[News] Colonialism at its Finest - How Puerto Rico Became a Tax Haven for the Super Rich

[Anti-Imperialist News]

https://www.gq.com/story/how-puerto-rico-became-tax-haven-for-super-rich


  How Puerto Rico Became a Tax Haven for the Super Rich

Jesse Barron - September 18, 2018
------------------------------------------------------------------------

A year after the tragedy of Hurricane Maria, the 51st state has become 
the favorite playground for extremely wealthy Americans looking to keep 
their money from the taxman. The only catch? They have to cut all ties 
to the mainland (wink, wink).

*The party known as Cocktails and Compliance*—so called for mixing 
alcohol with tax advice—was thrown on a Friday evening in May, in a 
warehouse turned art gallery in Old San Juan. The host had kept his 
guest list confidential: It contained the names of hundreds of 
ultra-wealthy mainland Americans who'd moved to Puerto Rico to avoid 
paying taxes, most of whom were reluctant to advertise that fact. More 
than 1,500 mainlanders have established residency here since 2012, when 
the island rebranded itself as a tax haven, and the annual Cocktails is 
at the center of their social calendar.

At a high table, polishing off a bourbon on the rocks, sat a compact man 
in his 60s wearing a black T-shirt and black suede loafers, no socks. 
This was Mark Gold, the Florida-born kingpin of traffic-ticket 
contesting. Gold has attended Cocktails and Compliance every year since 
moving to Puerto Rico in 2016. “I was looking at different tax havens,” 
he said, “Andorra, Lichtenstein, Monaco. But the problem is, you have to 
give up your U.S. passport. When I heard about this, it was too good to 
be true. But it's real. I live in paradise. I live at the Ritz-Carlton. 
I drive my golf cart to the beach club for breakfast. Then I go to my 
sunset yoga class on the beach.”

A waiter offered to replace his drink. “Why not?” said Gold.

Only seven months had passed since Hurricane Maria laid waste to the 
island's power grid, and one month remained until hurricane season 
returned. A reliable estimate placed the death toll at 4,600; 11,000 
still reportedly lacked electricity. Residents were showering with pots 
and plastic cups. In Manhattan, a federal judge was trying to mediate 
between the various hedge funds that held billions of dollars of the 
island's debt. Every so often the MIT-educated governor went on 
television to extol the virtues of austerity.

In San Juan, the recovery had been notably uneven. Brand-new shopping 
centers abutted hotels that looked arsonized; traffic lights stared 
dead-eyed into the street; FEMA was shuttling relief supplies from the 
waterfront to staging areas. Inside Cocktails and Compliance, however, 
the atmosphere resembled the aftermath not of a natural disaster but of 
a corporate convention, with people who usually saw one another in the 
daytime gradually succumbing to alcohol and dim lighting.

 From the valet station, guests had entered a red-carpeted freight 
elevator, where bartenders poured them sangria. There were reasons to 
raise a toast. In 2012, Puerto Rico had passed two laws intended to make 
the island a “global investment destination.” Act 20 allows corporations 
that export services from the island to pay only 4 percent tax. Act 22 
goes much further: It makes Puerto Rico the only place on U.S. soil 
where personal income, capital gains, interest, and dividends are untaxed.

In order to qualify for Act 22, individuals must prove to the IRS that 
they have become bona fide residents of Puerto Rico, without “close 
contacts” on the mainland. (Most native Puerto Ricans are not eligible 
for the exemption.) At the party, I heard about a man who had lost his 
tax-free status because the IRS smoked out a wife back in Dallas. I 
asked Gold, 63, whether his wife had moved along with him. “Now, this is 
where the colorful-character shit comes in,” he said. “My third wife, 
she's 25. She was in college. I told her, ‘Babe, you gotta go to college 
in Puerto Rico, I'm really sorry. We have this opportunity that I 
/cannot/ pass up. You can stay if you want, but if you stay, we gotta 
get divorced.’ ”

Though the law requires him to spend at least 183 days a year on the 
island, Gold claimed he spends closer to 250. /“Soy boricua,”/ he said 
proudly—I am Puerto Rican.

