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) › § 10029 - Liquidation of tax exempted businesses

(a) Rules for liquidation of exempted business. — If a person (in this section called the transferee) receives any property, including money, on complete liquidation of an exempted business (in this section called the transferor), no income tax shall be levied on or collected from the transferor or the transferee in connection with property devoted to industrial development and/or industrial development income subject to total liquidation, if the following requirements are met:
(1) The transferee was, on the date of adoption of the liquidation plan, and has continued to be at all times until the property is received pursuant to said plan, the owner of shares of stock of the exempted business; and
(2) said property was received entirely by the transferee pursuant to the said liquidation plan, on or before the termination date of the transferor’s exemption; and
(3) the distribution in liquidation by the transferor, whether at one time or from time to time, was made in complete cancellation or redemption of all of its capital stock; and
(4) all of the assets or any part of the same corresponding to the accumulated earnings to be distributed with the benefits provided in this section, in lieu of the tax provided in § 10027 of this title, have been invested according to the requirements established for the use or investment of such income or accumulated earnings by subsection (h)(1) of said section, and
(5) the assignee was not under the obligation to pay any tax on the receiving of said liquidated distribution in any jurisdiction outside of Puerto Rico, or being under said obligation, the tax to be withheld in Puerto Rico could be taken as credit against the taxes to be paid outside of Puerto Rico by the assignee. Provided, That a person who wishes to avail himself of the provisions of this subsection shall render to the Secretary of the Treasury a translated, certified or attested copy in Spanish or English of the laws and regulations in effect in the jurisdiction outside of Puerto Rico, specifically indicating the provisions of these laws or regulations which are applicable to his case along with any other information or evidence which proves that said person qualifies under the provisions of this subsection.
(b) Rules for corporations covered by § 10027(b). — Notwithstanding the provisions of this section, in case the exempted business at the time of its liquidation should have had any surplus accumulated from industrial development income which would have been subject to tax withheld at source according to the provisions of § 10027(b) of this title, if it had been distributed as a common stock dividend on the day before the date of the first distribution under its liquidation plan, there shall be levied and collected, and such exempted business shall pay in the form and manner provided in Act June 29, 1954, No. 91, and its regulations, a liquidation tax equal to four percent (4%) on such accumulated surplus which would have been subject to taxes withheld at source, in lieu of the tax provided by said § 10027 of this title, provided that such part of the assets corresponding to the accumulated earnings to be distributed with the benefits provided by this section, shall have been invested according to the requirements established for the use or investment of such income or accumulated earnings subsection (h)(1) of § 10027 of this title.
(c) Rules for partnerships formed by two or more corporations or partnerships. — In applying the provisions of subsection (a) of this section in the case of the liquidation of an exempted business that is a partnership and which is formed by two or more corporations or partnerships, it shall not be necessary to consider the percentage of participation held by the transferees in the transferor. Provided, That a corporation or partnership participating in a partnership which is an exempted business shall be considered, in turn, an exempted business for purposes of this section.
No income tax shall be levied on or collected from the transferor, whether or not the transferee assumes any liabilities or obligations of the transferor or receives such property subject to any liability or obligation of the transferor.
(d) Rules for cases of revocation prior to termination of the exemption period. — If the exemption of the transferor were to be revoked prior to its termination date, a sum equal to the earned surplus as of the termination date of the fiscal year in which the revocation becomes effective may be transferred to the transferee under the conditions described in clauses (1) and (3) of subsection (a) of this section at any time thereafter, without income tax being levied on the transferor or the transferee, except in the cases of mandatory revocation under § 10032(d)(2) of this title, in which case no tax-free liquidation shall be allowed under the provisions of this section.
(e) Rules for liquidations subsequent to the termination of the exemption. — After the termination of the exemption, a sum equal to the capital plus the earned surplus of the transferor as of the exemption termination date may be transferred by the transferor to the transferee under the circumstances described under clauses (1) and (3) of subsection (a) above, on any later date, without any levying of income tax therefor on the transferor or the transferee.
The “earned surplus” of the transferor is understood to be the earned surplus, resulting from its industrial development income, according to the books of the transferor, determined according to generally-accepted accounting principles for the preparation of tax returns in accordance with law.
(f) Rules for liquidations when there are exempt and non-exempt activities. — In case the transferor conducts exempt and non-exempt activities, it may transfer to the transferee, under the provisions of subsection (a) of this section, its earned surplus from industrial development income, as well as its machinery, equipment and facilities belonging to the exempted business, as part of its total liquidation. The earned surplus that is not industrial development income or property devoted to industrial development shall be distributed according to the provisions of Act June 29, 1954, No. 91. The Secretary of the Treasury shall prepare such regulations as are necessary to make the provisions of this subsection effective.
(g) Distribution of certain assets upon liquidation. — Any asset of an exempted business the distribution of which is contemplated according to the provisions of this section and cannot be retained by the exempted business for the entire period provided in § 10027(h) of this title, in order that such exempted business or the transferee may comply with and/or qualify for the provisions of Act June 29, 1954, No. 91, of the jurisdiction of the transferee or the transferor, may be distributed to the transferee through a trustee subject to the jurisdiction of the Secretary of the Treasury in accordance with §§ 1-204a or 301-494 of Title 7 so that said trustee shall retain such assets for the benefit of the transferee in order to distribute it when the reinvestment requirement is complied with all the attributes and rights provided by law.
History —June 2, 1978, No. 26, p. 55, § 6; July 20, 1979, No. 176, p. 460, § 4.