P.R. Laws tit. 23, § 591h
(a) Subject to the provisions of subsection (c) of this section, all investors, including participants in a fund, shall be entitled to a credit for investing in theatrical businesses for a limit of up to five million dollars ($5,000,000) per fiscal year and of two million dollars ($2,000,000) per fiscal year for the rehabilitation of existing structures of their eligible investment or their investment in securities of a securities fund, or funds to be claimed in two (2) installments: for up to half of said credit in the year in which the theatrical business obtained the necessary financing for its operation, should such a financing be required, and the balance of said credit, within the next two (2) subsequent years. Should an escrow account be established and the same dissolved because the necessary financing for the operation of the theatrical business was not obtained, the participants shall not be entitled to the credit. Any eligible investment made on or before the expiration date for filing the income tax return as provided by Act No. 91 of June 29, 1954, known as the “Income Tax Act of 1954”, or by §§ 8006 et seq. of Title 13, known as the “Puerto Rico Internal Revenue Code of 1994”, shall qualify for the tax credit of this section for the tax year in which the aforementioned return is filed, provided it complies with all requirements of this section. Said credit for investment may be applied against any tax determined by the investment or the participant under Act No. 91 of June 29, 1954, known as the “Income Tax Act of 1954”, or by §§ 8401 et seq. of Title 13, including the minimum alternate tax applicable to corporations or partnerships and the basic alternate tax applicable to individuals.
Said credit may not be used to pay for the taxes levied under any other Subtitle of the Puerto Rico Internal Revenue Code of 1994, or under any other law, including but not limited to §§ 10038 et seq. of Title 13, known as the “Tax Incentives Act of 1987”, or any other law of a similar nature which substitutes or complements the latter.
The credit for investing in theatrical businesses allowed by this section shall not be applicable nor be available in case the participant should acquire securities of a securities fund or funds, in primary issue, to substitute other securities of a fund that were sold, exchanged or transferred in any manner by the participant and about which the participant shall not acknowledge, in whole or in part, the profit derived from such a sale, exchange or transfer.
The investor or participant shall request an administrative determination from the Secretary of the Treasury before claiming the credit for investing in the theatrical business so that the latter may determine whether the investment made or to be made by the theatrical business qualifies for the tax credit for investment.
In the case of an existing theatrical business in operation by the date of approval of this act, the first half of the credit may be claimed in the year on with the eligible investment is made.
Should an existing theatrical business be acquired by contributing additional capital of at least two hundred percent (200%) of the cost of said business, the investor shall be entitled to the credit granted in this subsection, provided said additional contribution is made within a period of not more than three (3) years as of the date on which the new business is acquired. For such purposes, the investor or participant must make not less than twenty-five percent (25%) of the eligible investment during the first year of this period; not less than thirty-five percent (35%) in the second year and the remaining amount, if any, in the third year.
(b) Carried over credit. — Any credit for investing in theatrical businesses unused in a tax year may be carried over to subsequent tax years until used in its totality.
(c) Maximum amount of credit. — The maximum amount of credit for investing in theatrical businesses for every business that shall be available to the investors and to the participants shall be limited to five million dollars ($5,000,000) per fiscal year in the case of a new construction and two million dollars ($2,000,000) per fiscal year in cases of rehabilitation of existing structures, through the fund, in theatrical businesses in exchange for shares or stock in said theatrical businesses. The available amount of credit shall be distributed among the investors and the participants in the proportion determined by them. The theatrical business shall notify the distribution of the credit to the task force and its stockholders on or before the date provided by Act No. 91 of June 29, 1954, known as the “Income Tax Act of 1954”, or by §§ 8006 et seq. of Title 13, known as the “Puerto Rico Internal Revenue Code of 1994”, as the case may be, to file the income tax return for its first year of operations, including any extension granted by the Secretary of the Treasury for filing the same. The eligible distribution shall be irrevocable and obligatory for the theatrical business, the investors and the participants.
In no case shall the total amount of credit for investing in theatrical businesses exceed the amount of five million dollars ($5,000,000) for tax year for each theatrical business.
