P.R. Laws tit. 13, § 10004
If on or before the expiration of [a] tax exemption of any exempted business any property, including money, is received by a domestic or foreign corporation (herein called the transferee) on complete liquidation of such exempted business (herein called the transferor) no income tax shall be assessed on or be paid by the transferor or the transferee with respect to such liquidations, only if:
(a) The transferee was, on the date of adoption of the liquidation plan, and has continued to be at all times, until the receipt of the property pursuant to said plan, the owner of at least eighty percent (80%) of the total combined voting power of all classes of voting stock, and the owner of at least eighty percent (80%) of all other classes of stock (except non-voting stock which is limited and preferred as to dividends), and
(b) all the said property was received by the transferee pursuant to the said liquidation plan, on or prior to the exemption termination date, and
(c) the distribution in liquidation by the transferor, whether at one time or from time to time, was made by the transferor in complete cancellation or redemption of all of its capital stock.
No income tax shall be assessed on or be paid by the transferor, whether or not the transferee assumes any liabilities or obligations of the transferor or receives such property subject to any liability or obligation of the transferor.
If the exemption of a transferor corporation hereunder should be terminated prior to the exemption termination date, a sum equal to the earned surplus of the transferor corporation as of the end of the fiscal year of the corporation in which the termination becomes effective, may be transferred by the transferor to the transferee under the circumstances described hereinbefore under subsections (a) and (c) of this section, at any time thereafter without assessment of income tax on the transferor or on the transferee, except in the cases of mandatory revocation under §§ 10005(b) and 10008 of this title when no tax free liquidation shall be allowed in accordance with the provisions of this section.
After the expiration of the exemption of the transferor, a sum equal to the capital and the earned surplus of the transferor as of said date, may be transferred by the transferor to the transferee under the circumstances described under the foregoing subsections (a) and (c), at any time thereafter, without assessment of income tax therefor on the transferor or the transferee.
By “earned surplus” of the transferor shall be understood the earned surplus according to the books of the transferor, determined in accordance with generally accepted accounting principles, but the amount thereof shall not be larger, save by the amount of the income tax exemption and all other tax exemptions granted hereunder to the transferor, than the amount in case the transferor had in fact been subject to tax under the income tax provisions and all other tax laws in force during the exemption period.
In the event of a liquidation under the circumstances described in this section, the base of the property to the transferee on subsequent disposition by the transferee and the base for allowance for depreciation or depletion, shall be the adjusted base of the property, pursuant to the provisions of the Income Tax Law in force, plus an amount equal to the earned surplus of the transferor at the beginning of the liquidation. Such surplus shall be allocated to the several properties subject to depreciation or depletion transferred in accordance with their respective adjusted bases at the beginning of the liquidation.
History —Dec. 15, 1953, No. 6, p. 12, § 4, eff. Jan. 1, 1954.