The PROMESA oversight board warned Gov. Pedro Pierluisi in a letter dated Tuesday, Sept. 6, that it would move to block implementation and enforcement of Act 52 if the commonwealth does not “fully implement provisions” it previously outlined
as conditions for the certification of the law, which creates a substitute for the Act 154 excise tax paid by multinational manufacturers in Puerto Rico.
the oversight board on Aug. 25 that the administration would meet the conditions but expressed disagreement with the need for the measures and contended that the commonwealth Treasury Department has demonstrated with updated data that its revenue projections are sound. He called the $250 million required contingency reserve “unnecessary” and characterized its size and terms as “excessive and arbitrary.”
In the oversight board’s Sept. 6 letter, Chairman David Skeel cites “certain statements” by Pierluisi that the chairman says “are not in accord with your confirmation to implement the required provisions and
inaccurately characterize the Oversight Board’s requirements to maintain revenue neutrality from Act 52.” Skeel said the oversight board is relying on the government’s commitment to implement the provisions despite these statements.
Skeel said that Act 52 provides certainty to the multinational firms affected by the transition away from the prior tax regime, but added that the “ultimate cost or benefit” to the government is “highly uncertain.”
Rather than notifying the commonwealth that Act 52 is “significantly inconsistent” with the fiscal plan and requiring additional pay-fors, the oversight board has opted instead to direct the commonwealth to set aside adequate funding that could be used to eliminate potential deficits, according to the letter.
“Segregating reserves is a solution that mitigates risk from that uncertainty - which will persist for some time - in [a] fiscally responsible manner. Segregating these funds also provides additional assurances [that] potential shortcomings in collections from this transition will nonetheless enable the Government to maintain a balanced budget and avoid having to adopt sudden reductions in expenditures and amendments to its budget,” the letter states.
The oversight board says that it will work with the commonwealth to amend the fiscal certified budget so the required reserve can be properly accounted for and set aside.
Skeel said it is “encouraging” that the commonwealth continues to analyze the impact of the Inflation Reduction Act, or IRA, on Act 52’s projected revenue collections. He said the oversight board is concerned that recent changes to the federal corporate tax structure introduced by the IRA, combined with continued progress on global minimum tax negotiations, “may have significant implications on Puerto Rico’s manufacturing base.”