Puerto Rico's Financial Advisory Authority and Fiscal Agency (better known as AAFAF by its Spanish name) issued Administrative Order (AO) 2017-01, which provides for the suspension of the granting of new tax credits under various laws.

Suspension of tax credits

Specifically, the AO provides that the following new tax credits will not be granted under:

— Law 78-1993, Puerto Rico Tourism Development Act
— Law 46-2000, Puerto Rico Investment Capital Fund Act
— Law 98-2001, Tax Credits for Special Investments in Housing Infrastructure
— Law 140-2001, Construction or Rehabilitation of Social Interest Housing
— Law 183-2001, Puerto Rico Conservation Easement Act
— Law 212-2002, Revitalization of Urban Centers Act
— Law 73-2008, Economic Incentives for the Development of Puerto Rico
— Law 74-2010, Puerto Rico Tourism Development Act of 2010
— Law 27-2011, Puerto Rico Economic Incentives for the Film Industry Act
— Law 159-2011, Tax Incentives for the Investment in Facilities for the Reduction, Disposal and Treatment of Solid Waste
— Law 302-2012, Amendment to the Internal Revenue Code to Authorize a Tax Credit for Donations to Foundations of Previous Governors
— Law 77-2015, Tax Credits for Investments in Construction or Rehabilitation of Rental Housing for Low or Moderate Income Families and Tax Credits for Investments in the Acquisition, Construction or Rehabilitation of Rental Housing for Elderly Persons
— Sections 1051.09, 1051.07, 1052.03 and 4050.10 of the 2011 Internal Revenue Code of Puerto Rico

Authorization Committee for Disbursements and Tax Credits

AO 2017-01 establishes the Authorization Committee for Disbursements and Tax Credits, which has been granted the authority to take various actions with respect to the tax credits under the previously listed laws.

Generally, the Committee will address tax credits as follows:

Tax credit inventory

AO 2017-01 requires Puerto Rico's Treasury Secretary to create an inventory of the tax credits granted. Tax credit holders must report the amount of credits they hold. If the tax credit holders cannot provide proof that they have complied with the reporting requirement, they will not be able to claim the credits.

Implications

The AO issued by the AAFAF is part of the various fiscal measures adopted by the Puerto Rico Government in the fiscal plan required under the PROMESA statute (see Tax Alert 2016-1442). The fiscal plan was recently approved by the fiscal and oversight board that was appointed by PROMESA.

The scope of the AO is unclear. Also, some of the credits provided under the listed statutes in the AO are not formally requested through a ruling determination or application process, but are claimed in the taxpayers' returns. Communications by the Government seem to indicate that in the case of credits already granted, the AO could possibly limit their use, but not necessarily suspend them fully. Furthermore, the Government has said that its intention is to continue promoting certain industries through the granting of tax credits but only when granting tax credits would result in economic development.

The expectation is that the Puerto Rico Treasury Department (PRTD) as one of the three members of the appointed AAFAF Committee will issue administrative guidance on the implications of the AO particularly as it relates to those tax credits already granted or to be claimed in tax year 2016. It is also expected that the guidance will provide instructions on how to comply with the inventory requirement for those credits granted and still unused as of the date of the AO. The instructions most likely will be similar to the procedures followed in previous moratoriums, which required the credits holders to fill out a form and file it with the PRTD within a certain period of time. In the case of credits granted under Act 73-2008, the PRTD and taxpayers should have a record of those credits and their utilization through the Integrated Tax Credits website (CCI by its Spanish name), which was created in 2011, to the extent the CCI is kept updated.

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