Newsletter:

Government Issues Order With Significant Changes to the Issuance and Use of Tax

09 March 2017

ADMINISTRATIVE ORDER (OA-2017-01) 

GOVERNMENT ISSUES ORDER TO FREEZE THE GRANTING OF NEW TAX CREDITS 

On March 7, 2017, the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”, by its Spanish acronym), on behalf of the Government of Puerto Rico, issued its first Administrative Order for 2017, OA-2017-01 (the “Order”), in an effort to provide stability and control to the fiscal situation of the government of Puerto Rico. OA-2017-01 furthers the public policy established on Executive Order No. OE-2017-01, which declared a fiscal state of emergency in Puerto Rico, sets the ground for the legal basis of the AAFAF’s determinations, and provides a general framework, by establishing a Committee in charge of implementing the government’s austerity measures. The Order seeks to address the gap between the projected government revenues and disbursements, and the Fiscal Budget for 2017 presented by the Financial Oversight and Management Board for Puerto Rico. 

TAX CREDITS AND DISBURSEMENTS AUTHORIZATION COMMITTEE 

Through this Order, the AAFAF creates the Tax Credits and Disbursements Authorization Committee (the “Committee”), which aims to evaluate pending and new tax credits applications and set limits on the use and timing of tax credits granted. The Committee will also have the authority to evaluate the allocations currently in place, and determine which are to be maintained for the future. The Committee will be made up of the Executive Director of the AAFAF, the Secretary of the Department of the Treasury, and the Executive Director of the Office of Management and Budget. 

TAX CREDITS 

The Order addresses the halt of new tax credits, introduces an additional step in the process for approval of tax credits, imposes a new informative requirement to holders of tax credits, and limits the use and the timing of tax credits granted. 

I. Halt 

The AAFAF, on behalf of the Government of Puerto Rico, orders the halt of the granting of new tax credits authorized by various incentive acts, including but not limited to the following: 

  • Act 78-1993, known as the “Tourism Development Act of 1993” 
  • Act 46-2000, known as the “Capital Fund Investment Act” 
  • Act 98-2001, known as the “ Infrastructure Tax Credits Act” 
  • Act 140-2001, known as the “Tax Credits for Investment in New Construction and Rehabilitation of Affordable Housing Act” 
  • Act 183-2001, known as the “Conservation Easements of Puerto Rico Act” 
  • Act 212-2002, known as the “Urban Centers Revitalization Act” 
  • Act 73-2008, known as the “Puerto Rico Economic Development Incentives Act”
  • Act 74-2010, known as the “Puerto Rico Tourisms Development Act of 2010” 
  • Act 27-2011, known as the “Film Industry Economic Incentives Act “ 
  • Act 159-2011, known as the “Tax Incentives for Investment in Reduction, Disposal and/or Solid Waste Treatment Facilities” 
  • Act 302-2012, which amends the Internal Revenue Code of 2011 (the “Code”) to grant a contributory credit to charitable foundations of former governors, among others 
  • Act 77-2015, known as the “Tax Credits for the Construction or Rehabilitation of Low Income Elderly Housing” 
  • Sections 1051.09, 1051.07, 1052.03 and 4050.10 of the Code. 

II. Evaluation 

The Committee will have the authority to evaluate the granting of future tax credits already requested at the date of the Order. However, the current administrative tax grant application processes, established under each governmental agency, are not amended or revoked with this Order. Therefore, the Committee is established as the last filter, before proceeding with the granting of tax credits. 

III. Informative Declaration 

Every person that currently possesses tax credits will need to inform the amount of the tax credits granted to the Secretary of the Treasury, in the form and manner prescribed to do so. Failure to provide any information will imply that the person will not be able to claim the credits. 

IV. Limitation 

The Committee will be able to establish a limit for the use of the tax credits granted, up to a maximum period of four (4) fiscal years. 

We will inform you of future communications and guidelines with regards to pending and new requests for tax credits, their timing and use, as well as any procedures to follow by current and future holders of tax credits.