The Financial Oversight and Management Board for Puerto Rico warned House of Representatives Speaker Carlos J. Méndez Núñez that the federal PROMESA law prevents the Legislature from approving House Bill 952, which would exempt dividends paid to residents and companies of Spain from ordinary tax rates. In a letter sent Wednesday, Board Executive Director Robert F. Mujica wrote that, unless and until the requirements of Section 204(c) of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) are met, the law bars the Legislature from passing the bill, and that passing it would violate that section.
The letter answers an August 19 request from Méndez Núñez for a preliminary review of whether the measure is consistent with the certified 2024 Fiscal Plan and PROMESA. The bill would amend four sections of the 2011 Internal Revenue Code on withholding for foreign individuals, corporations and partnerships not doing business in Puerto Rico. It would exempt dividends paid to nonresident individuals with permanent residence in Spain and to Spanish corporations eligible for benefits under the US-Spain double taxation treaty.
Its stated purpose is to align Code rates with the treaty to increase Puerto Rico’s commercial competitiveness. Citing an analysis by the Legislative Assembly’s Budget Office (OPAL), the Board said the government would lose an estimated $383,100 in tax revenue for every 1% of dividend payments exempted for foreign taxpayers, and that the bill offers no offsetting measure.
Mujica noted the Fiscal Plan requires tax policy changes to be revenue-neutral or fiscally responsible, with reductions matched by new revenue or spending cuts. The Board said any change to dividend taxation should be part of a comprehensive tax reform, and that if enacted without its prior authorization the measure would be an unauthorized budget reprogramming.
It urged the Legislature to work with the Executive Branch and the Board on such a reform.