*The mainlanders who have relocated* are not quite /Forbes/-list 
billionaires, who have access to more complex tax strategies than 
leaving town; they belong to the middle class of the ultra-rich. They 
are new-money people who might not have their congressman's cell-phone 
number back home but who wield influence here in Puerto Rico. “Back in 
the States, I'm just one of 300 million voters,” James Slazas, a 
hedge-fund quant, told me at the party. “Here I've already met a lot of 
the key players.”

Seated nearby was Harry Dent, the best-selling finance writer, who 
established residency in Puerto Rico two years ago. Dent's latest book, 
/Zero Hour,/ foresees an imminent “economic winter season” that will 
eclipse the Great Recession, due in part to the shortage of consumers 
occasioned by the bottoming out of the birth rate in 1973. (The happy 
prospect of the boomer generation hurtling toward decrepitude makes him 
bullish on the health care sector, however.) Puerto Rico appealed to him 
because it was cheaper than Miami and offered excellent small airports. 
He also got to keep his American citizenship, though he had to give up 
his right to vote for president. This last bit didn't worry Dent in the 
slightest.

“I could give a flying fuck,” he said. “We've got a civil war going on. 
Red versus blue. We've got 4 percent unemployment, and I feel safer 
being here than in Miami or New York. The world's going to shit, and 
that doesn't mean Puerto Rico won't go down further. But they are 
already way down. Our bubble hasn't even burst yet.” Behind him waiters 
circulated silver trays of golden phyllo florets. A giant artwork on the 
wall showed a slave on a tobacco plantation, emerging from a background 
of gold leaf.

A little after eight o'clock, a tax consultant named David Marshall 
Nissman strode to the front of the room, where a lectern had been set 
up. Nissman used to be the U.S. attorney for the Virgin Islands. Today, 
he helps wealthy clients parry audits, which tax exiles regard with 
abject terror.

To comply with Act 22, Nissman said, it all came down to what everyone 
called “making days.” If you spent fewer than 183 days a year on the 
island, the feds could recoup all the taxes you hadn't been paying. The 
good news was that there were a lot of ways to obey the letter, if not 
the spirit, of the law. There was the “one minute” rule: A single minute 
on the island counts as a full day, as far as the IRS is concerned. You 
can touch down your Learjet, get a receipt at the airport Starbucks, 
then continue on to the Virgin Islands for dinner. The local government 
could be accommodating as well: In 2017 all Puerto Rican tax exiles got 
a 117-day “award” due to Maria.

A Puerto Rican–born lawyer specializing in Act 22 compliance, who asked 
for anonymity to speak about his work, told me that he no longer 
represents clients seeking to relocate because “people were taking 
advantage.” He described a prospective Act 22 recipient saying, “ ‘I'll 
take my private jet and fly down; then I'll take my boat and go 
somewhere else. They won't know.’ ”

As Nissman warned against exactly such behavior, a slim man in a black 
blazer and jeans sat nearby with his hands folded in his lap. Robb Rill 
was the host of Cocktails and Compliance and the glue at the center of 
the tax-exile community. During the party, he observed his guests like 
an anxious football coach hoping a rowdy busful of athletes will refrain 
from mooning the highway. And that was at the /beginning,/ while people 
were mostly sober.

The open bar kept serving during dinner and through the lectures. 
Neckties loosened. In the middle of my interview with Mark Gold, Rill 
stopped by our table to caution him, “Once it's in print, it's in print.”

This warning, of course, made it inevitable that Gold would demonstrate 
its wisdom. During a presentation on the Trump tax plan, Gold shot up 
his hand: “Is it true that we can now write off the purchase of a jet in 
one year?”

“No, no,” said Rill, almost inaudibly. But it was futile. All the 
pent-up energy in the room, stifled by the minutiae of the SALT 
deduction and the income-sourcing rule, unwound itself into cheering and 
applause.

