Introduced by Rep. Ramon S. Basa, Covenant-Saipan, House Bill 17-163 is supposed to help the government generate more revenue in fiscal year 2012.
It went through a bicameral conference committee before the Senate unanimously passed it in October.
Suggested by Marianas Public Land Trust consultant Bruce McMillan, the measure proposes a tax rate that will entice more investors into the CNMI.
It will impose a tax of 10 percent per annum on a foreign corporation’s net foreign income but allows for a 100 percent rebate offset of the foreign corporation’s income tax.
In his veto message, Inos said the bill proposes to change the structure of the Northern Marianas Territorial Income Tax which Article 6 of the Covenant defines as the enforcement of U.S. income tax laws.
Inos explained that the Covenant “specifically limits the authority of the commonwealth to rebate to taxes on income derived from sources within the NMI.”
He noted that H.B. 17-163 will provide tax incentives to companies that establish commonwealth corporations and then use these corporations to obtain favorable tax treatment on foreign sourced income.
A special tax rate of 10 percent for “foreign net income would be established here and the territorial income tax rate of 0.5 percent would be imposed on capital gains, dividends, interests, royalties, copyrights, patents and other intangibles.”
Inos said these proposed changes to the territorial income tax structure violate the Covenants’ restrictions to limit rebates to commonwealth sources of income. It also breaks the U.S. law that prohibits changes by insular areas that have adopted U.S. tax code, he added.
