Washington - The Treasury Department yesterday asked the government of Puerto Rico for a plan to begin the progressive elimination of the tax credit imposed by Law 154-2010 on foreign corporations on the island, which represents just over a fifth of its revenues.
The request came during Governor Wanda Vázquez Garced's first meeting with Treasury Secretary Steve Mnuchin and reaffirms the Donald Trump administration's interest in trying to repeal a decree that was adopted temporarily.
As part of an agreement with the government of Puerto Rico and foreign corporations, the Internal Revenue Service (IRS) has credited 100 percent of the 4 percent tax paid by Controlled Foreign Corporations (CFCs) parent companies for the sales of their subsidiaries. The tax brings to the Puerto Rican government a total of about $1.8 billion.
In July 2018, in statements to El Nuevo Día during a visit to San Juan, Secretary Mnuchin warned that the future of the federal tax credit to CFCs was part of ongoing discussions and that the intention was for it not to be permanent.
Experts say that under the federal tax reform, the tax established by Law 154 could be 80 percent deductible if the government of Puerto Rico turns it into an "income tax."
Mnuchin renews his interest in ending the Law 154 credit just as the Oversight Board is about to present the government adjustment plan, and the industrial sector - like the rest of the island - fears the impact that the Electric Power Authority (PREPA) restructuring agreement may have on electricity rates.
"The successful execution of the fiscal plan partly depends on the execution of reconstruction plans, the maximization of Medicaid funds and stability in terms of revenue General Fund revenue collections stability, which has a substantial part coming from the tax established in Law 154," said Puerto Rico Treasury Secretary Francisco Parés, when asked to comment on the request made by the U.S. Treasury Secretary.
Parés along with Resident Commissioner in Washington, Jenniffer González, the executive director of the Fiscal Agency & Financial Advisory Authority (FAFAA), Omar Marrero, and the government representative to the Board, Elí Díaz Atienza, among others participated in the meeting between Vázquez Garced and the U.S. Treasury Secretary.
The governor is in Washington until Friday to address the government´s credibility problem in Washington – further aggravated by former Governor Ricardo Rosselló Nevares - and push for the release of relief funds for the island.
In a press release, the governor said she discussed income taxes and the Opportunity Zones program with Mnuchin. "It was a productive day," Vázquez Garced said.
Commissioner González said she took the opportunity to promote the bill pending in the House that would allow, through federal subsidies, to strengthen local EITC and CTC, with benefits estimated at $1.2 billion annually. She also requested an extension to the tax credit to employers in Puerto Rico for employee retention after Hurricanes Irma and María, which expired in June and represented more than $420 million.
Vázquez, González, and part of the group also had meetings with White House and Office of Management and Budget (OMB) officials about the future of the next Medicaid allocations to the island.
Although they did not discuss the amount of a future allocation, at a time when a House committee is proposing to grant the island $12 billion in Medicaid funds over the next four years, the Commissioner said the governor "was very effective in talking about transparency and anti-corruption measures."
Democrats and Republicans demand restrictions and audits on the use of Medicaid funds, particularly after arrests for corruption involving former Health Insurance Administration (PRHIA) Chief Ángela Ávila.
Like the meeting with federal Housing Secretary (HUD) Ben Carson, talks at the White House - which included OMB Acting Director Russ Vought, Office of Intergovernmental Affairs Director Douglas Hoelscher, and Homeland Security Advisor Peter Brown - also focused on advocating for the publication of the guidelines for the $8.285 million Community Development Block Grant for Disaster Recovery Program (CDBG-DR).
Commissioner González said she also saw a change in Secretary Carson's attitude, although HUD has consistently questioned whether Puerto Rico can use the funds it requests swiftly enough. Last night, HUD published the guidelines for the $774 million it will grant the U.S. Virgin Islands.
The $8.285 billion in relief funds are part of the $20.3 billion that the federal government allocated to mitigate the disaster caused by Hurricane María through the CDBG-DR program. Of that $20.3 billion package, HUD has only made available about $1.5 billion, of which only a small portion has been used.
Puerto Rico Housing Secretary Fernando Gil Enseñat participated in the meeting.
White House Deputy Press Secretary Judd Deere said that "as part of our ongoing commitment to help the citizens of Puerto Rico," federal leaders will continue to meet with Puerto Rico's leaders, including the new governor, Resident Commissioner, and other leaders to ensure that taxpayer dollars are wisely used to rebuild a more resilient Puerto Rico.
Senate President Thomas Rivera Schatz and House Speaker Carlos "Johnny" Méndez also met with Hoelscher at the White House on Monday. According to sources, at that meeting, Hoelscher alluded to previous corruption cases involving island officials.
Yesterday, however, the federal corruption charges were against former FEMA officials and U.S. energy company Cobra Acquisitions.
In fact, Vázquez Garced, her team, and Commissioner González had another meeting with Assistant Secretary for the Office of Electricity, Bruce J. Walker, to discuss the plan to rebuild Puerto Rico's power grid, which was part of the federal official´s work.
The meeting with Walker included the $1.932 billion package in CDBG-DR funds to improve Puerto Rico's power grid. In the past, HUD suggested that the money, which would be added to FEMA's Section 428 reconstruction program, might be the last disbursement of CDBG-DR funds.
Joanisabel González collaborated with this story.