On The Hill

Digital Tax

Treasury Secretary Steve Mnuchin announced that officials will begin meeting with tech companies to discuss France’s digital services tax. The US and France hope to have an understanding on the issue in the next 90 days, and the Treasury Department aims to ensure businesses support whatever decision is made.^[1] French Finance Minister Bruno Le Maire said time is running out to find an international digital tax deal, emphasizing that the US is continuing its trade investigation into France’s national digital tax.^[2] Mnuchin said the two countries are “trying to find an international solution,” but the US will “consider all of our options” if negotiations break down.^[3] 

Puerto Rico

Puerto Rico will lose federal tax credits that support 18 percent of its revenue, following Mnuchin’s announcement to Gov. Wanda Vasquez that the government will terminate the tax credit that supports Puerto Rico’s Act 154 tax on foreign corporations. While currently restructuring its billions of dollars of bond debt, Puerto Rico now needs to find a different tax that would provide 17.6 percent of its net revenues in FY 2019. Observers are worried that the loss of this federal tax credit will lead corporations to leave the island. Puerto Rico claims that only 10 corporations and partnerships paid 90 percent of all Act 154 taxes in FY 2016. Act 154 mainly impacts corporations manufacturing pharmaceuticals and high-tech products in Puerto Rico. However, some remain optimistic including Vincente Feliciano, President of Advantage Business Consulting.“Puerto Rico needs to come up with a reasonable income tax structure that provides these companies with a competitive tax environment but maintaining the present level of tax revenues, Feliciano said. “Done carefully and with a transition period, it should not be a major issue,” he added.”^[4] 

Elsewhere on the island, Espacios Abiertos (EA), or Open Spaces, a Puerto Rican nongovernmental organization (NGO), asked the territory’s Supreme Court to disclose the contents of a report on tax abatements that was submitted to the Financial Oversight & Management Board (FOMB) in July 2017. EA is requesting the Supreme Court to reverse a Court of Appeals decision to keep the report out of the public domain. EA Executive Director Cecille Blondet said in a statement that the information in the report is traditionally available to the public and that the island “cannot [work on a budget] without access to this information.” “The country has a right to have this report made public, Blondet added.”^[5] EA has received backing from Washington, DC, -based watchdog groups, including the Center for Budget and Policy Priorities and Good Jobs First. “In Puerto Rico, the battle for the right of access to information has been a years-long struggle,” Blondet said. “Citizens should not give up on enforcing a right that assists us. Although there is vast jurisprudence in Puerto Rico on access to information, we still encounter many obstacles.”

References

^[1] Eckert, Toby “Mnuchin: Treasury will begin meetings with tech firms on digital tax ‘understanding’” Politico Pro, 9 Sep. 2019 https://subscriber.politicopro.com/article/2019/09/mnuchin-treasury-will-begin-meetings-with-tech-firms-on-digital-tax-understanding-3805116

^[2] Buell, Todd “Time Is Short To Find Digital Tax Deal, French Minister Says” Law 360, 9 Sep. 2019 https://www.law360.com/tax-authority/articles/1196617/time-is-short-to-find-digital-tax-deal-french-minister-says

^[3] “Mnuchin Says U.S. Weighing All Options if Digital Tax Talks Fail” Bloomberg Tax, 10 Sep. 2019 https://news.bloombergtax.com/daily-tax-report/mnuchin-says-u-s-weighing-all-options-if-digital-tax-talks-fail 

^[4] Slavin, Robert “Puerto Rico will lose federal tax credits that support 18% of revenue” PROMESA, 12, Sep. 2019 https://www.bondbuyer.com/news/us-treasury-says-act-154-tax-should-end

^[5] Alvarado Vega, Jose “Motion for release of tax breaks report filed in Puerto Rico Supreme Court” Caribbean Business, 10 September 2019 https://caribbeanbusiness.com/motion-for-release-of-tax-breaks-report-filed-in-puerto-rico-supreme-court/