The Puerto Rico Manufacturers Association will submit four specific proposals to the Congressional Task Force on Economic Growth in Puerto Rico addressing mechanisms to spur economic development on the island in different sectors, trade group President Rodrigo Masses announced Thursday.
The proposals should be in the hands of the Task Force by the established Sept. 2 deadline, he said.
“We believe it’s important to address several mechanisms that somehow will spur a reaction in the short, middle and long term,” Masses said.
To craft the proposals, the PRMA commissioned Economist José Joaquín Villamil, who said whatever is submitted to the Task Force must be “very precise.”
That said, the group believes that the Task Force should address the claim already made to Congress for a growth proposal incentive that could partially offset many of the benefits that ended with the elimination of Section 936 of the U.S. Tax Code.
“There is an intent in the U.S. to modify tax laws related to the funds that American corporations have outside the country, which is a serious problem from the point of view of Congress, because it’s estimated there are $2.3 trillion involved,” said Villamil.
What the PRMA is proposing is to use Puerto Rico as a conduit for the repatriation of funds to the U.S. mainland. Presently, North American companies that repatriate funds have to pay a 35 percent tax rate. The PRMA is proposing an 85 percent tax exemption over the repatriated dividends, and applying a 17.5 percent tax rate on the remaining 15 percent.
“That would result in an effective tax rate of about 3 percent, which is attractive and it would be favorable for Puerto Rico because the dividends would have to be Puerto Rico-sourced income,” Villamil said. “It would also be positive for the U.S. because it would be an incentive for repatriation.”
The Task Force was created as part of the Puerto Rico Oversight, Management and Economic Stability (PROMESA) Act signed into law in June to address the island’s economic troubles and the restructuring of its $68 billion in public debt.
The other three proposals address the Task Force’s responsibility of reviewing federal laws and regulations that have a direct effect on Puerto Rico and how they can be modified to provide benefits.
The PRMA is suggesting a review of the federal government’s procurement processes, specifically regarding the limitation that purchases must be made from companies operating in the continental United States.
“If you’re not located in the continental United States, you cannot participate in the procurement process. We’re suggesting to the Task Force that the condition be modified because that would open doors for Puerto Rican companies to compete in different procurement processes,” Villamil explained. “We’re also suggesting that the federal government establish a ‘set-aside’ of federal contracts for Puerto Rico.”
Regarding the issue of energy, the PRMA said Puerto Rico would benefit from having the support of the Federal Energy Regulatory Commission, which currently has no jurisdiction over the island.
“We suggest that stateside legislation related to alternative energy sources be compatible with what wants to be done here,” Villamil said. “Although energy issues are essentially local, there are certain things where the could be more federal participation.”
Finally, the PRMA is promoting that the Task Force pursue creating policy statement to promote Puerto Rico as a hub for the aerospace industry, something that could be achieved without amending federal laws, Villamil said.
“It’s the acknowledgement that there is that kind of activity in Puerto Rico and could in a way serve as the model for other proceedings,” the president of the Estudios Técnicos firm said.
The Task Force is expected to release its preliminary report by Sept. 15, according to the conditions included in PROMESA. U.S. Sen. Orrin Hatch — who chairs the task force — Rep. Tom MacArthur of New Jersey; Rep. Sean Duffy of Wisconsin; Rep. Nydia Velázquez of New York; Pedro Pierluisi, Puerto Rico’s congressional member; Sen. Marco Rubio of Florida; Sen. Bob Menéndez of New Jersey; and Sen. Bill Nelson of Florida, comprise the group.