The Effect of Taxes on Investment and Income Shifting to Puerto Rico

27 Pages Posted: 1 Jul 2003

See all articles by Harry Grubert

Harry Grubert

U.S. Department of the Treasury, Office of Tax Analysis (OTA); CESifo (Center for Economic Studies and Ifo Institute)

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: September 1994

Abstract

The income of Puerto Rican affiliates of U.S. corporations is essentially untaxed by either Puerto Rico or the U.S. This lowers the tax penalty on real investment there, and also makes it attractive to shift reported taxable income from the U.S. parent corporation to the Puerto Rican affiliate. Because the ability to shift income is affected by the presence of real operations, the true marginal effective tax rate on investment in Puerto Rico depends on the income shifting opportunities.

Suggested Citation

Grubert, Harry and Slemrod, Joel B., The Effect of Taxes on Investment and Income Shifting to Puerto Rico (September 1994). NBER Working Paper No. w4869. Available at SSRN: https://ssrn.com/abstract=420316

Harry Grubert

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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