P.R. Laws tit. 21, § 1043
A decree shall constitute a binding contract by and between the grantee and the Government of Puerto Rico. A decree issued to a grantee pursuant to this chapter shall include at least the following provisions:
(a) The decree shall provide that, instead of any other tax levied by any other act applicable to the net income of the operation of games of chance in tourist facilities, the grantee shall pay a previously agreed upon basic tax following the gradual tax rate schedule, as defined in subsection (b) of this section, to be computed according to the net income of games of chance generated at tourist facilities to which a license has been granted pursuant to this chapter. The “net income of games of chance” shall be equal to the gross income of games of chance minus any paid-out winning plays, but before the deduction of any other amount, such as, but not limited to salaries, interest, depreciation, and other expenses. The facility shall be subject to the payment of any other tax not measured by net income, such as, but not limited to, municipal licenses and the Sales and Use Tax (IVU, Spanish acronym); Provided, however, That the income from the operation of games of chance at the facility shall not be subject to any sales tax and that the facility shall enjoy an exemption of ninety percent (90%) of the preferential tax on real property used for residential and business purposes imposed under Subtitle CC of the Puerto Rico Internal Revenue Code of 1994, as amended. The grantee shall retain a tax percentage from the nonresident client on account of prizes from slot machines and/or as determined in the Internal Revenue Code, as amended.
(b) Decrees shall be executed pursuant to the following gradual tax rate schedule, which shall establish the payment of taxes based on the net income of the operation of games of chance at tourist facilities, depending on the total amount of private capital investment of the grantee, as established below:
(1) For an investment of at least five hundred million dollars ($500,000,000), a fixed tax rate of twenty-five percent (25%) shall be granted.
(2) For an investment of at least seven hundred fifty million dollars ($750,000,000), a fixed tax rate of fifteen percent (15%) shall be granted.
(3) For an investment of at least one billion dollars ($1,000,000,000), a fixed tax rate of ten percent (10%) shall be granted.
(4) For an investment of at least one billion two hundred fifty million dollars ($1,250,000,000), a fixed interest rate of eight percent (8%) shall be granted.
(c) The decree shall provide that any income earned from games of chance at the facility during the effective term of the decree shall be exempt from the provisions on income division contained in § 74 of Title 15, or any other similar law.
(d) The decree shall establish that any violation of any provision of this chapter or the decree itself shall lead to an increase in the special tax rate imposed on the net income from games of chance established in subsection (a) of this section, to be increased up to seventy percent (70%) as of the time and after such violation. The decree shall establish the process through which the grantee shall be notified of the violation and the remedies available to him/her. In the event that the application of the seventy percent (70%) tax rate becomes necessary, the distribution of all income generated by the seventy percent (70%) tax rate shall continue pursuant to the provisions of this chapter.
(e) The decree shall establish that if the grantee fails to have each of the three (3) project components in operating order, or if he/she fails to completely invest the amount agreed on in the decree within a term of ten (10) years after the decree has been issued, shall constitute noncompliance with the decree, in which case, the preferential tax rate on the net income on games of chance may be increased up to seventy percent (70%) pursuant to subsection (d) of this section. However, such ten (10) year term may be extended by the Selection Committee by request of the grantee if the Selection Committee determines that such extension serves the best economic interest of Puerto Rico and that the additional time is necessary as a consequence of circumstances beyond the control of the grantee; Provided, however, That said extension period may never exceed four (4) years.
(f) The decree shall establish that if the grantee fails to comply with the minimum investment timetable established in the decree pursuant to this chapter, the penalties established in this section shall be imposed; furthermore, the grantee shall pay to the Secretary of the Treasury the true recovery amount described below:
(1) The grantee shall pay the Secretary of the Treasury the true recovery amount within ninety (90) days after the Executive Director certifies to the grantee the total amount of the true recovery amount. The true recovery amount shall be distributed by the Secretary of the Treasury pursuant to the provisions of this chapter.
(2) The true recovery amount shall be calculated by multiplying the possible recovery amount by the recovery percentage.
(3) The possible recovery amount shall be calculated as follows. Firstly, the Executive Director shall determine the total amount that the grantee would have had to pay to the Government of Puerto Rico on the net income from games of chance earned before the violation described in subsection (d) of this section took place, if the preferential tax rate would have been of up to seventy percent (70%) instead of another. After determining this amount, the Executive Director shall subtract the amount from taxes actually paid by the grantee on his/her net income from games of chance pursuant to the decree, prior to the determination that the grantee has failed to comply with the minimum investment requirements set forth in this chapter. This net amount shall be the “possible recovery amount”.
(4) The recovery percentage for any year shall be equal to the amount obtained when taking the sum of:
(A) Twice (2) the amount of the investment deficit in recreational and/or sales establishments when determining that a violation that entails the imposition of the penalties established in this section has occurred, and
(B) the amount of any other investment deficit, and dividing the result of said sum by the total investment amount required under the decree; Provided, That if this amount is greater than one (1), the recovery percentage shall be equal to one (1).
(g) The decree shall establish that the penalties set forth in this section shall be imposed if the decree is (1) assigned directly or indirectly to any person or (2) if there is any transfer of interest, whether direct or indirect, or any change in the control of the grantee, unless previously approved by the Selection Committee.
(h) The decree shall establish the requirements to be met for renewal, including the definition of that which constitutes a substantial renewal or extension of existing establishments to be used in tourist-related activities.
(i) The decree shall include any other terms and conditions as recommended by the Selection Committee, insofar as they are not incompatible with the provisions of this chapter.
History —Aug. 1, 2010, No. 118, § 7.