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Lawmaker Urges Prioritization of Plan to Amend Treaty With Spain

SEP. 5, 2019

Lawmaker Urges Prioritization of Plan to Amend Treaty With Spain

DATED SEP. 5, 2019
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September 5, 2019

The Honorable Steven T. Mnuchin
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

The Honorable Michael R. Pompeo
Secretary of State
U.S. Department of State
2201 C Street, NW
Washington, D.C. 20520

Dear Secretary Mnuchin and Secretary Pompeo:

I write to bring to your attention a vital provision for Puerto Rico included in the Memorandum of Understanding (MoU) accompanying the recently ratified Protocol to amend the 1990 Tax Convention with Spain. Specifically, the MoU commits the United States and Spain to initiate discussions within six months after the Protocol enters into force to reach an agreement to avoid double taxation on investments between Puerto Rico and Spain.1

As you are aware, the purpose of the 1990 Tax Convention between the U.S. and Spain is to reduce or eliminate double taxation of income earned by residents of each jurisdiction from sources within the other. It similarly seeks to prevent avoidance or evasion of the taxes between the two nations.

The Protocol to the 1990 income tax convention — which was originally signed in 2013 and ratified by the Senate on July 16, 2019 — aims to reduce taxes on interest, royalties, certain direct dividends, and capital gains. It also provides for mandatory binding arbitration to streamline dispute resolutions between the tax administrations of Spain and the United States.

Both the Protocol and the underlying treaty, then, seek to promote and facilitate trade and investments between the United States and Spain. However, Puerto Rico was excluded from the original 1990 agreement. Consequently, when a resident of the U.S. territory derives income in Spain or a resident of Spain derives income in Puerto Rico, the treaty's restrictions on source-basis taxation, such as reduced or zero withholding tax rates on dividends, interest, and royalties, are not available. This situation undoubtedly puts the 3.2 million Americans in Puerto Rico at a competitive disadvantage, discouraging exports, investments, and similar activities that are critical for the Island's economy.

The Memorandum of Understanding accompanying the recently ratified Protocol offers a sensible path to address Puerto Rico's exclusion from the 1990 Tax Convention. Its second paragraph commits the two signatory nations to begin discussions on an appropriate agreement to avoid double taxation on investments between the U.S. territory and Spain. This should occur no later than six months after the Protocol enters into force on November 27, 2019.2

Given its importance for Puerto Rico's economy, I respectfully urge you to prioritize this provision and ensure negotiations to implement it are carried out as expeditiously as possible. I similarly request that you keep me informed about any developments that may arise during this vital process.

I thank you for your attention and look forward to your prompt response to this matter. Should you have any questions or require additional information, please do not hesitate to contact Gabriel Bravo in my office at gabriel.bravo@mail.house.gov.

Sincerely,

Jennifer Gonzalez-Colon
Member of Congress

FOOTNOTES

1See Paragraph 2, Memorandum of Understanding, Protocol Amending the Tax Convention with Spain, p. 27, https://www.congress.gov/113/cdoc/tdoc4/CDOC-113tdoc4.pdf

2U.S. Department of the Treasury, “Treasury Announces Action on Tax Protocols with Two Key Trading Partners,” August 30, 2019, https://home.treasury.gov/news/press-releases/sm763

END FOOTNOTES

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