“That is exactly the image,” said Rill, “that we are /not/ trying to 
portray.”

*Robb Rill grew up in Florida* and made his money in private equity. In 
2011 he and his wife, then a securities trader, went looking for tax 
havens. At first they settled on the Virgin Islands, selecting a house 
on the edge of a cliff. The house turned out to be a metaphor: 
Immediately after they found it, a dispute with a local official blew up 
their plan. A Google search led them to Puerto Rico and Act 22, and by 
2013 they were here.

Rill invited me to his office for a “healthy yet delicious meal,” and I 
parked on a bright afternoon at an office building behind a Starbucks. 
Rill is 47 but looks younger, with his hair pulled back in a bun and a 
goatee framing a pale, tapered face. “I was one of the first ten people 
to actually move under Act 22,” he said, taking his seat in a red-walled 
conference room. “There was literally nobody here.” His accountant, 
Jorge Kuilan, sat to his left, wearing a paisley shirt and a cryptic smile.

Rill wanted to convince me that the acts were an economic boon to the 
island. The “tax hacks”—as he called them—created jobs for Puerto 
Ricans, like Kuilan. (The acts together have created 12,000 new jobs, 
according to the government, out of a total workforce of 1.1 million.) 
Rill's 20/22 Act Society, the organization that hosts Cocktails and 
Compliance, also funded relief work after Maria. On weekends, he rescued 
street dogs; he had opened a shelter for them, on an old farm several 
miles outside the city. “We're trying to break the stereotype,” he said, 
of “a bunch of rich guys flying in on their private planes, 
helicoptering into their private walled resort.”

    During a presentation on the Trump tax plan, one audience member
    shot up his hand: “Is it true that we can now write off the purchase
    of a jet?”

As he spoke, his personal chef entered the conference room. She was 
carrying plates of branzino, lentils, zucchini, and mushrooms, 
prepared—Rill explained—according to the principles espoused in a 
dietary manual called /How Not to Die./ Page 135 counsels the reader to 
drink hibiscus tea; Rill sipped a crimsony liquid from his thermos. 
“This may all be ridiculous,” he said, “but if it's true, I'll be 
healthy forever. It's an asymmetric trade, the kind of trade I like.”

As a rule, tax hackers in Puerto Rico live in one of two neighborhoods. 
Single people favor the beachfront in Condado, which has easy access to 
hotel bars and nightclubs. Married people like the Rills prefer Dorado 
Beach, where the Ritz-Carlton runs a hotel and residential enclave. In 
Dorado, the couple bought two units and combined them. “I'm told I have 
the largest condo on the island,” Rill said. “I'm in 8,000 square feet.” 
(The acts used to require that mainlanders buy property, but like most 
of their requirements—including a stipulation to employ five local 
residents—it was erased by subsequent revisions meant to entice more 
wealthy people to relocate.)

Rill was emphasizing his footprint because it demonstrated his 
investment in the island; no “close contacts” on the mainland for him. 
“Some people I know have tried to play fun and games,” he said. “We 
don't want the schemers here.”

Rill assured me that I would find more people like him. I did find a 
few. Lauren Cascio, 30, moved to the island six years ago. There were 
incentives here she didn't have elsewhere, like a tax credit for 
manufacturing and the ability to hire from an incubator for Puerto 
Rican–born engineers. She's raised her two children here while starting 
a company, Abartys Health, which sells data-management software and 
employs ten local engineers.

“Everyone I employ is Puerto Rican,” she said. “I live a Puerto Rican 
life. I'm not ‘making days.’ ” I asked whether she believed everyone 
should have to hire locals in order to get the exemption. “People here 
will hate me for saying this,” she said, “but they shouldn't have 
reduced the job requirement.”

I also spoke with María del Mar Ortiz, a Puerto Rican native who left 
the island for college and eventually took a job in finance. A few years 
ago, she opened We Got This, a concierge-and-lifestyle business that 
caters to tax hackers. “It's a big opportunity for me,” she said. Her 
employees drive men like Rill and Gold, cook their meals, clean their 
bathrooms, help them furnish a new house. I asked how much of her 
business was attributable to the acts. One hundred percent, she said.

