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With the latest increase in
identity theft, credit reports
and credit scores
are very popular. The
credit report is a snapshot of your credit at a particular moment
in time. Based on the information on your
credit report, your credit score sums up
your credit worthiness, that is your ability
to repay your debts.
With this in mind, we need to analyze
some changes in the Puerto Rico Internal
Revenue Code of 1994, as amended (the
“Code”) by the “Special Act declaring a state
of fiscal emergency and establishing an
integrated fiscal stabilization plan to save
Puerto Rico’s credit” (the “Act”) signed by
the Governor of Puerto Rico, Honorable
Luis Fortuño on March 9, 2009.
With this in mind, we need to analyze
some changes in the Puerto Rico Internal
Revenue Code of 1994, as amended (the
“Code”) by the “Special Act declaring a state
of fiscal emergency and establishing an
integrated fiscal stabilization plan to save
Puerto Rico’s credit” (the “Act”) signed by
the Governor of Puerto Rico, Honorable
Luis Fortuño on March 9, 2009.
As you can see, tax credits generated
in manufacturing operations, tourism activities,
cinematographic projects as well
as other tax credits provided in the Code
(other than Code Section 1040E) are not
subject to the moratorium.
The above moratorium does not apply
to any natural or juridical person that acquired
the tax credits subject to the moratorium,
from the person to whom they were
granted, before March 4, 2009. In this case,
evidence to support the acquisition date of
the credits may be requested by the Secretary
of the Treasury (“Secretary”).
Any person that owns tax credits, subject
to the moratorium, must file with the
Secretary an informative return on or before
May 30, 2009 (the “Informative Return”)
that includes the amount of the
credits previously granted. This Informative
Return, in the form prescribed
by Regulations issued by the Secretary,
should be signed under penalties of perjury.
The timely filing of the Informative
Return is indispensible for the owner
of such tax credits to be able to claim
them once the period of the moratorium
expires on January 1, 2012.
Generally, some tax credits are issued
with a specified period where they can be
used. The Act provides that any expiration
term or period established to use the tax
credit, subject to the moratorium, will be
suspended during the period of the moratorium
and will commence again from January
1, 2012. Meaning that a tax credit, subject
to the moratorium, that can be used
during calendar years 2009 and 2010, will
now be available for years 2012 and 2013.
In addition to the restriction on the use of
the above mentioned tax credits, the Act also
established a moratorium on the granting of
new credits. It prohibits any agency, public
corporation, instrumentality, municipality or
dependency of the Commonwealth of Puerto
Rico to evaluate, carry through, grant nor
issue any tax credit or authorize any project
or transaction that results in the generation
of tax credits subject to the moratorium. By
doing this, it basically puts a “hold” to any
tax credit applications that are in process at
different government agencies.
Finally, the Secretary must establish
a Registry of Tax Credits before December
1, 2009 where it includes all the information
gathered through the Informative
Returns. He also must perform a detailed
analysis of all legislation that provides
for tax credits in order to determine
its revenue collection ability and its effectiveness
in promoting economic activity
and submit a report with its findings to
the Legislative Assembly.
Finally, the Secretary must establish
a Registry of Tax Credits before December
1, 2009 where it includes all the information
gathered through the Informative
Returns. He also must perform a detailed
analysis of all legislation that provides
for tax credits in order to determine
its revenue collection ability and its effectiveness
in promoting economic activity
and submit a report with its findings to
the Legislative Assembly.
Up to know we have focused our discussion
on the holders of the tax credits
subject to the moratorium, but how will
these changes affect future or ongoing
projects whose realization should generate
tax credits subject to the moratorium?
The tax credits generated by the realization
of the projects under the above
mentioned acts are an integral part of the
financing of such projects. Such tax credits
are usually sold and their proceeds are
used to repay their debt obligation. Without
the generation of the tax credits, most
of these projects are not feasible.
Other tax credits that were affected by
the Act, are the Credits for the Acquisition
Newly Constructed Housing provided in
Section 1040K of the Code. Although not
subject to the moratorium, prior to the enactment
of the Act, in cases where the financial
institution that received the credit
was not able to use the full tax credit
against its tax liability, a refund request
was permitted in the year where the tax
credit was claimed. The Act amended Section
1040K of the Code and now the financial
institution must wait until taxable
years commencing after December 31,
2010 to request a refund of any tax credit
not utilized against its tax liability. The Act
also eliminated the applicability of interest
payments on the refund requested.■
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