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 903 - Industrial Incentive Act of 1978 (§§ 10024 — 10037) › § 10032 - Refusal, revocation and limitation to tax exemption

(a) Refusal if not for the benefit of the people of Puerto Rico. — The Governor may refuse any application for tax exemption, notwithstanding the eligibility of the petitioning business under any of the provisions of this chapter, if, on the basis of the facts submitted for his consideration by the agencies reporting on tax exemption and in view of the nature of the physical facilities, the number of jobs, the amount of the payroll, the investment, the location of the project, the environmental impact, or other factors which in his discretion justify such determination, he finds that such concession does not, in his best judgment, serve the best social and economic interests of the People of Puerto Rico.
The applicant, when he has been notified of a denial pursuant to the provisions of this subsection, may request from the Governor a first and only reconsideration within ninety (90) days after receiving the notification, presenting the pertinent facts and arguments regarding his application, including the offer of any consideration for the benefit of the People of Puerto Rico that he considers will give weight to the reconsideration of his application.
When he reconsiders the application, the Governor may accept any consideration offered for the benefit of the People of Puerto Rico, and may require and impose any other terms or conditions not exceeding the benefits provided by this chapter, that in his best judgment are necessary to make sure that said concession of exemption is for the best interests of the People of Puerto Rico and the industrial and economic development purposes of this chapter.
(b) Refusal on grounds of conflict of public interest. — The Governor may refuse any application for tax exemption, notwithstanding the eligibility of the petitioning business under any of the provisions of this chapter, when he determines from the facts submitted for his consideration in the procedures provided by this chapter, and after the applicant has been afforded the opportunity to make a thorough presentation of questions in dispute, that the application is in conflict with the public interest of the People 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, or
(2) that the petitioning business has not been organized in good faith or with a permanent nature in view of the reputation of the persons who constitute it, the plans and methods for raising funds and for the distribution and sale of the product to be manufactured or the services to be rendered, the nature and intended use of such product or services, or any other factor that may indicate that there is a reasonable possibility that the concession of exemption will be misused, to the prejudice of the interests of the People of Puerto Rico or any state of the United States of America.
(c) Refusal for reasons of substitution of or competition with products of ineligible businesses. — The Governor may deny tax exemption in any of the cases enumerated in clauses (1), (2), (3) and (4) of § 10025(d) of this title, if, in his judgment, the manufactured product produced or to be produced by the applicant will displace, or compete with a substantial margin because of the tax exemption, with commodities produced by industries established in Puerto Rico which are not eligible businesses. Notwithstanding the foregoing, the Governor may grant the exemption when he determines that the eligible petitioning business will be of substantial benefit to the general economy of Puerto Rico in view of anticipated increases in production to supply markets outside Puerto Rico, or to supply an existing demand in Puerto Rico which has not been previously supplied in substantial quantities, and in view of the investment, technology and new job opportunities involved.
In granting tax exemption to any industry under the above circumstances, the Governor, on petition of an interested party, filed prior to the final findings on the exemption as provided herein, may also grant exemption to such other existing industries which manufacture said commodities which, in his judgment, will substantially be affected adversely by the substitution or competition to which this subsection refers.
(d) Bases and procedures for permissive and mandatory revocations. — The Governor may revoke any tax exemption granted under this chapter, after permitting the person to whom the exemption has been granted to appear and be heard before the Director of the Office of Industrial Tax Exemption or before any Special Examiner of said Office appointed for such purpose, who shall report his conclusions and recommendations to the Governor upon the recommendation of the agencies that file reports on tax exemption applications as hereinafter provided:
(1) Permissive revocation. — The Governor may decree that such revocation shall be effective from the date the recipient of the exemption incurred in the fault on which the order of revocation is based, in the following cases:
(A) When the recipient of the exemption fails to comply with any of the obligations imposed upon him by this chapter, the regulations promulgated hereunder, or by the terms of the exemption decree.
(B) When the grantee of the tax exemption either does not commence or fails to complete the construction of the installations needed for the manufacture of the products which he proposes to produce, or fails to commence such production within the periods fixed for such purposes in the exemption decree.