The Secretary of the Treasury shall authorize the credits for investment claimed by the investors or by the participants, as the case may be, for a limit of up to fifteen million dollars ($15,000,000) per fiscal year. However, in those cases in which the Chairperson of the Planning Board, the Executive Director of the Institute of Puerto Rican Culture and the Secretary of the Treasury conduct an evaluation of the activities a theatrical business intends to carry out, and decide that said business shall substantially contribute to the development of this economic sector, the Secretary of the Treasury may authorize the credits for investing [in] said business even when the credits for up to the limit of fifteen million dollars ($15,000,000) authorized by this subsection have already been granted for that particular fiscal year. For such a purpose, from the amount of fifteen million dollars ($15,000,000), credits for investment of five million dollars ($5,000,000) shall be reserved during the first six (6) months of the fiscal year for the investors or participants whose investments do not exceed the amount of one million dollars ($1,000,000). Should said reserved amount not be used in its totality during the aforementioned period, the same shall be available to any investor or participant regardless of the amount of his or her investment.
(d) Adjustment of the base and recovery of the credit. —
(1) The base of any eligible investment shall be reduced by the amount claimed as credit for investing in theatrical businesses but may never be reduced to less than zero.
(2) After the term of three (3) years as of the date of the notification described in subsection (c) of this section has expired, the task force shall determine the total investment made by the theatrical business. In the case of investments made after November 18, 1997, the investor or participant shall make not less than twenty-five percent (25%) of the eligible investment during the first year of that period; not less than thirty-five percent (35%) in the second year and the remainder, if any, in the third year. In case the credit for investing in a theatrical business claimed by the investors exceeds the credit computed by the task force, based on the total investment made in the activities of the theatrical business, said surplus shall be deemed as the income tax owed by the investors to be paid in two (2) installments, the first of which shall be payable in the first tax year following the date of expiration of the aforementioned three (3)-year term and the second in the following tax year.
(3) Should any theatrical business cease operations as such before the ten (10)-year period provided in Section 3(k)(4) of this act, the investor or participant shall owe income taxes in an amount equal to the credit for investing in the theatrical business claimed by said investor or participant, multiplied by a fraction whose denominator shall be ten (10) and whose numerator shall be the balance of the ten (10)-year period required by this chapter. The amount owed for income taxes shall be paid in two (2) installments beginning with the first tax year following the date on which the theatrical activity ceased.
(e) Credit for losses. — Any losses suffered by an investor or a participant from the sale, exchange or other disposition of an eligible investment or the value of a fund shall be deemed as a capital loss, although said investor or participant, should he or she choose to do so, may claim said loss as a credit against the tax determined for the tax year of said loss and in the subsequent four (4) tax years. The amount of the loss that may be claimed as credit in each of the aforementioned years may not exceed one third ( 1 / 3 ) of the loss. Any loss claimed as credit against the income tax shall reduce the base of the eligible investment or the value of a fund in the same amount of the credit claimed, although said base shall never be reduced to less than zero. The option to claim the loss as credit against the income tax shall not be allowed if the base of the eligible investment or the value of a fund equals zero. For the purpose of determining the amount of the credit for losses, the base of the participation in a special partnership shall not be adjusted to show the increase in said base calculated according to §§ 8006 et seq. of Title 13, known as the “Puerto Rico Internal Revenue Code of 1994”. On the other hand, any diminution in the base as determined according to said sections, shall be recognized for the purpose of computing the credit for losses, but only for up to the amount of the tax benefit derived by the investor or participant from the transaction or event which gave rise to the diminution in the base under said sections.
In the case of losses on investments suffered in relation to investments made before November 18, 1997, the total amount of the credit for losses may not exceed fifty percent (50%) of the investment in the theatrical business. In the case of losses on investments that may be attributable to investments made after November 18, 1997, the amount of the credit for losses may not exceed ten percent (50%) of the total cost of the theatrical business. Those investors or participants who claimed, or otherwise transferred credits for investments in a theatrical business as a result of their eligible investment or their investment in the securities of a fund, shall distribute among themselves the right to benefit from the credit using the mechanism provided in subsection (c) of this section. Once said distribution has been effected, the provisions referring to the transfer or assignment of the credit provided in subsection (f) of this section shall not apply.
Any surplus in the credit thus granted on the tax as determined in the aforementioned five (5) tax years may not be claimed as a deduction or a credit nor have a retroactive effect on or carried over to another tax year.
(f) Credit granted. —
(1) After the date of the notice of the distribution of the credit for investing in theatrical businesses provided in subsection (c) of this section, the credit provided in this section may be assigned, sold or otherwise transferred, totally or partially, by an investor or participant, to any other person.
