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Banking, Taxes

Financial Institutions Commissioner Launches New IBE Study

To examine competitiveness, various tax scenarios


February 6, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Financial Institutions Commissioner Alfredo Padilla commissioned a thorough study of Puerto Rico’s international banking entity (IBE) regime this week.

The study, to be conducted by economist Fernando Zalacain, is getting underway at the same time the Treasury Department is considering eliminating the tax exemptions to the island’s 34 IBEs, which together hold over $52 billion in assets.

Though he said he’s aware the Treasury Department is working on the issue, Padilla said he has yet to see the terms and conditions of any proposed tax on the IBEs. He also indicated his office’s study is independent of any such proposal.

"This study will look into all aspects that have to do with the role and competitiveness of IBEs in Puerto Rico, including the tax aspects," Padilla said. Padilla said he sees IBEs as an increasingly attractive option for the more than 80 controlled foreign corporations that operate in Puerto Rico.

"Manufacturing companies. . .like GE, SB Pharmco, and VS International benefit from the structure the IBE provides them for channeling their profits," Padilla said. "They [IBEs] help to solidify these companies."

During a major conference with stateside investors last fall, then-Secretary of Economic Development & Commerce Ramon Cantero-Frau broached the idea that the Calderon administration would be considering placing a tax on the IBEs.

Sources in the financial industry balked at the idea, saying that if the IBEs are taxed, there will be no incentive for them to stay in Puerto Rico.

Since 1989, Puerto Rico's International Banking Center Regulatory Act has provided 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 exempt from all withholding taxes.

This Caribbean Business article appears courtesy of Casiano Communications.
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