consulted by THE WEEKLY JOURNAL agreed that the Act to Promote the Relocation of Investors to Puerto Rico, known as Act 22 of 2012, has been effective in attracting capital to Puerto Rico, despite reducing the income from the Treasury for the tax exemptions offered to investors.
In December 2019, the Internal Revenue Service (IRS) had conducted an analysis on these investors -which was revealed in October 2020- and concluded that the hundreds of Americans who have moved to Puerto Rico have stopped paying millions of dollars to the U.S. Treasury. Now in 2021, the IRS has decided to audit the tax obligation of the beneficiaries of said law to corroborate whether or not they are in compliance.
Act 22 encourages individuals who have not been residents of Puerto Rico for the last fifteen years prior to the approval of the law, and who maintain investments in or outside the United States, to establish residence on the island. To encourage their transfer Investors, the law exempts them from the payment of passive income tax: interest, dividends and capital gains on the sale of shares, cryptocurrencies, etc.
“The risk of less collection has always been there. Puerto Rico can justify Act 22 like other tax laws it has had. The government understands that it represents a benefit to attract investment. It's great that in the group of taxpayers they studied, there are 166 Puerto Ricans who returned to the island from the United States," said economist José Joaquín Villamil, who favors that more Puerto Ricans are investing and moving to Puerto Rico, which he opined provides a benefit for the general economy and for population growth.
In statements to EL VOCERO, THE WEEKLY JOURNAL's sister publication, Manuel Laboy, former secretary of the Department of Economic Development and Commerce (DDEC) had indicated that during the past years there was an increase of 300 percent in the tax decrees approved, for a total of about 5,000 agreements, among them those of Acts 20, 22, 73, and 14.
He affirmed then that under Act 22, between 2019 and 2020, 613 cases were approved, some were new and others were already in process.
“It is also important to understand that we do not know how that report was made or who these people are who were evaluated. There is a lot of confusion and it is important to know who they investigated," Villamil stressed about the IRS report, which included over 2,300 Act 22 beneficiaries but does not reveal their names.
For his part, economist Gustavo Vélez also defended the incentives offered to people who acquire residential properties in Puerto Rico.
“What this seeks is to attract capital and create a platform for the export of services. This law has brought investment and has been seen in the purchase of houses in places like Condado and Dorado, which has given them a boost to their values." Vélez explained.
He said that the investigation conducted by the IRS is positive. "They are enforcing the law, which is good. This gives the opportunity to refocus it and attract Puerto Rican talent to re-import the capital," he added.
Meanwhile, Kenneth Rivera, an authorized public accountant, stated that the investigation of the IRS is due to the fact that the tax agency distrusts the information provided by investors to get waivers approved.
"Moving to the island to obtain a tax benefit makes a lot of sense; people change places to pay less. That shouldn't be the hassle, as long as everything is done legally. The concern of the IRS is to know if these people are really residents of Puerto Rico and if the income also comes from here," he asserted.
Moreover, Carlos M. Rodríguez, president of the Puerto Rico Industrial Association (AIPR) said that Act 22 is favorable for Puerto Rico, “however, every project has room for improvement; points that could still generate controversy could be evaluated. The beneficiaries of the law are ultimately responsible for meeting their tax obligations. Any investigation should focus on individuals who have not complied with federally imposed requirements. Any request for greater transparency by the IRS should be welcomed as long as confidential or privileged information is not disclosed."
Meanwhile, designated Economic Development Secretary Manuel Cidre assured that he is committed to every effort aimed at combating fraud under Acts 20 and 22, and any other incentive program. "I reiterate that we will be proactive and collaborate with federal authorities to identify those individuals and / or entities that act contrary to the law, so that they can be held accountable for their actions."