July 5, 20225:02 PM

Law 52: the latest nonsense of the Puerto Rico legislature

One of the fundamental rights in our democratic and free enterprise system is the property and the possibility of freely disposing of it. The property right allows the effort of the initiative, work and creativity of human beings to be retained and materialized in a good or proprietary interest that the citizen can keep using and take advantage of. When the owner of that property understands that he must dispose of that property, he can do so freely.

The possibility that citizens can freely dispose of their properties is a vital instrument for the generation of wealth and growth in society. When a person transfers or sells an asset, they generate cash or other resources that allow them to immediately satisfy a need or offer them the possibility of investing that amount in an opportunity that generates higher returns. For the person who buys the good, the acquisition gives them access to a property that they can inhabit with their immediate family or that they can use to develop a new economic adventure that generates their own income and produces benefits to society.

Due to the economic benefits derived from the free transfer of properties, is that societies seek to facilitate the development of this type of activity. For such purposes, the government encourages them through a privileged tax treatment such as capital gains, in addition to making available aid for the acquisition of properties for productive uses or as residences.

The constitutionality of Law 52 is challenged

Article 86 of Law 52, ​​recently signed by the governor, requires notaries that, to grant a deed of segregation, grouping or transfer of ownership of the real estate, and request the appraisal price of the property that is the object of the transaction, through an appraisal carried out by an authorized appraiser, a measurement plan, and a property title study. (Angel M. Rivera Fontanez)

In Puerto Rico, our government has never fully understood the importance of the dynamics previously exposed. Only ignorance, clumsiness, or the existence of some hidden interest can explain what has happened with the approval by the Legislative Assembly and the signing by the governor of Law 52, ​​of June 30, 2022, which imposes a series of new requirements for the granting of deeds, the effect of which is to make the transfer of properties and the development of economic activity more costly and difficult.

Article 86 of the law requires notaries that, to grant a deed of segregation, grouping or transfer of ownership of real estate, request the price of the property object of the transaction through an appraisal carried out by an authorized appraiser, a plan of measurement and a property title study. This requirement was not included in the original project, whose objective was to establish an instrument so that the 4% excise tax charged to foreign companies that carry out operations in Puerto Rico and make purchases from affiliated entities, be transformed into a tax on income, so that it can continue to be claimed as a deduction for federal tax purposes. The amendment provided in Article 86 was introduced surreptitiously, when the regular session of the legislature was about to conclude.

The imposed requirements convert notaries into CRIM agents through the form that is submitted to the Department of the Treasury. The interesting thing is that neither the CRIM nor the Treasury endorsed or supported this measure, says Díaz Olivo

The requirements of Law 52 will increase transaction costs for all citizens, affecting the tenuous economic situation we are experiencing. Free transactions such as donations between parents and children will become more expensive because it will be necessary to appraise and measure the property that is the object of the transaction. Similarly, transactions that do not involve any type of financing, because the parties have their own resources to be able to carry it out without intermediaries, will become more onerous and will be delayed.

The imposed requirements convert notaries into agents of the Municipal Revenue Collection Center (CRIM) through the form that is submitted to the Department of the Treasury. The interesting thing is that neither the CRIM nor the Treasury supported this measure. But, even when the legislator intended to identify or "portray" transactions that the treasury would not otherwise have been able to detect, the effect of such a strategy is disastrous. Property appraisal for property tax purposes rests on a uniform and scientific appraisal that consistently evaluates properties. However, this law establishes an ad-hoc and accidental system, which results in an arbitrary and unbalanced practice in terms of tax equity.

With Law 52, ​​Puerto Rico has chosen to punish economic activity and restrict us to poverty. There is no way to defend the legal monstrosity it represents. The measure exemplifies why in Puerto Rico things are the way they are. Immediate action is urgently needed to correct and eliminate such dysfunction in our public policy.

This piece was originally published in Spanish in El Nuevo Día


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