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Uncertainty Reigns as Congress Fiddles With EDC

Oct. 8, 2004 – The Internal Revenue Service, the V.I. Bureau of Internal Revenue and acting U.S. Attorney Anthony Jenkins are all expressing concern that the Economic Development Company Program needs monitoring to run smoothly and within the law.
Oddly, these concerns were expressed in press releases when some people are saying that actions by the U.S. Congress may bring the program to an end. Even before congressional action this week, business people were becoming skittish about the program. (See "EDC Firm Closes Its Doors Citing Tax Rules Ambiguity").
Richard Difede, president of the Economic Alliance, a group which represents EDC companies, said Friday that the amendment attached to the American Jobs Creation Act of 2004 might not kill the program, but it will severely limit which companies can be involved in the program and what they can do.
He said members of the Alliance had envisioned something quite different from what was working its way through Congress this week.
Keith Parsky, Insular Affairs spokesman, said the congressional insistence on changing the V.I. program might have resulted because, in the environment of free trade and trade agreements, the United States did not want to appear to be giving preferential tax treatment to certain residents.
But discussions of changes to the EDC program generally start with mentions of its potential for abuse.
The press release from the V.I. United States Attorney's office Sept. 21 expressed concerns of Jenkins and Brian Wimping, special agent in charge, Internal Revenue Service/Criminal Investigations, about the program.
It said, "While the EDC Program may present tremendous benefits to the Virgin Islands economy and legitimate business interests, [Jenkins and Wimping] cautioned that such incentives occasionally are viewed by less scrupulous interests, driven by greed and unconcerned with the law, as an opportunity to engage in fraud."
Meanwhile, on Thursday, the U.S. Internal Revenue Service and V.I. Bureau of Internal Revenue announced a new partnership to work together on common tax enforcement issues.
A press release from the Internal Revenue Service said the partnership effort is designed "to enable federal, territorial, state and local tax agencies to join together in ensuring all taxpayers pay the amount of tax they are legally obligated to pay. Like the other agencies, the V.I. BIR will be working with the IRS to combat abusive tax avoidance transactions by sharing information and leveraging resources."
A spokesperson for the IRS Friday refused to answer questions about why this partnership was necessary or why it was made at this time. She referred the reporter to the Treasury Department, but no one there was available to answer questions.
Delegate Donna M. Christensen, however, did meet with Treasury officials before leaving Washington, D.C., on Friday to see if they were willing to work with territorial officials to develop acceptable rules to govern the economic tax incentive programs.
Christensen said in a press release that she met with John Emling, deputy assistant secretary; Barbara Angus, international tax counsel; and Carl Dubert, deputy tax counsel of the Treasury Department to discuss the urgency of clarifying what changes to the program will mean.
"I was pleased at the tone of the meeting and greatly encouraged that they intend to work with our local Bureau of Internal Revenue to quickly develop the rules and regulations needed to clarify changes and to give assurance to legitimate companies that it is safe to do business in the Virgin Islands," Christensen said.
"We discussed that it was necessary to clarify the exceptions that would allow "bona fide Virgin Islands residents" to be away from the territory for more than 183 days and not lose their right to file their taxes with the territorial government," Christensen said.
Other issues discussed include defining what kinds of income would qualify for tax reduction under the EDC program.
Difede, Friday, expressed concern over what he also saw as lack of clarity in the amendment. He said it is "leaving undefined what has been undefined in this law for 17 years."
Difede said it was impossible to gauge the effect the new regulations would have on EDC companies. There are about 100 EDC companies in the Virgin Islands; about 60 of them belong to the Alliance. Difede said many of them are already discussing layoffs and possibly closing down operations on the Virgin Islands.
He said what was "most shocking" about this week's developments was that the V.I. government had been very articulate in presenting a positive case for the EDC program, but was apparently ignored. He said the federal government "is trying to kill a mosquito with a cannon."
V.I. Bureau of Internal Revenue Director Louis M. Willis said that EDC beneficiaries contribute about 25 percent of the territory's revenues. He was unavailable for comment Friday on this or the partnership agreement with the IRS.
How the change in EDC regulations actually affects V.I. businesses will be determined after the final language is determined. Claims about what the changes were and what they would mean to businesses have changed almost daily (See "EDC: Treasury 'Lowers the Boom' on the V.I.").
Peter Hiebert, Washington counsel for the V.I. government, said Friday afternoon that the American Jobs Creation Act of 2004 was in line to get passed, but a final version might not be approved until Saturday.
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