PUERTO RICO Law and Practice Contributed by: Simón Carlo Valentín, Anthony O. Maceira Zayas and Carlos M. Fontán, Maceira Zayas
Maceira Zayas 351 Tetuan, 2A, San Juan PR 00901 300 New Jersey NW, 351, Washington DC 20001 Tel: 240-422-7535
Email: info@mzls.com Web: www.mzls.com
1. Sources and Principles 1.1 Domestic Sources of International Tax Law Puerto Rico’s international tax framework is primar - ily derived from domestic (US federal and state) law, reflecting its status as a territory of the United States without independent treaty-making authority. As a result, Puerto Rico does not enter into bilateral or multilateral income tax treaties, and its cross-border tax rules are governed by local legislation and admin - istrative practice rather than international agreements. The principal sources of law include the Puerto Rico Internal Revenue Code of 2011, as amended (PRIRC), Treasury Regulations, and administrative guidance issued by the Puerto Rico Department of Treasury, including circular letters, administrative determina - tions and published instructions. These sources gov - ern key areas such as sourcing of income, withholding obligations, reporting requirements, and compliance with incentive regimes. Judicial decisions also play an important role in inter - preting statutory provisions, particularly in areas such as trade or business nexus, source of income, and anti-abuse doctrines. In practice, cross-border tax analysis frequently requires co-ordination with US federal tax rules, including sourcing provisions under Internal Revenue Code Sections 861–865 and the application of US tax treaties at the federal level. 1.2 Hierarchy of Sources Puerto Rico’s tax system operates under a domes - tic hierarchy of legal authority. Statutes enacted by
the Puerto Rico legislature, including the PRIRC and incentive legislation such as Act 60-2019, also known as the Puerto Rico Incentives Code (“Act 60”), consti - tute the primary source of law and govern the taxation of income, deductions and credits. Treasury Regulations and administrative guidance supplement these statutes by providing interpreta - tive rules and procedural requirements. Judicial deci - sions further interpret these provisions and may shape the application of key concepts such as economic nexus, source of income, and substance-over-form principles. Although US federal tax law does not automatically apply to Puerto Rico income tax, it is frequently used as an interpretative reference, particularly in cross- border contexts. International sources, including OECD materials, are not binding but may be consid - ered persuasive in structuring transactions and ana - lysing global tax developments. 1.3 OECD Model/United Nations Influence on Treaty Practice Puerto Rico does not follow the OECD Model Tax Con - vention or the UN Model Double Taxation Convention as a matter of treaty practice, as it lacks authority to negotiate or enter into tax treaties. Accordingly, there is no formal alignment with model treaty provisions. However, certain domestic concepts, particularly those relating to sourcing of income and business activity, may resemble internationally accepted stand - ards. This similarity arises primarily from the influence
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