US prosecutors and Internal Revenue Service (IRS) agents are reportedly investigating wealthy crypto traders and fund managers suspected of illegally benefiting from Puerto Rico's tax breaks.
According to a June 12 report from Bloomberg, investigators are building civil and criminal lawsuits against a number of hedge fund managers, crypto traders and other high net worth Americans who may have lied about the nature of their residency. and key components of their income in order to improperly take advantage of tax breaks.
US officials are also looking into the lawyers and accountants responsible for marketing the island territory's tax scheme, with at least two criminal investigations expected to result in charges in the near future. Prosecutors are reportedly considering charges of conspiracy and wire fraud.
Many claimed that Law 22 would stimulate investment in Puerto Rico and bring incalculable benefits.
Unfortunately, this only worsened inequalities and turned public relations into a tax haven.
We need serious analysis from the federal government on the impact of Law 22 and its ability to help Puerto Ricans. https://t.co/eBxrW2zmP7
— Representative Nydia Velazquez (@NydiaVelazquez) May 31, 2023
Recalling a conversation with a U.S. federal prosecutor, attorney Carlos Ortiz said prosecutors were working with "IRS agents" as well as Puerto Rican officials.
"The message is that the noose is tightening."
Since Puerto Rico introduced its new tax policy in 2012, more than 5,000 American individuals have moved to the country, one of the benefits of doing so is saving on federal income tax.
Puerto Rico's tax policy grants individuals a 100% exemption on dividends, a 60% exemption on municipal taxes, and zero federal taxes on source income earned in the region.
In addition, more than 3,600 companies have been able to avoid paying tax on dividends from income and profits and are only required to pay a 4% tax on exports.
Although the tax advantages are among the most relaxed in the world, the conditions for taking advantage of them are quite strict.
To qualify for tax relief, new residents must be able to prove that they live on the island for at least 183 days a year and that the island territory is their "tax home".
These strict rules would encourage many people to falsify figures and cheat on their declarations, according to lawyers familiar with the regime.
Notable residents who moved to Puerto Rico for tax reasons include gold bug Peter Schiff and crypto investor Michael Terpin. On July 4, Puerto Rican regulators shut down Schiff's bank for failing to meet minimum net capital requirements.
Despite no evidence of crimes, regulators in Puerto Rico still closed my bank over net capital issues, rather than allowing a sale to a highly qualified buyer promising to inject capital well beyond regulatory minimums. As a result, accounts are frozen and customers may lose money.
— Peter Schiff (@PeterSchiff) July 3, 2022
Speaking at the annual Miami Bitcoin Conference on May 19, Terpin hailed Puerto Rico as the "only place you can go and not have to pay your global tax without giving up US citizenship."
Unlike some, Terpin doesn't seem too concerned with the tough tax policy:
"I was told that every single person was going to be audited, and that's great. I keep incredibly accurate notes. I run them through a tax lawyer and a CPA, and I have two accountants. So go for it , I'm not afraid of an audit.
While the island's wealthy residents have hailed the tax breaks for bringing the best money managers and entrepreneurs to the island, the tax scheme has been the subject of protests that claim the new hyper-wealthy residents are low-tax "colonizers" who drove up the cost of living.
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