Facing the possibility that the US Congress begins to consider a tax reform that may affect the operations of multinational manufacturing companies on the island, the president of the Puerto Rico Manufacturers Association (PRMA), Carlos Rivera-Velez presented a written statement for the hearing record on the President’s Fiscal Year 2016 Budget Proposal of the Senate Finance and House Ways and Means Committees, to provide some background on the Federal Tax Code’s unique treatment of U.S. companies operating in Puerto Rico as well as the importance of manufacturing to our overall economy. At the same time, the PRMA president requested the opportunity to appear in person before Congress when amendments to federal Tax Code are considered.
Historically, federal tax legislation has encouraged manufacturing and continues to play a key role in attracting and keeping US companies and jobs in Puerto Rico.
The PRMA has been in an educational process with members of Congress to reduce the impact of any action that may affect the operations of companies established in the island. On April 2013, PRMA officers visited members of the Ways and Means Committee and on May of the same year the then PRMA President Waleska Rivera, deposed before its manufacturing committee.
As part of this communication, the PRMA president presented to members of the congressional committees that evaluate the tax changes in the United States, the impact of manufacturing in the economy of the island and emphasized on the fact that manufacturing jobs in Puerto Rico are US citizens’ jobs.
Manufacturing companies in Puerto Rico paid $ 1.4 billion in taxes in 2009 or 57.9% of all corporate tax. The role of Controlled Foreign Corporations (CFCs) in the economy of Puerto Rico is of such importance that during the current fiscal year, seven (7) of these companies doing business in Puerto Rico represent 20% of the revenues of the government’s budget of the Island or $ 2 billion of a budget of $ 9 billion.
The PRMA president noted that Puerto Rico has been part of the US since 1898 and today it is home to 3.7 million US citizens. No US jurisdiction is more dependent on manufacturing than Puerto Rico. In fact, manufacturing accounts for almost half of the economy of Puerto Rico, 48% of GDP; more than any state.
Puerto Rico is the world’s third largest biotech manufacturer, and is the seventh largest medical device producer with more than 50 plants on the island. Manufacturing accounts for 8% of the workforce or around 74,000 people. We estimate that the sector represents 80,000 additional jobs or 154,000 jobs overall.
We also estimate an additional 80,000 stateside jobs are supported by Puerto Rico’s manufacturing companies (CFCs). Therefore, our manufacturing sector has the multiplier effect of contributing 234,000 jobs (direct, indirect and induced) to the US and Puerto Rico economies. For example, one of our member companies reports that it annually transports over $140 million worth of products from Puerto Rico just through the Port of Jacksonville, Florida.
Manufacturing offers better wages for U.S. Citizens in Puerto Rico. Unfortunately, while approximately 42% of our population lives below the “poverty line” and the current unemployment rate is at 14%, workers in the manufacturing sector earn an average wage of $39,000, which is actually 30% higher than the per capita average. We are also proud to report that in an economy in which fully 40% of the workers earn minimum wage, manufacturing wages are a major factor in improving the standard of living for all of Puerto Rico’s residents.
Most of the subsidiaries of American companies operating in Puerto Rico are organized as Controlled Foreign Corporations (CFC) under the current tax code. However, they are treated as domestic in everything else, including compliance with all federal regulations.
The enactment of IRC Section 936 had a positive and direct impact on Puerto Rico’s economy. In 1989, the GAO noted that 13 years after enactment of IRC Section 936, manufacturing firms in Puerto Rico employed 105,500 individuals directly comprising 11% of the total employment of 952,000. By 1997, that number stood at 155,000 Americans directly employed by the Puerto Rico manufacturing sector.
However today, the number of U.S. citizens employed directly by manufacturing has been reduced to approximately 74,000. It’s fair to say that this drastic reduction is mostly due to the elimination of IRC Section 936 more than any other single factor. In fact, a number of corporate decision makers cited the loss of IRC Section 936 as the primary reason for either the closure or relocation of facilities to Mexico, China and the Dominican Republic.
Therefore, the ability of Puerto Rico to remain economically competitive internationally may well depend on how the U.S. Congress treats U.S. companies operating subsidiaries in Puerto Rico under reforms to the tax code, he said.
To see full copy of PRMA written statement access: http://industrialespr.org/prma-statement-on-the-presidents-fiscal-year-2016-budget-proposal/