Puerto Rico Enacts New Excise Tax That Impacts U.S. Companies


A temporary excise tax recently enacted in Puerto Rico will have a significant impact on U.S.-based multinational groups conducting, or considering conducting, manufacturing activities in Puerto Rico. Companies should consider the creditability of the excise tax for U.S. purposes and, even if the excise tax is creditable, whether their current organizational structure allows them to fully utilize the foreign tax credit.


On October 25, 2010, Puerto Rico enacted a temporary excise tax on related party purchases of products manufactured in Puerto Rico or services performed in Puerto Rico. The tax is imposed on the value of the products or services purchased. The rate of the tax will decrease during the years of its existence from 4 percent in 2011, to 3 percent in 2012, to 2.75 percent in 2013, to 2.5 percent in 2014, to 2.25 percent in 2015 and down to 1 percent in 2016, when it will expire on December 31. The tax will have a significant impact on U.S.-based multinational groups that engage in manufacturing activities in Puerto Rico.

Currently, many U.S. companies manufacture products in Puerto Rico that are subsequently sold throughout the world by affiliates. By way of example, assume a U.S. corporation (USP) owns the stock of a Dutch company (BV) that constitutes a controlled foreign corporation. Through a branch in Puerto Rico (PR Branch), BV engages in the manufacture of Product A. PR Branch sells Product A to an affiliate of USP (Purchaser), that in turn sells Product A to customers throughout the world.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McDermott Will & Emery | Attorney Advertising

Written by:


McDermott Will & Emery on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.