Foreign corporation tax bill vetoed for the 2nd time

Fitial also rejects fire safety code bill, but OKs medical records legislation
Gov. Benigno R. Fitial vetoed Friday a revised version of a foreign corporation tax bill that then acting governor Lt. Gov. Eloy S. Inos also vetoed, and they were for the same reasons of violating both the Covenant between the CNMI and the United States and the U.S. tax laws in the NMI Territorial Income Tax.

Rep. Ray Basa’s (Cov-Saipan) House Bill 17-288 seeks to create a tax rate for foreign corporations earning income from outside of the CNMI. It encourages foreign persons to establish a company in the CNMI and thereby shift their income to the Commonwealth and pay a lower tax on their income from foreign operations.

Fitial also vetoed on Friday a bill that adopts the 2009 editions of the International Building Code, the International Fire Code and related construction codes because of technical issues.

But the governor signed at the same time the first House bill introduced in the House in the 17th Legislature, transferring medical records from the Clerk of Court’s Office to the Health and Vital Statistics Office.

Tax bill

Fitial said HB 17-288, the foreign corporation tax bill, has an admirable goal of encouraging foreign corporations to conduct business in the CNMI. But because it violates section 601 of the Covenant and Section 861-865 of the NMTIT, the governor said he must veto the bill.

Section 601 of the Covenant establishes the mirror code version of the U.S. tax laws in the CNMI as the NMTIT.

Sections 861-865 of the NMTIT establish the rules to determine whether income is considered to be derived from the CNMI or outside the CNMI, referred to as “sourcing rules.”

Fitial said the CNMI is restricted in the changes it can make in the mirror code version of the U.S. tax law that would undermine the basic structure of authority established in the Covenant.

“HB 17-288 is in conflict with the Sourcing Rules as it establishes a separate structure for determining whether income is derived from within the Commonwealth of outside the Commonwealth. Thus, HB 17-288 is in conflict with both the terms of the Covenant and the NMTIT,” Fitial said in his veto message to House Speaker Eli Cabrera (R-Saipan) and Senate President Paul Manglona (Ind-Rota).

Basa, the bill’s author, told reporters on Sunday he’s surprised that the governor vetoed again the revised version of the bill, after it already took into consideration the Fitial administration’s concerns on a similar bill that was vetoed for the same reasons that the governor is citing once again.

“We sat down with a revenue and taxation consultant, Mr. Rufino Inos, and worked with the governor’s counsel, Jim Stump, on this second bill. We looked at the problems in the first bill.We thought we ironed out everything so we passed the new bill. I’m surprised it’s vetoed again,” Basa said in an interview at the Republican Party of the CNMI Association’s kickoff rally. At the time, he said he has yet to see the governor’s veto message to the Legislature.

Actions on 2 other bills

The governor also vetoed Rep. Ralph Demapan’s (Cov-Saipan) HB 17-207.

“This is a needed piece of legislation that will strengthen building standards, improve fire safety, and contribute to an infrastructure that will serve the public during typhoons and other natural threats to buildings. Once some technical changes are made to HB 17-207 are made, it will be my pleasure to affix my signature to the bill,” Fitial said.

The governor said there are some problems with the current bill that will create enforcement and legal concerns in the future.

“Rather than signing a bill with known problems, I am respectfully vetoing the bill so we can fix these matters now,” he added.

The governor cited specific sections of HB 17-207 that have problems. For example, Section 5(a), Lines 17-21 and Page 6, Lines 1-2 are ambiguous and unclear. Further, the purpose of the entirety of subsection (a) is unclear as subsection (b) provides the same language and all the information necessary for enforcement.

Fitial said it is important to eliminate superfluous or redundant language in a statute as rules of statutory construction will accord meaning to every statutory provision. The superfluous language in subsection (a) will therefore pose difficulties with enforcement and interpretation in the future.

The governor, however, signed Rep. Ray Tebuteb’s (R-Saipan) HB 17-1, requiring the transfer of medical records such as birth certificates from the Clerk of Court’s Office to the Health and Vital Statistics Office.

The bill is now Public Law 17-77.

Tebuteb, in a phone interview, thanked the governor for signing the first bill introduced in the 17th House into law.

Haidee V. Eugenio | Reporter
Haidee V. Eugenio has covered politics, immigration, business and a host of other news beats as a longtime journalist in the CNMI, and is a recipient of professional awards and commendations, including the U.S. Environmental Protection Agency’s environmental achievement award for her environmental reporting. She is a graduate of the University of the Philippines Diliman.

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