P.R. Laws tit. 13, § 10104
(a) Credit for losses of the parent company. — An exempted business that holds a decree granted under this part which is a subsidiary of a United States parent company, which, after consolidating the income of the exempted business shows a loss on their consolidated federal income tax return (applying the amount of any operating loss carry-over through an accounting method acceptable to the Secretary of the Treasury) for a specific tax year, or has availed itself of a bankruptcy procedure under applicable federal statutes, can be granted an incentive in the form of a credit against the payment of the fixed income tax rate applicable to the industrial development income derived during the taxable year of the loss. Said credit shall not exceed the amount of the corresponding tax for the specific year of the loss. This shall be figured by multiplying the corresponding tax by a fraction, whose numerator shall be the average number of jobs of the specific taxable year, and whose denominator shall be the number of jobs required in order to be granted the tax exemption.
For the purposes of this subsection:
(i) The consolidated loss must be a loss which has been actually incurred;
(ii) the debts of the parent company must exceed the fair market value of its assets for the last three (3) years, for which financial statements audited by a certified public accountant must be submitted which include as supplementary information the market value of the assets, and
(iii) the exempted business shall post bond to be fixed by the Secretary of the Treasury, which shall include the conditions that ensure its collection.
The tax credit incentive to be recognized shall be limited to the amount of the losses in the operations consolidated at [the] federal level. In case said losses are covered in a specific taxable year by the consolidated operations, the exempted business that holds a decree granted under this part shall be liable for the payment of the corresponding tax[es] in the proportion that these exceed the amount of said losses.
The exempted business that holds a decree granted under this part that wishes to avail itself of the provisions of this subsection, shall apply for the incentive from the Secretary of the Treasury through the Exemption Office, by means of a sworn petition, and shall have to show that the granting of the incentive is meritorious and in the best interests of Puerto Rico. Before granting the incentive, the following factors, among others, shall be taken into consideration:
(1) The history of the exempted business in Puerto Rico, including its investments, the number of jobs and its location;
(2) the losses of the parent company, including the amount thereof; the manner in which said losses occurred and the projected time it will take the parent company to absorb said losses;
(3) taxes paid in Puerto Rico in the past and projected for the future, and
(4) the possibility that the incentive may be recaptured by Puerto Rico.
The Secretary of the Treasury shall have the power to approve and administer the regulations necessary to achieve these purposes and shall include provisions for the benefits of this incentive to be recaptured by Puerto Rico within a period of not more than five (5) years once the parent company begins to obtain profits and pay taxes thereon.
The above notwithstanding, the Secretary of State may, after recommendation of the Secretary of the Treasury and the Administrator, release the exempted business that holds a decree granted under this part from the requirement to return the incentive granted in this subsection, in whole or in part, subject to those terms and conditions he/she deems convenient, in benefit of the best interests of Puerto Rico. In granting this waiver, the Secretary of State shall take into consideration the favorable recommendations of the Administrator and the Secretary of the Treasury, and the history of said exempted business in terms of jobs, capital investment in the industrial plant, the estimated amount of the tax credit to be returned and the time it will take to do so, as well as the financial situation of the parent company and the commitments the exempted company may make with regard to future jobs, additional investments in the plant facilities, machinery and equipment, and investments in research and development activities in Puerto Rico.
(b) Credit for the purchase of products manufactured in Puerto Rico. — If an exempted business that holds a decree granted under this part or under preceding incentives laws, buys products manufactured in Puerto Rico, including components and accessories, it may earn a credit against the fixed industrial development income tax provided in § 10102 of this title, equal to twenty-five percent (25%) of the purchase of said products during the taxable year in which said credit is earned, reduced by the average of the purchase of said products for the three (3) previous taxable years, or that portion of said period that is applicable, up to a maximum of twenty-five percent (25%) of said tax; this credit shall be granted solely for the purchase of products that have been manufactured by firms unrelated to the exempted business, and said purchases shall be excluded from the total purchases of products manufactured in Puerto Rico by the exempted business, for the purposes of the above calculation.
In the event that the exempted business that holds a decree granted under this part buys products transformed into commercial articles made from recycled materials or with raw materials from material recycled by exempted businesses which have been granted a tax exemption decree under § 10101(e)(24) of this title, or preceding laws, the credit granted hereby shall be equal to thirty-five percent (35%) of the total purchases of said products during the taxable year for which the credit is claimed.
The credit provided in this subsection which is not used by the exempted business may be carried over to subsequent taxable years, until said credit is exhausted.
