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AMG’s Mariel Y. Haack to Participate in Puerto Rico HotelierCon 2023

On May 11, 2023, at 4:30pm, Mariel Y. Haack, Shareholder of AMG’s Labor and Employment Department, will participate as a speaker at the 2023 Puerto Rico HotelierCon, sponsored by the Puerto Rico Tourism Company.  Mariel will discuss how to approach mental health in the workplace from a legal perspective.  

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New PR Tax Reporting Requirement for Foreign Financial Accounts

It’s no surprise that Puerto Rico residents may have a financial account outside of Puerto Rico and the United States. But did you know that simply having a bank account in a foreign country, such as Spain and the Dominican Republic, might trigger reporting requirements both in the United States, and most recently in Puerto Rico?

Puerto Rico resident individuals that have a financial interest in financial accounts held outside of Puerto Rico (or the United States) with a balance over $10,000 during the previous taxable year must report such foreign financial accounts in their Puerto Rico income tax returns, commencing with the return due on April 17, 2023.  A taxpayer complies with this requirement by completing and filing Schedule CFF for each foreign financial account with a maximum value exceeding $10,000, along with his or her tax return.

It should be noted that this new Schedule CFF is similar to FinCEN Form 114 (formerly known as Report of Foreign Bank and Financial Accounts – FBAR) required to be filed by United States persons (including Puerto Rico residents) under the Bank Secrecy Act.

Financial accounts include:
– bank accounts
– investment accounts
– crypto asset accounts
– certain insurance policies
– future or options contract accounts

An individual is considered as having a financial interest in an account when:
– the individual is the owner;
– the owner is a third party acting on behalf of the individual;
– the owner is an entity in which the individual directly or indirectly owns at least 50% of all their value or voting power;
– the owner is a grantor trust for the individual’s benefit; or
– the individual has signature authority over the foreign financial account.

Failure to report foreign financial accounts will be subject to a $10,000 penalty and is classified as a misdemeanor.

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THE REPEAL AND UNCERTAIN FATE OF LAW NO. 41-2022

Since the inception of Law No. 41-2022, we alerted our clients and readers of the obstacles and challenges that lay ahead with the implementation of this legislation.  The Fiscal Oversight & Management Board for Puerto Rico (“the Board”) made no secret of its opposition to House Bill 1244-2022, which eventually became Law No. 41-2022, and advised the government of Puerto Rico not to repeal Law No. 4-2017, also known as the Labor Transformation and Flexibility Act.  The Board also vowed to take legal action to stop any legislation that would negatively impact the labor market flexibility that Puerto Rico needs, or any action that would interfere with PROMESA’s purposes.

Thus, on July 30, 2022, a few days after the effective date of the law, the Board provided the government of Puerto Rico with an economic impact analysis of Law No. 41-2022, and asked the government to suspend voluntarily such law no later than August 4, 2022.  Failure to act on the part of the government would result in legal action to nullify Law No. 41-2022.  The government, however, ignored the Board’s warning and decided to go full speed ahead with the implementation of the law.

The Board made good on its promise.  On September 1, 2022, it filed a complaint in federal court with two (2) counts to repeal Law No. 41-2022.  On September 29, 2022, the government answered and challenged the jurisdiction of the Court.  On the same day, the Board moved for summary judgment.  Accordingly, on March 3, 2023, after full consideration of the parties’ arguments and positions, the Court denied the government’s motion, holding that it may exercise jurisdiction, and granted in part and denied in part the Board’s summary judgment motion. 

Granting in part the Board’s summary judgment motion was sufficient for the Court to find that such entity was entitled as a matter of law to the relief sought.  Consequently, the Court held that Law No. 41-2022 was null ab initioThis means that the law and all actions taken to implement it are null and void from the beginning.  In other words, Law No. 41-2022 never had any legal effect.

The decision of the Court validates and gives new life to Law No. 4-2017.  However, the effects on employers of this new development could still be significant.  In the past few months the government of Puerto Rico took the stand that all employers in our jurisdiction had to comply with the provisions and amendments of Law No. 41-2022.  Thus, many employers modified personnel handbooks, offered employment under the new rules for probationary periods, calculated hours and paid Christmas bonuses according to the new guidelines of the Puerto Rico Department of Labor, and accrued vacation for part-time employees, to mention just a few.  Others are perhaps litigating or have settled cases under the changes brought by Law No. 41-2022.  Now the question turns out to be what to do next.  Changing rules again for the existing workforce could have unforeseeable effects, and could result in staff turnover and difficulties in attracting good candidates.        

This Court’s decision is not final yet.  According to some government spokespersons, including the Secretary of Labor and Human Resources of Puerto Rico, they are analyzing the legal grounds that support the decision and will determine if the best course of action is to appeal.  However, given this swift action and decisive language used by the Court, in addition to the good track record of the Board in PROMESA cases, it is likely that the decision will be upheld.  Moreover, the least that is needed at this moment is further confusion and instability from a government appeal.  At AMG we will follow closely all development related to Law No. 41-2022 and keep you updated.  For your ready reference, we are attaching our newsletter of January 27, 2017, which contains a summary of Law No. 4-2017.