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Cantero-Frau Raises Specter Of Taxation On P.R.’S International Banking Entities

Financial Institutions Commissioner Padilla and some local banks wary of idea


November 21, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Economic Development & Commerce Secretary Ramon Cantero-Frau has indicated that Calderon administration officials are considering the possibility of taxing the island’s International Banking Entities (IBEs).

"The original purpose of the IBE law hasn’t been accomplished," Cantero-Frau said during the Brean Murray "Investment Opportunities in the Commonwealth of Puerto Rico" conference. "It’s basically used...for taking taxable paper and shifting it to tax-exempt."

Cantero-Frau’s remarks caught several conference participants–including Commissioner of Financial Institutions Alfredo Padilla–by surprise. "This will have to be analyzed with a lot of caution, and the industry will need to be allowed to offer its perspective," Padilla told CARIBBEAN BUSINESS.

"The benefits of the IBEs aren’t just in the direct employment, which is very small," Padilla said. "For example, they’ve also been helping to drive domestic bank expansions."

Padilla said IBEs on the island have combined assets of more than $52 billion. He said Citibank is the biggest institution in the island’s IBE sector, accounting for more than 40% of the assets.

Following Cantero-Frau’s statements, Mario Samuel Levis, Doral Financial Corp. senior executive vice president & treasurer, alluded to possible investor concerns regarding a tax change affecting IBEs. "If there are any changes at all, we can always change to other tax-exempt options," Levis said.

Frank Stipes, W Holding Co. chairman, president & CEO, also sought to reassure investors regarding the effect of possible changes to the IBE structure, in view of other tax-free investment options available to banks.

Passed in 1989, Puerto Rico’s International Banking Center Regulatory Act provides that income earned by an IBE from offshore activities is exempt from Puerto Rico income taxes, branch profit taxes, and municipal license taxes. Moreover, dividends, profit participation, or other distributions to shareholders, partners, or owners of an IBE are completely exempt from all withholding taxes.

This Caribbean Business article appears courtesy of Casiano Communications.
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