Provided, That in the case of businesses exempted under preceding laws that have availed themselves of the renegotiation benefits provided in § 10107(a) of this title, the credit provided in this subsection shall be prorated between the base period income described in said subsection of § 10107, and the incremental industrial development income excluding the income derived from the investments described in § 10101(j) of this title. Both incomes shall be computed under the provisions of law applicable to each pursuant to § 10107 of this title. In the case of the base period income, the credit provided herein may only be claimed during the remainder of the exemption period of the decree in effect as of the date of the application for the renegotiation. The credit attributable to the base period income may only be used against the tax on distributions of industrial development dividends or profits of the exempted business levied under §§ 10038—10052 of this title, under §§ 10024—10052 of this title or under the Puerto Rico Internal Revenue Code, as applicable. The credit attributable to incremental industrial development income may be used as a credit against the fixed industrial development income tax rate provided in § 10102(a) of this title, as provided, and subject to the limitations of this subsection.
(c) Partial credit for the payment of royalties, and license fees. —
(1) The exempted businesses described in clause (2) of this subsection may request the Secretary of State, with the express consent of the Secretary and the Executive Director of the Industrial Development Company, that they be authorized to credit the excess over one hundred million dollars ($100,000,000) of annual taxes withheld for bonuses, royalties, and license fees, with regard to high technology products (as said term is defined in clause (3) of this subsection), against the tax imposed by § 10102 of this title on said high technology products.
(2) The exempted business that shall qualify for the credit provided in this subsection are those which:
(A) Generate industrial development income derived from high technology products whose useful life is less than seven years, counting from the date of the beginning of production at a commercial scale after the 1st of January of 2000;
(B) are included among those industries or segments that have been designated by an Executive Order of the Governor, with the prior recommendation of the Executive Director and the Secretary, as a high priority industry or segment for the technological and industrial development of Puerto Rico, and
(C) pay bonuses, royalties, or license fees to nonresident corporations, partnerships, or persons, for the use of patents or similar property in their operations in Puerto Rico, as provided in § 10105(k) of this title.
The exempted business may request the Secretary of the Treasury to be released from compliance with any of the preceding conditions. The request shall include the reasons for which the exempted business requests said release. Once the Secretary of the Treasury analyzes the particular facts, circumstances and arguments of the case, he/she may order or condition the release provided that said release results in the benefit of the best economic and social interests of Puerto Rico.
(3) For the purposes of this subsection, the term “high technology product” shall include, but shall not be limited to, those products whose production involves the use of patents or licenses and require a technological process based on the principles of the sciences of biology, chemistry, physics, engineering, or computer sciences directed to develop a product, model, formula, invention, or technique of a new application. The use of this technology for the development of economic principles directed at financial products or services shall not qualify for these ends. Nor shall products that are being manufactured in Puerto Rico as of the date of the request under this subsection, or whose manufacturing process constitutes, in whole or in part, a mere renovation or improvement of a process that the exempted business performed in Puerto Rico on the date of the request, shall not qualify as high technology products.
(4) The tax exemption decree of the exempted business to which the credit provided in this subsection is authorized, shall specifically identify the high technology products whose industrial development income shall qualify for said credit.
(5) The credit that is provided in this subsection shall be annually limited to the tax to be paid with respect to the fixed rate on industrial development income generated by high technology products, as defined in the tax exemption decree. Any excess over the maximum allowed shall not be carried over to subsequent taxable years unless the Secretary of the Treasury authorized said carry over.
(6) The credit benefit provided in this subsection shall only be requested for high technology products whose manufacturing process began in Puerto Rico during taxable years that commence on or before December 31 of 2005, and shall only be available for the period of six (6) taxable years beginning on the first day of the taxable year in which the exempted business begins production at a commercial scale of the high technology products, with respect to which the credit was requested; however, the exempted business may postpone the starting date of the six (6) year period for which the credit provided in this paragraph shall be available, to the first day of the next taxable year.
Provided, That the exempted business shall have the option of requesting that the credit provided herein be extended for four (4) additional years if at the end of the six (6) taxable years already opting for the credit, the exempted business can show to the satisfaction of the Secretary of the Treasury and the Executive Director of the Industrial Development Company, that said extension shall result in the best interests of Puerto Rico, considering the income to be generated by the Treasury, and the jobs to be created or retained.
History —Dec. 2, 1997, No. 135, § 5; Aug. 6, 2000, No. 143, § 1; Aug. 17, 2001, No. 110, § 1; Dec. 24, 2002, No. 289, § 1.