Anti-Piracy Rules - Puerto Rico

The Commonwealth of Puerto Rico has taken the unusual step of enacting legislation to deter job piracy from other locations in the U.S. Puerto Rico and Gary, Indiana are the only jurisdictions known to have laws governing their own attempts to poach jobs from other areas. Puerto Rico's Tax Incentives Act requires companies applying for the Act's tax exemptions to disclose whether their proposed facility will adversely affect workers in other parts of the United States. If so, the governor can deny the application. The law also enables the governor to impose penalties on companies whose claims of no adverse impacts later prove to be untrue.

Tax Incentives Act of 1987

(Note: Only the relevant portions of the law are excerpted here.)

Section 8. Refusal, Revocation and Limitation of Tax Exemption

(b) Refusal on Grounds of Conflict with the Public Interest or Due to Substitution or Competition with Established Businesses

The Governor may refuse any application when he determines from the facts submitted for his consideration and after the applicant had been afforded the opportunity to make a thorough presentation of the issues in dispute, that the application is in conflict with the public interest of the Commonwealth of Puerto Rico on any of the following grounds:

(1) That the establishment of the unit for which the exemption is sought would substantially and adversely affect the employees of an enterprise under related control operating in any state of the United States of America; . . .

(c) Procedures for Permissive and Mandatory Revocations

(2) Mandatory revocation. The Governor shall revoke any exemption granted under this Act if it was obtained by false or fraudulent representations concerning the nature of the eligible business, or the nature or extent of the manufacturing process or of the production performed or to be performed in Puerto Rico. . .

In the event of such a revocation, all the net income previously reported as industrial development income. . . shall be subject to the normal tax and the surtax; in addition, the taxpayer shall be deemed to have filed a false or fraudulent tax return with intent to avoid the payment of taxes, and will, therefore, be subject to the penal provisions of the Income Tax Act in force in Puerto Rico.