While Rill, Cascio, and Ortiz could speak convincingly about the 
positive effects of the tax policies, they were not the most ardent 
believers in Act 22. That distinction went to an independent stock 
trader I met named Lobo Tiggre. A slim man in middle age wearing silver 
bracelets and a black beard, he met me for a beer on the terrace at the 
Condado Vanderbilt Hotel. He and his wife had arrived as residents four 
minutes before midnight on December 31, 2013.

“I believe it is my moral duty to minimize my taxes,” Tiggre said, and 
Act 22 was a legal way to pay the absolute least. Tiggre thought, 
indeed, that the privilege he enjoyed should be extended to everyone. 
Some things that taxes pay for, like the police and the military, he 
said could be supported through voluntary contributions. “If people are 
too stupid to voluntarily agree to band together and defend themselves,” 
he said, “then maybe they deserve to be conquered by Attila the Hun.”

*The Serafina Beach Hotel in Condado* hosts a pool party every weekend 
that is popular with the younger tax hackers. Here the proprietor is 
Vittorio Assaf, the parodically charismatic restaurateur who made his 
name and fortune in New York City, opening Café Candiotti, with original 
paintings by Andy Warhol inside, in the '80s and establishing Serafina 
in 1995. He had been lured to Puerto Rico by John Paulson, a hedge-fund 
manager who'd bought up much of the real estate in Condado. “When John 
invited me, you know, he was trying to invent Puerto Rico,” Assaf said. 
(Paulson still lives in New York.)

I asked if Act 22 had delivered on its promise of lifting the island's 
economic fortunes. “They come all the time, they spend money,” he said 
of tax hackers. “They buy apartments, they do investment on the island. 
I mean, I guess it's fantastic. If they didn't have these guys coming 
down, then there would be really big trouble.”

There were bottles of pink champagne in dewy silver buckets, a DJ, an 
infinity pool. Shimmy McHugh, a nightlife impresario from New York, was 
at a prime table, chatting with a friend, the Puerto Rican–born 
president of a water-filtration company. They surveyed the scene. “We 
lost, I have to say, 80 percent of our good-looking women in the last 
two years,” McHugh said. “Bad economy, and Maria was the icing on the cake.”

For McHugh, Act 22 was essential, an unmitigated good. “See that guy 
right there?” he said. “Black shirt and khaki pants? Five million a year 
in the Internet affiliate-marketing space. This guy has no problem 
dropping four grand a night.”

McHugh's friend agreed: “For a club owner or a promoter like Shimmy, 
it's good. You have this guy at a table, and he's spending that money, 
and you have other guys at another table. They start competing with each 
other.” I excused myself to go find a pack of cigarettes.

At the liquor store across the street, George Rivera, 29, was working 
his shift. He knew about the tax hackers but never saw them; they didn't 
do their own shopping, as far as he could tell. Rivera earned $7.25 an 
hour. “I pay 11.5 percent in taxes” plus a 30 percent markup on imports, 
he said. Yet the island was a mess. The power grid lay shattered, and 
hurricane season was on its way. “We need taxes from the /rich./” Rivera 
shook his head. It's like the rest of the U.S., he concluded: “It's the 
same shit.”

*In San Juan,* I often heard some version of the following aphorism: “A 
few percent of something is better than 39 percent of nothing.” Meaning: 
“The few dollars we contribute in sales and property tax is better than 
the zero dollars we'd contribute if the incentives hadn't drawn us down 
here.” Peter Schiff, a libertarian podcast personality who moved to 
Puerto Rico after Act 22, put it bluntly: “Who would come to a bankrupt 
island to pay high income taxes?”

Act 22 was only the latest tax incentive cooked up by the government. 
The economy here used to run on sugar, and when the price of sugar sank 
in the 1930s, the island began offering tax breaks to corporations that 
opened factories here. In the short term, the policy ignited a boom. 
Workers sewed clothing; StarKist canned tuna; factories churned out 
paper, cement, and glass.

