By The Star Staff
The Financial Oversight and Management Board has ordered Treasury Interim Secretary Nelson Pérez Méndez to stop enforcing Regulation 9309, which provides preferential tax treatment to certain distilled spirits.
FOMB Chairman Robert Mujica said that although the FOMB told Treasury in 2021 that the regulation violated the fiscal plan, it learned recently that the agency has been granting the tax incentives in violation of the order.
Regulation 9309 provides a preferential tax treatment to “all distilled spirits that are obtained through the fermentation, distillation and/or rectification of sources or substrate of fermentable sugars such as grains, fruits, citrus or plants.”
The resolution includes the manufacturer’s total production, distiller or rectifier, outside and inside Puerto Rico for the previous calendar year that is less than 300,000 gallons, according to an October 28 letter.
Regulation 9309 was submitted to the Oversight Board for review and approval on February 4, 2021. After a review, the Board on August 5, 2021, deemed it inconsistent with the Fiscal Plan for Puerto Rico.
In November 2021, the Oversight Board informed the Treasury that Regulation 9309 is not effective and may not be implemented, enforced, or applied. “However, the Oversight Board has recently been made aware that the Treasury is, in fact, implementing and enforcing Regulation 9309,” the letter notes.
The provisions of Regulation 9309 are not contemplated under the Puerto Rico Internal Revenue Code. Based on the Internal Revenue Code’s definition, the only distilled spirits that can be considered “artisanal distilled spirits” are products derived from sugarcane with a production that does not exceed 300,000 gallons.
“However, Regulation 9309 provides a preferential tax treatment to all distilled spirits that are obtained through the fermentation,
distillation and/or rectification of sources or substrate of fermentable sugars such as grains, fruits, citrus or plants;” which is contrary to the statutory provision of the Internal Revenue Code,” the Board said.
That is, the Internal Revenue Code clearly provides that the only artisanal distilled spirits entitled to the preferential tax treatment therein are those “obtained through the fermentation and distillation of any product derived from sugarcane.
“If the Treasury wishes to incorporate an expanded definition of “artisanal distilled spirits” subject to the preferential tax treatment, such as the definition included in Regulation 9309, it must do so through legislation amending the Internal Revenue Code,” the letter notes.
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