Puerto Rico occupies a space between foreign and domestic status with U.S. citizenship for residents, its own Olympic team and a tax system that allows individuals and companies the chance to elude the IRS.
The U.S. territory’s leaders are seeking to lure mainland residents such as hedge-fund billionaire John Paulson. Moving to Puerto Rico could allow Paulson and other top-earning taxpayers to shield future income from the Internal Revenue Service without giving up their passports.
Puerto Rico, eager for economic growth, is making an unusually direct pitch to wealthy Americans that risks a political backlash from Congress, said John Buckley, a former tax counsel for Democrats on the House Ways and Means Committee.
“They’re walking a fine line,” Buckley said. “This would be the first time that Puerto Rico would kind of deliberately erode the U.S. tax base for individuals.”
Already, 10 Americans have taken advantage of a year-old Puerto Rico law that lets them avoid local and U.S. capital gains taxes by signing agreements with the territory’s government. Paulson, a 57-year-old New Yorker, is considering such a move, according to four people who have spoken with him about it, Bloomberg News reported March 11.
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