When manufacturing collapsed in the '70s, the federal government 
engineered a second boom by enticing pharmaceutical companies to 
relocate to the island. In 1989, Pfizer got $156,400 in tax breaks /per 
employee./ By 2004, they were reportedly manufacturing 100 million 
Viagra pills a year in Barceloneta. But the tax break that supported 
those jobs was sunsetted by Congress in 2006, just in time for the Great 
Recession.

    She asked, “Are we on record?” When I said we were, she smiled,
    touched her sunglasses, and stared silently out the window.

To sell Act 22, the secretary of economic development met privately with 
financiers in cities across the United States, and the government hosted 
investment summits in San Juan. At one event, in 2015, Rudy Giuliani 
gave the keynote address. Bloggers predicted the next Singapore, the 
next Dubai, the next Hong Kong.

Manuel Laboy Rivera, the official currently in charge of the policy, 
told me, “The rationale is these individuals will never consider Puerto 
Rico in the first place, never consider bringing their capital and 
wealth on the island.” He stressed the importance of “bringing 
diversity,” people with “all kinds of backgrounds: investment bankers, 
consultants.” He has never turned down an application under Act 22.

Rafael Bernabe, a professor of literature at the University of Puerto 
Rico and two-time candidate for governor on the Working People's Party 
ticket, doubted the new laws would be any more durable than those that 
had come before: “They can't think of anything besides new versions of 
the same policy. ‘Let's try and invite wealthy people.’ That's a drop in 
the bucket. They will hire a few gardeners, create jobs for a few more 
waiters.”

Bernabe suggested that the government has kept the initiatives hidden in 
gated communities and hotel conference rooms entirely by intention. 
“Having a little island of affluence in the midst of this crisis? The 
more hidden it is, the better. When people find out, they will say, 
‘Motherfucker, why can't the government find some programs to help /me?/’ ”

“Well,” I said, “they claim a few percent of something is better than 39 
percent of nothing.”

“If I am a beggar in the street,” Bernabe shot back, “and they give me 
‘something,’ I will say thank you. But it would be better if I wasn't a 
beggar.”

*It was gray and spitting rain* when Mark Gold took me out in his golf 
cart in Dorado Beach, a lush and quiet development of 500 homes, some of 
which are managed by the Ritz-Carlton, invisible from the main road. 
Once a coconut and grapefruit plantation, Dorado Beach is now flooded 
with tax hackers; home prices doubled overnight after the passage of the 
acts.

“The guy I bought my house from paid one point three million,” Gold 
said. “I paid two point six. My property tax is $4,000 a year. They 
haven't re-assessed it since 1957.”

“What?”

“Mm-hmm. Go ahead and print that. Maybe they'll figure it out.”

We passed a trio of luxury-apartment towers. “This is called Plantation 
One, Two, and Three,” said Gold. “That's where Robb lives. He's got 
8,000 square feet. I guess he needs that for him, his wife, and his 
dog.” We passed a water park where children were playing in the 
sunlight. “We've got two slides,” said Gold. “The slides are sick, man.”

On the drive back toward Gold's house, we skirted a wide green field 
where a helicopter was parked—the quickest way to the airport. A woman 
supervised her toddler, who was playing on the gleaming black machine.

I asked Gold, who was not on the island during Maria, how the hurricane 
had affected the area. “Half the island closed and didn't reopen,” he 
said. “Unfortunately the Ritz spa is closed. It was phenomenal. Part of 
our nature trail, too. It was like a tropical forest. It was hammered.” 
Even the Ritz hotel itself—where, for $999 a night, the rooms include 
dedicated butlers—remained closed, though in the aftermath of the storm, 
when much of the island wanted for fuel and emergency services, a 
private security force with firearms protected the Dorado Beach grounds, 
so nothing befell them.

