2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 15 - Puerto Rico Industrial Incentives Generally (§§ 10001 — 10855) › PART I - Industrial Incentives (§§ 10001 — 10052) › Chapter 904 - Puerto Rico Tax Incentives Act of 1987 (§§ 10038 — 10052) › § 10046 - Refusal, [revocation] and limitation of tax exemptions

(a) Refusal if not for the benefit of the Commonwealth of Puerto Rico. — The Secretary of State may refuse any application when he/she determines that such concession is not in the best economic and social interests of the Commonwealth of Puerto Rico, after considering the nature of the physical facilities, the number of jobs, the total amount of the payroll and the investment, the location of the project, its environmental impact or any other factors which in his/her judgment merit such a determination, as well as the recommendations of the agencies which render reports on tax exemption.
After being notified of the refusal, the petitioner may request a reconsideration by the Secretary of State within ninety (90) days after having received the notice, presenting those pertinent facts and arguments he/she may wish to add regarding his/her application, including the offer of any consideration in benefit of the Commonwealth of Puerto Rico that he/she may deem would make his application for reconsideration meritorious.
In the event the application is reconsidered, the Secretary of State may accept any consideration offered in benefit of the Commonwealth of Puerto Rico and may require and impose any other term or condition that may be necessary to ensure [that] said concession shall be in the best interests of the Commonwealth of Puerto Rico and the industrial and economic development purposes of this chapter.
(b) Refusal on grounds of conflict with the public interest or due to displacement of or competition with established businesses. — The Secretary of State may refuse any application when he/she determines, on the basis of the facts submitted for his/her consideration and after the applicant has had the opportunity to provide a thorough presentation of the issues in dispute, that the application is in conflict with the public interest of the Commonwealth of Puerto Rico on any of the following grounds:
(1) That the establishment of the unit for which exemption is sought would substantially and adversely affect the employees of an enterprise under related control operating in any state of the United States of America;
(2) that the petitioning business has not been organized as a bona fide business of a permanent nature in view of the reputation of the persons which constitute it, the plans and methods for raising funds for the distribution and sale of the product to be manufactured or the services to be rendered, the nature or intended use of such product or services or any other factor that may indicate that there is a reasonable possibility that granting the exemption will be harmful to the best interests of the Commonwealth of Puerto Rico or of any state of the United States of America, or
(3) that the product that the applicant will manufacture will displace [or] compete with a substantial margin due to the exemption, with products manufactured by industries established in Puerto Rico which are not eligible businesses. Notwithstanding the above, the Secretary of State may grant the exemption when he/she determines that the petitioning eligible business shall be of substantial benefit to the general economy of Puerto Rico due to an anticipated increase in production in order to supply markets outside of Puerto Rico, or to supply a substantial existing demand in Puerto Rico which has not been supplied previously, and in view of the investment, technology and new employment opportunities involved.
Should such an exemption be granted to any industry under the aforementioned circumstances, the Secretary of State, by petition of an interested party, may also grant exemption to existing industries manufacturing such commodities, which in his/her judgment may suffer substantial harm due to the aforesaid displacement or competition.
(c) Procedures for permissive and mandatory revocations. — The Secretary of State may revoke any exemption granted under this chapter after the grantee has had the opportunity to appear and be heard before the Director or before any Special Examiner of the Office designated for such a purpose, who shall report his/her conclusions and recommendations to the Secretary of State with the prior recommendation of the agencies which render reports on tax exemption, as provided below:
(1) Permissive revocation. —
(A) When the grantee fails to meet any of the obligations imposed by this chapter or its regulations, or by the terms of the exemption decree.
(B) When the grantee does not commence or fails to complete the construction of the installations needed for the manufacture of the products it proposes to manufacture, or does not commence their production within the period fixed for such purposes in the decree.
(C) When the grantee discontinues production on a commercial scale or suspends its operations for more than thirty (30) days without the authorization of the Secretary of State. The latter shall authorize such suspensions for periods of more than thirty (30) days when they are the result of causes beyond the control of the grantee.
(2) Mandatory revocation. — The Secretary of State shall revoke any exemption granted under this chapter when it has been obtained by false or fraudulent representations concerning the nature of the eligible business or the nature or extent of the manufacturing process or of the production achieved or to be achieved in Puerto Rico, or the use that has been given or that shall be given to the property devoted to industrial development or any other facts or circumstances which totally or partially motivated the granting of the exemption.
An additional cause for revocation under this subsection shall be when any person commits or tries to commit, motu proprio or on behalf of any other person, a violation of the provisions regarding successor businesses or predecessor exempted business.
In the event of such revocation, all the net income previously reported as industrial development income, whether it has been distributed or not, as well as all distributions thereof shall be subject to the normal tax and the surtax; in addition, the taxpayer shall be deemed to have filed a false or fraudulent return with intent to avoid the payment of taxes and will, therefore, be subject to the penal provisions of Act June 29, 1954, No. 91. The tax due in such case as well as any other taxes theretofore exempted and unpaid shall become due and payable from the date when such taxes would have become due and would have been paid had it not been for the exemption, and shall be levied and collected pursuant to the provisions of the Income Tax Act in force.
(d) Limitation of exemption due to special circumstances. — If while considering an application filed under § 10039(d)(1) of this title, the Secretary of State determines that a former decree covering the same product, granted under the same section, or similar provisions under former acts, was granted incorrectly in view of subsequent consideration of the pertinent available data, the Secretary of State may grant such request for a term whose expiration date shall be similar to the expiration date of any exemption in force for the same product granted under the said acts and shall include the exemption benefits provided in this chapter. However, the above shall not prevent the Secretary of State from finding that the application [is] eligible or ineligible on other grounds.
(e) Limitation of exemption to production for export. — The Secretary of State, from time to time and upon prior consultation with the agencies which render reports on tax exemption, shall designate from eligible products [those] whose exemption shall be limited to production for export whenever he/she determines the existence of the following factors:
(1) That the production of such product in Puerto Rico for the local market meets the existing demand and that local production capacity may meet the projected demand for a period of five (5) years, and
(2) that there is active competition in Puerto Rico in the production and marketing of a particular product. Manufactured products that are different and that require a separate designation are deemed [as] those products which, although similar in name, appearance and use differ from one another in quality, size, price or other factors that affect the product’s market and consequently, its demand.
Whenever the aforementioned conditions cease to exist, the Secretary of State, upon prior consultation with the agencies which provide information concerning tax exemption applications, may cease to impose said limitation or resume its designation whenever said conditions reappear.
This limitation shall apply to applications for tax exemption that have not been granted as of the effective date of said limitation.
History —Jan. 24, 1987, No. 8, p. 949, § 8; Oct. 27, 1995, No. 218, § 8, eff. Jan. 1, 1996.