2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 15 - Puerto Rico Industrial Incentives Generally (§§ 10001 — 10855) › PART II - Tax Incentives Act of 1998 (§§ 10101 — 10117) › Chapter 905 - Tax Incentives Act of 1998 (§§ 10101 — 10117) › § 10111 - Denial, revocation and limitation of tax exemption

(a) Denial if not for the benefit of Puerto Rico. — The Secretary of State may deny any application if he/she determines that the exemption is not for the best social and economic interests of Puerto Rico after considering the nature of the physical facilities, the number of jobs, the amount of the payroll and the investment, the location of the project, the environmental impact, or other factors which in his/her judgment merit such a determination, as well as the recommendations of the agencies that issue reports on tax exemption.
After being notified of the denial, the applicant may request that the Secretary of State reconsider said denial within ninety (90) days after receipt of the notice presenting the facts and arguments regarding its application, which it believes to be pertinent, including offering any consideration for the benefit of Puerto Rico it believes will render its request for reconsideration meritorious.
In the event the application is reconsidered, the Secretary of State may accept any consideration offered for the benefit of Puerto Rico and may require and impose any other term or condition that may be necessary to ensure that said exemption is for the best interests of Puerto Rico and for the industrial and economic development purposes of this part.
(b) Denial for conflict with the public interest or due to substitution of or competition with established businesses. — The Secretary of State may deny any application when he/she determines from facts submitted for his/her consideration and after the applicant has been afforded the opportunity to make a thorough presentation of the issues in dispute, that the application is in conflict with the public interest of Puerto Rico on any of the following grounds:
(1) That the applicant business has not been organized as a bona fide business of a permanent nature, in view of the reputation of the persons who constitute the latter, 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 a product or such services, or any other factor that may indicate the existence of a reasonable possibility that granting the exemption will be prejudicial to the interests of Puerto Rico, or
(2) that the product to be manufactured by the applicant will substitute or compete at a substantial advantage by reason of the benefits provided by this part, with products manufactured by industries established in Puerto Rico that are not eligible businesses. The foregoing notwithstanding, the Secretary of State may grant the exemption when he/she determines that the applicant eligible business shall be of substantial benefit to the general economy of Puerto Rico due to anticipated increases in production to supply markets outside of Puerto Rico, or to supply a substantial existing demand in Puerto Rico that has not been previously supplied, and in view of the investment, technology and new job opportunities involved.
If the exemption is granted to any industry under such circumstances, the Secretary of State, at the request of an interested party, may also grant exemption to existing industries manufacturing such commercial articles that, in his/her judgment, may incur substantial damages by reason of such a substitution or competition.
(c) Procedures for permissive and mandatory revocations. — The Secretary of State may revoke any exemption granted under this part after the grantee has had the opportunity to appear and be heard before the Director or before any special examiner of the Tax Exemption Office appointed for such a purpose, who shall report his/her conclusions and recommendations to the Secretary of State, after recommendation of the agencies that issue reports on tax exemption, as provided below:
(1) Permissive revocation. —
(A) When the grantee fails to comply with any of the obligations imposed by this part or its regulations or by the terms of the exemption granted.
(B) When the grantee fails to commence or to complete the construction of the facilities needed to manufacture the products the [grantee] intends to manufacture or to render the services it intends to render, or fails to commence the production thereof or to render such services within the period fixed for such purposes in the exemption.
(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 Secretary of State shall authorize such suspensions for periods of more than thirty (30) days when they occur as a result of causes beyond the control of the grantee.
(D) When the grantee fails to comply with its tax responsibility under the Puerto Rico Internal Revenue Code and other tax laws of Puerto Rico.
(2) Mandatory revocation. — The Secretary of State shall revoke any exemption granted under this part if it was 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 shall be given to property intended for industrial development, or any other facts or circumstances which wholly or partially motivated the granting of the exemption.
An additional cause for revocation under this clause arises when a person commits or attempts to commit, per se or on behalf of any other person, a violation of the provisions regarding successor businesses or exempted predecessor businsses.
In the event of such a revocation, all net income previously reported as industrial development income, computed without the benefit of the special deductions provided in § 10103 of this title, whether or not distributed, as well as any distribution of the same, shall be subject to the taxes levied by the Puerto Rico Internal Revenue Code; in addition, the taxpayer shall be deemed to have filed a false or fraudulent tax return with intent of evading the payment of taxes, and will, therefore, be subject to the penal provisions of the Puerto Rico Internal Revenue Code. The tax due in such cases, 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 payable had it not been for the exemption and shall be levied and collected in accordance with the provisions of the Puerto Rico Internal Revenue Code.
(d) Limitation of benefits due to special circumstances. — If the Secretary of State, while considering an application filed under § 10101(d)(1) of this title, determines that a previous exemption covering the same product, granted under the same section or similar provisions under preceding laws was granted incorrectly, the Secretary of State, after further consideration of available pertinent data, may grant such an application for a term whose expiration date shall be similar to the expiration date of any exemption in effect for the same product granted under such preceding laws, and may include the benefits provided in this part. None of what is provided herein shall, however, prevent the Secretary of State from determining that the application is eligible or ineligible on other grounds.
(e) Limitation of benefits to production for export. — The Secretary of State, from time to time, and after consulting with agencies that issue reports on tax exemption, may designate from eligible products, those products to which the benefits of this part shall be granted only if produced for export, when he/she determines that the following factors exist:
(1) The production in Puerto Rico of products for the local market meets the existing demand and the local capacity of production is able to meet the demand foreseen for a period of five (5) years, and
(2) there is active competition in the production and marketing of the particular product in Puerto Rico. Those products which, although similar in name, appearance and use, are different with regard to their quality, size, price or other factors which affect the marketing of the product, and as a result, its demand, shall be deemed as separate, distinct manufactured products which require a separate designation.
When the above-mentioned conditions no longer exist, the Secretary of State may, after consultation with the agencies that issue reports on tax exemption applications, cease the imposition of said limitation or resume their designation when the stated conditions reappear.
This limitation shall apply to the tax exemption applications that have not been granted as of the effective date of said limitation.
History —Dec. 2, 1997, No. 135, § 12, eff. Jan. 1, 1998.