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Governor Rosselló presents Incentives Code Bill to the Legislature

Governor Rosselló presents Incentives Code Bill to the Legislature

(May 28, 2018 - La Fortaleza, San Juan) Governor of Puerto Rico Ricardo Rosselló submitted to the consideration of the Legislature the Incentives Code Bill, which will establish a new transparent and efficient process for the granting and overseeing of all incentives.

"In the Plan for Puerto Rico, we committed ourselves to grouping in a code all the incentives to simplify our offer for investment and job creation. The New Tax Model returns to the taxpayers hundreds of millions of dollars that were invested in companies that did not generate jobs or benefits for Puerto Rico. The tax incentives are paid by the People and must be productive," said the chief executive.

The governor explained that the Incentives Code Bill is in line with the public policy of the Government of maximizing the performance of the tools available for the economic development of Puerto Rico.

Rosselló also said that "the new Code contemplates a change of vision of incentives and a dynamic platform that is consonant with the reality of creating a code that promotes activities which contribute to the growth of the economy through investment, innovation, export, and the creation of jobs."

The secretary of the Department of Economic Development and Commerce (DDEC, for its Spanish acronym), Manuel A. Laboy, pointed out that "the new Code responsibly speeds up the application and approval process. In addition, it establishes uniform processes of regulation, measurement, and continuous evaluation after the granting of incentives to guarantee compliance, transparency, and the achievement of fiscal development objectives."

Likewise, the head of the DDEC explained that the new Code establishes a budget process for credits and incentives, which will include a return on investment report and will establish the amount available for each program.

For the drafting of the bill, existing jurisprudence was analyzed from 1960 to the present.

In the process, arbitrarily defined incentives were found, without a proper analysis to determine the reasonable amount, responding to the needs of that moment. This means that the need for which this incentive was granted may not be valid.

The project, which brings together more than 50 different incentive laws, will be implemented as a promotional tool.

"This is a more efficient way to attract to the Island, as well as retain, investment and human talent that propels economic development, and we avoid that the money goes out to other jurisdictions that do not contribute to our economy. Equally important, it provides certainty for the investment, addressing the main problem that local and foreign investors have communicated to us," said Laboy.

"On the other hand, it provides tools to grow our local companies with an export vision, incentives for small and medium enterprises (SME) in strategic sectors, and special provisions to promote investment in the municipality islands of Vieques and Culebra," the secretary added.

As explained, the new Code seeks to modernize the incentives and adapt them to the fiscal reality of Puerto Rico and the global competitive environment.

"This means that, although for years we have had a disorganized, ineffective system that does not benefit the population, now we will have a new system that can be inspected, that is reliable, agile, and transparent. A system that reports to the People of Puerto Rico for the first time," said Laboy.

The secretary of the DDEC commented that to guarantee the best use of the incentives that the Government provides, it was necessary to evaluate them to determine which are effective and do not become a subsidy.

“Therefore, this new Incentives Code will establish as a requirement the return on investment when granting a tax incentive, according to the fiscal costs and benefits. The Return on Investment (ROI) methodology of the Incentives Code is based on data from the Department of the Treasury and economic assumptions that have been validated by our consultants—the renowned firm PricewaterhouseCoopers (PWC), —accountants, and economists," said the head of DDEC.

"Through the implementation of the Incentives Code, savings will be generated that will help finance the new tax model that reduces contributions to all individuals and corporations," said the also executive director of the Puerto Rico Industrial Development Company (PRIDCO).

The legislative piece will also incorporate provisions to measure the ROI, establish processes to maintain up-to-date data on such productivity by economic sector, and standardize the term of the tax exemption decrees.

However, Laboy assured that the changes to the incentives will be prospective and will not affect existing decrees and credits already granted.

For the drafting of the Incentives Code, the best practices from other jurisdictions were considered, such as in the United Kingdom, Ireland, the states of Nevada, Massachusetts, and Michigan, as well as the United Nations Department of Economic and Social Affairs and the Federal Department of the Treasury, among others.

During the process of drafting the bill, consultations and presentations were made to various unions representing the private sector. From these meetings, some inputs that are now part of the project were collected.

The secretary of the Puerto Rico Department of the Treasury, Raúl Maldonado, said that "the Incentives Code offers us a tool that allows us to compete more efficiently in the global market to attract investors to Puerto Rico. It simplifies in a single body of law all the incentives that make Puerto Rico an attractive destination for new businesses. In addition, it recognizes the importance of the local entrepreneur, particularly the SMEs, providing specific incentives to our businesspeople".

The evaluation of incentives will have as a guiding principle the consideration of the economic foundations proposed or defined by the Government and the activities and industries that are to be encouraged to ensure the growth of the economy of Puerto Rico.

As an important element to ensure strictness in the application of standards and transparency, a single office will be designated to supervise aspects related to compliance. It will also facilitate the process of requesting, evaluating, and granting the incentives, simplifying the processes through the use of technology and the uniformity of benefits for the applicants.

The head of the DDEC concluded by informing that once this project becomes a law, it will define and impose the responsibility of overseeing the incentives program and its accountability, by requiring companies to submit annual reports to the DDEC with data on expenses and benefits of all incentive programs.

"This report will facilitate the evaluation of incentives to determine which programs should be modified, expanded, or eliminated and thus maximize their impact on the economy, and align them with the strategic plan for the economic development of Puerto Rico. The annual report will also improve the visibility of our agency regarding the use of its fiscal resources," said Laboy.

Portal sometido ante la CEE el 28 de diciembre de 2015: Solicitud CEE-SA-16-2859