(C) When the recipient of the exemption suspends commercial scale production or the operation of any exempted business for more than thirty (30) days without the Governor’s authorization. The Governor shall authorize such suspensions for periods of more than thirty (30) days when they are the result of causes beyond the control of such recipient.
(D) In the case of a hotel that has resumed operations or that was under construction prior to January 1, 1978, and has commenced operations after said date, or of Puerto Rican “paradores” (inns), when the recipient operates the same in violation of the provisions of the Minimum Requirements Code for Tax Exempt Hotels or the Regulations of Minimum Requirements for Puerto Rican “paradores” (inns) in force. The Governor may mitigate this revocation by limiting its effect to the suspension of the tax exemption for periods of not less than one (1) year. The periods of suspension shall be considered upon computing the duration of the exemption period. Provided, That if a Puerto Rican “parador” (inn) is separated from the “paradores” program sponsored by the Tourist Company of Puerto Rico, the tax exemption enjoyed by said Puerto Rican “parador” (inn) shall be suspended for the period of separation from the program.
In the event of such revocation, all the net income previously reported as industrial development income, which may or may not have been distributed, as well as all distributions of the same, shall be subject to the normal tax and the surtax and the taxpayer shall be deemed to have filed a false or fraudulent return with the intent of evading the payment of taxes, and will, therefore, be subject to the penal provisions of the income tax laws in force in Puerto Rico. The tax due in such case, as well as any other taxes theretofore exempted and not paid, shall become due and payable and shall be levied and collected according to the provisions of the Income Tax laws in force.
(2) Mandatory revocation. — The Governor shall revoke any exemption granted under this chapter:
(A) When it is obtained by falsely or fraudulently representing:
(i) The nature of the eligible business, or
(ii) the nature or extent of the manufacturing or production process performed or to be performed in Puerto Rico, or
(iii) the use that has been given or shall be given to property devoted to industrial development, or
(iv) any other facts or circumstances which wholly or partially caused the concession of the exemption.
(B) When any person commits or tries to commit, personally or on behalf of any other person, a violation of the provisions regarding successor businesses or predecessor exempted businesses.
(e) Limitation of exemption due to special circumstances. — In the case of an application filed under § 10025(d)(1) of this title, if the Governor determines that a former exemption for the same product, granted under said section, or similar provisions under former laws, was granted under circumstances likely to later give rise to a substantial question as to whether the product should have been considered as a new product or not within the terms of said provisions, in view of a further consideration of all available data with respect to production and production facilities and the nature of the differences on which the former exemption was granted, any exemption concession on such petition shall be effective for a term which shall expire not later than the last termination date of any exemption in force with respect to the same product, granted under the above-mentioned laws, and may include the same tax exemption privileges as are provided in such grant in force and in the act under which the latter was awarded. Nothing herein provided shall prevent the Governor from finding that the application is eligible or ineligible on other grounds.
(f) Limitation of exemption on export production. — The Governor may, from time to time, upon consultation with the agencies reporting on the tax exemption applications, designate from among the products eligible for tax exemption those which exemption thereof shall be limited to export production, when he determines that the following factors exist:
(1) That the production in Puerto Rico of the same for the local market meet the existing demand and that local production capacity may meet the demand projected for a period of five (5) years, and
(2) that there is active competition in Puerto Rico in the local production and marketing of the particular manufactured product.
Manufactured products that are different and that require a separate determination are deemed to be those which, although similar in name, appearance and use, differ from one another in quality, size, price or other factors affecting the product’s market and, consequently, its demand.
Provided, That whenever the above-mentioned conditions shall cease to exist, the Governor, after consultation with the agencies reporting on the tax exemption applications, may cease to impose said limitation, and may also resume such designation whenever the stated conditions reappear.
The Governor shall exercise his authority to determine the conditions under which the tax exemption should be granted, with power, within the limits established by this chapter, to limit the term and/or the percentage of the exemption and/or the taxes to be exempted, to condition the operations and the number of jobs, and to grant the same, as may be necessary and convenient for the best interests of the People of Puerto Rico, in consideration of the above-mentioned factors.
History —June 2, 1978, No. 26, p. 55, § 9; July 20, 1979, No. 176, p. 460, § 7.