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Puerto Rico’s Act 60 Tax Incentive Program Attracting Heightened IRS Scrutiny Of Sourcing And Transfer Pricing

By Jay R. Nanavati and Mariana Gusdorf
Journal of Tax Practice & Procedure
Volume 25, Issue 1, 2023

Since their passage in 2012, Puerto Rico’s Acts 20 and 22, known together as Act 60 since 2019, have encouraged many individuals and businesses, especially from the U.S. mainland, to relocate to Puerto Rico. The tax benefits that Act 60 provides encourage taxpayers outside Puerto Rico to boost the Puerto Rican economy by investing in, doing business in, and living in Puerto Rico. As with any tax benefit, though, Act 60 is vulnerable to abuse. The Internal Revenue Service (“IRS”) and the Department of Justice (“DOJ”) over the past two years publicized their intention to devote substantial enforcement resources to addressing potential abuse of Act 60 by U.S. taxpayers.

Act 60 operates against the background of U.S. law, under which a bona fide resident of Puerto Rico is not subject to U.S. income taxes on income derived from sources within Puerto Rico. Instead, bona fide residents of Puerto Rico only pay Puerto Rican income taxes. Thus, Act 60’s Puerto Rican tax incentives reduce a bona fide resident’s only income taxes: those of Puerto Rico.


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Published with permission from CCH Incorporated © 2023.