*On one of my last afternoons in San Juan,* I met Brian Tenenbaum, a 
real estate developer. Tenenbaum moved here in 2014, looking for 
distressed buildings to buy and renovate. Starting from the Vanderbilt 
hotel, we took my rental car for a tour of his properties.

“So you see,” Tenenbaum said as we bounced on spotty roads, through 
glitching streetlights. “Bombed out, bombed out, bombed out, bombed out, 
bombed out, bombed out, abandoned, abandoned. Here, we're fixing this up.”

Across from the fenced-off waterfront, we saw several blocks of concrete 
skeletons. These, said Tenenbaum, were a new development project, 
located where a thousand public-housing units had previously been 
demolished. The new buildings would hold 200 or 300 larger apartments, 
some market-rate and some subsidized. “It's the new model of how you do 
affordable housing,” he said.

We stopped at a white stucco building with rounded colonial edges, azure 
trim, and a terra-cotta roof. Tenenbaum's firm bought it out of 
foreclosure—the Puerto Rican owner lost the property during the crisis 
to a bank, which sold it to Tenenbaum's firm at a discount. Tenenbaum 
would lease the studios there for $1,800. He then took me to Santurce, a 
central neighborhood built around a wide tree-lined boulevard, to look 
at his potential pool of tenants. “See how it's getting lusher and 
green? This is where my office is.”

Tenenbaum's lunch date was a scout from a hedge fund who was here to 
meet with the Puerto Rican authorities about the government's bond debt. 
Most of the people who spoke with me for this article seemed unsure of 
how to talk to a reporter, and it was not uncommon to spend a relaxed 
afternoon with a person and receive several urgent messages the next 
day. Marc Bejarano, who works at a local start-up incubator, spoke to me 
on the phone for an hour, then texted to ask if we could “collaborate” 
on this article because, he explained, “it'll be hard to write a piece 
with this subject matter in such a way as to not lead the reader to draw 
certain conclusions.” This scout belonged to a different stratum of 
financial player. No sooner had the car door closed than she asked, “Are 
we on record?” When I said we were, she smiled, touched her sunglasses, 
and stared silently out the window.

I tried to imagine the city through the eyes of this scout and her 
hedge-fund clients. As soon as I did, Robb Rill and Mark Gold and even 
the acts themselves began to seem like a sideshow to what was really 
happening in Puerto Rico. There were forces operating here that had no 
interest in the property taxes at the Ritz or which pool you swam in on 
Saturdays. The real money talked directly to the government about the 
power grid and the outstanding debt, issues that could make or break the 
entire economy. The acts only reflected reality: Government is a 
business, and its most important customers are the rich.

“At some point soon, we're going to have 10,000 individuals,” José 
Pérez-Riera, the government secretary who first conceived of the acts, 
told me. “Just imagine the amount of development. This is the beginning 
of the story, if you will.”

As I was driving Tenenbaum through the center of San Juan, I saw 
something in the middle of the road, green and fluorescing in the 
afternoon sunlight. I realized it was an iguana just before I drove over it.

“Did I hit him?” I said.

“Don't worry,” said Tenenbaum. “Here they encourage you to eat them.”

He was right. Green iguanas are an invasive species in Puerto Rico, and 
the government was encouraging consumption as a form of population 
control. Introduced as pets, the animals were initially quite rare. 
Indeed, no one noticed iguanas in the early years: Puerto Rico contains 
a highly diverse biosphere, in which a thousand new animals could exist 
for a brief period without anyone paying any mind. But the climate of 
the island agreed with them, and soon their numbers grew exponentially, 
until suddenly iguanas were turning up everywhere—burrowing under roads, 
swarming airport runways, consuming all the crops. The farmers realized 
they should kill them, but by now it was too late.

*Jesse Barron* /is a journalist based in Los Angeles./

/A version of this story originally appeared in the October 2018 issue 
with the title "Puerto (Very) Rico: The Newest Haven for the Super Rich."/

-- 
Freedom Archives 522 Valencia Street San Francisco, CA 94110 415 
863.9977 https://freedomarchives.org/
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