Senate Probe Alleges Puerto Rico Tax Scheme for Wealthy

The U.S. Senate Finance Committee has identified a loophole in Puerto Rico's Act 20 and Act 22, alleging that wealthy U.S. citizens are exploiting the island's tax incentives to avoid federal and state income taxes. The core of the issue involves individuals moving to Puerto Rico and then claiming deductions on income earned prior to their residency change, effectively eliminating pre-existing tax liabilities. This practice, reportedly facilitated by legal professionals, undermines the intent of the incentives, which were designed to stimulate economic development on the island by attracting new residents and businesses. Under Act 20, export service businesses are eligible for a 4% corporate tax rate, while Act 22 grants new individual residents a 0% tax rate on passive income like capital gains, interest, and dividends. The Senate Finance Committee's investigation suggests that some beneficiaries are retroactively applying these benefits, which is contrary to the spirit of the laws. The Committee's findings point to a potential misapplication of tax codes, leading to significant revenue losses for both federal and state governments. The ongoing scrutiny from Congress indicates a push to clarify and potentially amend the legislation to prevent such perceived abuses, which could impact the attractiveness of Puerto Rico as a tax haven for high-net-worth individuals.