(2) The base of the eligible investment shall be reduced by the value of the credit for investing in theatrical businesses granted.
(3) Any investor or participant who has assigned all or part of his or credit for investing in theatrical businesses, as well as the acquirer of said credit, shall notify the Secretary of the Treasury of the assignment through a statement to those effect[s] to be included with his or her income tax return for the year in which the assignment of the credit for investing in theatrical businesses is made. The statement shall contain the information the Secretary of the Treasury may deem pertinent to require through Regulations promulgated to those effects.
(4) The money or value of the property received in exchange for the credit for investing in theatrical businesses shall be exempt from the payment of taxes under §§ 8006 et seq. of Title 13, and under any succeeding law, for an amount that equals the total amount of the credit granted.
(5) The tax credit for investments granted by this chapter may be transferred or sold only once. Said transfer, sale or exchange shall be made by the investor or participant to any other person. A transfer, exchange or sale to a related person constitutes a transfer for the purposes of said limitation. The term “related person” shall be determined according to the criteria established in §§ 8424(b) and 8428 of Title 13.
(6) When the tax credit for investments granted by this chapter is transferred, exchanged or sold, the difference between the total amount of the credit and the amount paid by said credit shall not be deemed income for the purchaser of the credit.
Any person who acquires, from an investor or participant, a tax credit for investments in one of the activities described in this chapter, shall not be subject to the provisions for recovery in subsection (d)(3) of this section.
(7) An investment in a theatrical business which in itself does not constitute an eligible investment does not confer upon the investor or participant the right to claim, transfer, sale or exchange the tax credit for investments described in subsection (a) of this section.
If a taxpayer claims a credit for investing in a theatrical business against his or her tax liability and subsequently it is determined that the same was not valid because in itself, based on the nature of the investment, said credit could not have been generated, insufficiency in the payment of the tax shall be governed by the provisions of §§ 8021—8221 of Title 13, and not by the provisions on recovery of the tax credit provided in subsection (d)(3) of this section.
(g) Tax on profits in case of a sale. — Any profit in the case of the sale, exchange or other disposition of an eligible investment or the value of a securities fund or funds shall be deemed a capital profit and the excess of the long term capital net profits over the short term net capital losses shall be subject to taxation as provided by §§ 8006 et seq of Title 13.
(h) Special rules for investments made by capital investment funds created under §§ 1241 et seq. of Title 7, or under any other law of a similar nature which substitutes or complements the latter.
(1) Any capital investment fund created under §§ 1241 et seq. of Title 7, or under any other law of a similar nature which substitutes or complements the latter, which is an investor or participant in theatrical business projects shall be subject to all provisions of this section, except that:
(A) For investments made before November 18, 1997, it shall be entitled to a credit for investing in theatrical businesses equal only to twenty-five percent (25%) of its eligible investment or its investment in fund securities, instead of the fifty percent (50%) to which reference is made in subsection (a) of this section. The totality of the credit of twenty-five percent (25%) of its investment may be claimed in the year in which the business obtained the capital needed to develop the theatrical activity; Provided, That for investments made after November 18, 1997, the credit shall be equal to ten percent (50%) of the total cost of the theatrical business, instead of the fifty percent (50%) granted by subsection (a) of this section.
(B) For the purpose of the limitation imposed by subsection (c) of this section, the effects that the total credit for investing in theatrical businesses may not exceed fifty percent (50%) of the cash amount contributed by the investors and the participants, or fifty percent (50%) of the cash amount contributed for up to two million dollars ($2,000,000) plus the excess over two million dollars ($2,000,000) of the cash amount contributed to the limit of ten percent (50%) of the total cost of the theatrical business, or as the case may be, the computation shall be made as if the capital investment funds created under §§ 1241 et seq. of Title 7, or under any other law of a similar nature which substitutes or complements the latter, had claimed fifty percent (50%) of its eligible investment.
(C) The capital investment funds created under §§ 1241 et seq. of Title 7, or under any other law of a similar nature which substitutes or complements the latter, shall not be entitled to the credit for losses provided in subsection (e) of this section.
(2) Report, obligation to submit. — Every fund shall submit the reports required by the Commissioner of Financial Institutions of Puerto Rico, who shall be responsible for regulating the content of said reports and setting the date when they are to be submitted. The Commissioner shall remit a true and exact copy of said reports to the task force within thirty (30) days following the date in which they are submitted.
History —Aug. 18, 2000, No. 178, § 11.