Winter 2007-01Tax-free interest from tax-exempt companies

Number 66
Winter 2007

Tax-free interest from tax-exempt companies

Puerto Rico Law Number 287 of December 26, 2006, has amended the Internal Revenue Code to exempt from income tax interest paid on debt securities issued by tax-exempt companies.

Exempt corporations

New IRC section 1022(b)(4)(R) excludes said interest from its definition of “gross income.”

This new provision benefits purchasers of commercial paper issued by corporations subject to the Tax Incentives Act of 1998, as well as any other similar law, whether previous or subsequent, if not less than 80% of the proceeds of the sale is only and exclusively used in the Puerto Rico-based industry or business of such corporations, within a period of no more than 36 months from the date of the transaction. The issuers may use the sale proceeds in a series of activities, such as acquisition of equipment and financing of inventory.

Purpose

The stated purpose of the amendment is to encourage and increase local financing of the infrastructure and operations of Puerto Rico-based businesses, and to impact positively the economy by assuring that at least 80% of the funds collected will be used locally, which also should result in the creation of new employments.

Law Number 287 became effective on the same date of enactment, i.e., December 26, 2006.

© 2007 Goldman Antonetti & Cordóva, LLC