For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
A House Republican is pushing the Ways and Means Committee to classify Puerto Rican products as domestic goods in a tax overhaul bill so they wouldn’t be subject to the House leadership’s proposed 20 percent import tax.
The committee addressed the treatment of Puerto Rico tax issues at a two-day retreat earlier this week, Rep. Carlos Curbelo (R-Fla.) said May 4. Puerto Rico, a pharmaceuticals manufacturing hub, would benefit from the border adjustment tax if it is treated as a domestic state. The border adjustment proposal would place taxes on imports and exempt exports.
But if Puerto Rican-made drugs, including those produced by Johnson & Johnson and Merck & Co., were subject to a tax, it could raise medication prices in the U.S. It also could push manufacturers out of Puerto Rico, said Ramon Camacho, a principal at RSM US LLP. Manufacturing has languished on the island since a tax incentive in tax code Section 936 expired in 2005.
A 4 percent excise tax imposed starting in 2010 also aided the sector’s decline, said Rosana M. Gutierrez, special counsel at Foley & Lardner LLP. There are production facilities on the island certified by the Food and Drug Administration that sit empty because of consolidation, and companies shutting down production, she said.
“The committee now understands that tax reform is a great vehicle to help Puerto Rico, to treat Puerto Rico fairly,” Curbelo said at a Congressional Hispanic Leadership Institute briefing.
His comments come a day after the U.S. island territory declared a form of bankruptcy on about $70 billion in debt. Tax reform would alleviate some of these financial struggles through new jobs and economic growth, Resident Commissioner Jenniffer Gonzalez-Colon, Puerto Rico’s representative in the House, said.
The tax code treats U.S. subsidiaries in the territory differently from those in the rest of the country, leading to concerns that Puerto Rican products could be considered foreign goods in a rewrite of the tax code. Manufacturing accounted for about 50 percent of the island’s gross domestic product in 2015, according to data from the Puerto Rico Fiscal Agency and Financial Advisory Authority.
This could be the time to “onshore” Puerto Rico, Camacho said. Tax overhaul is the time to reconsider Puerto Rico’s tax treatment, so this could be the time to make it a state for tax purposes, he said.
“We are part of the United States, so that should not apply to the island and to the products made in the island, so we should not be considered as a foreign jurisdiction of production,” Gonzalez-Colon said.
“I expressed to my colleagues the urgency of the situation,” Curbelo told Bloomberg BNA. “Chairman Brady knows this is a major priority for me and he has committed to me he will work with me.”
To contact the reporter on this story: Laura Davison in Washington at lDavison@bna.com
To contact the editor responsible for this story: Meg Shreve at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)