2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 2 - Taxation In General (§§ 161 — 393) › Chapter 35 - Industrial Tax Exemption (§§ 221-226 — 256-256k) › Subchapter I - Industrial Tax Exemption Act, 1948 (§§ 221-226 — 228-238) › § 227 - Income tax exemption on profit or dividend payments

(a) Dividend or profit distributions by a corporation or partnership exempted hereunder from the payment of taxes, made from the income derived from the operations thereof covered by the exemption, and paid to the following stockholders or partners, shall be tax-exempt in the same proportion as said incomes are tax-exempt with respect to said corporation or partnership pursuant to the provisions of § 226 of this title;
(1) Persons residing in Puerto Rico.
(2) Persons not residing in Puerto Rico who are not obligated to pay, in any jurisdiction outside Puerto Rico, any tax on income derived by them from any source in Puerto Rico.
(b) Any distribution of dividends or profits made by a corporation or partnership which is or was exempted hereunder from payment of taxes shall be considered as made from gains or profits exempted from taxes under this subchapter, provided on the date of distribution the latter does not exceed the undistributed balance of such gains or profits, unless, at the time of the declaration, the corporation or partnership shall choose to distribute the dividend or profit, wholly or partially, out of gains and profits not exempted from taxes as above stated. The amount of the exempted dividend or profit shall be that designated as such by the corporation or partnership in a written notice served on its stockholders or partners, and in an annual informative statement to the Secretary of the Treasury, as provided by § 8556 of this title.
In the cases of corporations or partnerships which, on the effective date of the tax exemption of their first exempted business hereunder, have accumulated gains or profits, the distributions of dividends or profits made on and after said date shall be considered as made from the undistributed balance of said gains or profits, but after the latter is exhausted by virtue of such distributions the provisions of the preceding paragraph shall be applicable.
(1) No profit or loss shall be recognized if the shares of a tax-exempt corporation, which have been acquired through purchase or otherwise, are sold or exchanged on or before the termination date of the tax exemption granted to the corporation.
(2) Profit or loss shall be recognized if the shares of a tax-exempt corporation which have been acquired by purchase or otherwise, are sold or exchanged after the corporation’s exemption termination date. The profit derived from the sale or other disposition of such shares shall be the surplus of the amount received in such sale or disposition over the base established by subsection (c) of this section, and the loss shall be the excess of said base over the amount received.
(c) To determine the profit or loss derived from the sale or other disposition, made after the exemption termination date, of shares of a tax-exempt corporation, which shares have been acquired through purchase or otherwise before the corporation’s exemption termination date, the larger of the following bases shall be used:
(1) The value of such share on the exemption termination date according to the books of the corporation less the amount of any tax-exempt distributions received on said shares after said date, or
(2) the cost of said shares, less the amount of any tax-exempt distributions received on same before and after the exemption termination date.
History —May 13, 1948, No. 184, p. 482, § 6; June 28, 1966, No. 128, p. 402, § 1.