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FOMB questions tax incentives for medical specialists citing irregularities with numbers


Jaime El Koury, legal counsel for the Financial Oversight and Management Board

By The Star Staff


The Financial Oversight and Management Board has questioned government motives for enacting an amendment to the Incentives Code that allows medical specialists and subspecialists to qualify for tax incentives as only two people have applied and qualified.


In a letter signed by FOMB General Counsel Jaime El Koury that was addressed to Nelson Pérez Méndez, the deputy executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority, the FOMB said that following the enactment of Act 60 in November 2021, the government certified that it would reduce Commonwealth revenues by about $16 million yearly.


Since that time, the government and the FOMB have had disagreements about the law’s impact. The FOMB advised the government that the FY2023 commonwealth budget would be reduced by $47 million to reflect revenue losses anticipated from Act 60 and requesting more information.


The government in June revised its number stating that the fiscal impact of the Act was roughly $115,000 per year, and not the $16 million cited in its original submission.


The Oversight Board said it was concerned the government has implemented or will implement the law without further review and agreement of the Board.


This revised cost estimate of $115,000 is based on the declaration in Circular Letter 2021-008 from the Department of Health, which states that a Special Certification due to pressing need will apply to two branches of medicine. These are cardiovascular thoracic surgery and cardiothoracic anesthesiology.


As you the government has acknowledged “there have been only two people who have applied and qualified under the Circular Letter, which raises questions regarding the need and purpose of the broad language of Act 60.”


The Board also said the language on the special certifications is broad and allows the government to issue them at will. “We therefore continue to maintain that the cost estimate is incomplete,” Koury said.


While the government argues that Act 60 limits the government’s ability to grant tax decrees by requiring that each decree conform to the Certified Fiscal Plan’s revenue requirement and be issued only under exceptional circumstances, the FOMB said the law’s language allowing the certifications to be issued under “exceptional circumstances” remains unclear. The Board said the law could be interpreted as allowing the Economic Development and Commerce Secretary of DDEC to issue certificates without little justification.


“While the Certified Fiscal Plan’s requirement of revenue neutrality applies to the fiscal implications of the Act itself, it does not address the implications of individual application of the law. The Act


therefore exposes the Commonwealth to potential revenue loss significantly beyond the granting of the two identified decrees,” the FOMB said.


Furthermore, Act 60 must be evaluated in combination with other laws enacted in the Commonwealth, the Board said. For instance, Act 52 of 2022, which modified the tax treatment for foreign controlled corporations, allows certain qualified physicians to get tax incentives.


“Given the mutual and potentially compounding effects of Act 52 and Act 60, please be advised that the Oversight Board has determined (that) Act 60 is significantly inconsistent with the Certified


Fiscal Year 2022 Commonwealth Fiscal Plan with regard to the provisions related to medical Professionals” and violates PROMESA, the Board said.


In that regard, the Board also noted that Act 52 is also inconsistent with the fiscal plan with regards to the provision of medical professionals.


If the Government does not submit its administrative guidance concerning Act 52, the Oversight Board reserves the right to take such actions as it deems necessary including seeking remedies to prevent implementation and enforcement of Act 60, the Board said.


“Please be advised that if the Legislature passes additional laws providing for special tax decrees reducing Commonwealth revenue without complete and effective offsets, the Oversight Board will accomplish offsets and or take any other actions it deems necessary,” the FOMB warned.

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