Puerto Rico And Section 936: A Costly Dependence
For over 70 years, U.S corporations have been granted tax incentives to operate in U.S territorial possessions, most notably in Puerto Rico. The purpose in so benefiting what have become known as “possessions corporations” is to attract U.S. capital to these developing territories, with the goal of creating jobs. In summary, section 936 has ceased to be an efficient means of attaining employment and attracting producing investments to Puerto Rico and other U.S possessions. While the initial rationale for the credit was the creation of jobs and the stimulation of economic activity in the possessions, the outcome has been far different. Firms with intangible assets now take advantage of transfer pricing laws to maximize profits without making the investments that would create sustainable growth in Puerto Rico. The fundamental questions then are: First, can the long record of disappointment be ended? Second, can the legislation provided in the 1993 budget transform section 936 into an instrument of public benefit, rather than of private profit? We conclude that the costs of section 936 will continue to outweigh its benefits.
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