alerta contributiva 07-13 - camarapr.org

ALERTA CONTRIBUTIVA 07-13

El pasado 30 de junio de 2013, se firmo la Ley de Redistribución y Ajuste a la Carga Contributiva, numero 40. Esta trae consigo varios cambios que afectan las entidades que hacen negocios en PR. Entre los cambios más significativos se encuentran los siguientes:

Contribución regular sobre ingresos corporativos

Aumenta las tasas de un máximo de 30% a 39%.

La exención de la sobre tasa de contribución regular o “surtax” se reduce de $750,000 a $25,000.

Las perdidas arrastrables solo se deducirán en un 90% para contribución regular.

Limita los pagos hechos a una relacionada a 49% del gasto incurrido o pagado.

Contribución Alternativa Mínima

Cambia la formula o el computo alternativo mínimo o AMT regular al 30% mas la Patente

Nacional o 20% de servicios a afiliadas fuera de PR

mas 2% de compras a afiliadas fuera de PR mas la Patente Nacional.

Las perdidas arrastrables solo se deducirán en un 80% para contribución alternativa mínima (AMT).

La tasa de AMT aumenta a 30%

Los cargos entre entidades relacionadas estarán sujetas a un impuesto de 20% incluyendo los cargos de Home Office.

Establece una Patente nacional de .2 a 1% dependiendo la industria y el volumen de ingresos brutos del negocio.

Compras a relacionados estarán sujetas a un impuesto de 2%.

Impuesto de Ventas y Uso

Eliminación del certificado de revendedor. (efectivo 1 de agosto de 2013)

Crédito de 70% de IVU pagado por el revendedor o Pudiera aumentar el crédito a 100%, bajo

ciertas circunstancias; o El crédito no vence, se puede acreditar en

otros periodos; o Bajo ciertas reglas, el Secretario puede

autorizar el uso del crédito contra otras contribuciones o emitir un reintegro.

Los siguientes servicios deben cobrar IVU del 1 de julio de 2013 en adelante:

o Cargos bancarios, agencias de cobro, seguridad, limpieza, lavandería, reparaciones (incluye mantenimiento), telecomunicaciones, recogido de desperdicios.

Impuesto de 1% en prima de seguros

Individuos

Sobretasa de 2% si el ingreso bruto excede $200,000.

Limitación de la deducción de intereses hipotecarios en exceso de $35,000.00

Aumento en la contribución alternativa mínima.

Dispensas provistas por el Secretario de Hacienda

Carta Circular 13-5 – Solicitud de Reducción del porciento de la Patente Nacional o Solicitud de dispensa a través de opinión

administrativa (costo de $1,500.00 para Hacienda)

Incluir una opinión emitida por un Contador Público Autorizado (debe pertenecer a un programa de revisión entre colegas o “peer review”), sobre los acuerdos establecidos por el Departamento o “agree upon procedures”.

Carta Circular 13-6 – Solicitud de reducción de la exclusión de ciertos servicios provistos por relacionados o Solicitud de dispensa a través de opinión

administrativa (costo $1,500.00 para Hacienda)

Incluir una opinión emitida por un Contador Público Autorizado (debe pertenecer a un programa de revisión entre colegas o “peer review”), sobre los acuerdos establecidos por el Departamento o “agree upon procedures”.

Carta Circular 13-7 Solicitud de eliminación total o parcial de las compras a relacionados.

o Solicitud de dispensa a través de opinión administrativa (costo $1,500.00 para Hacienda).

Incluir un estudio de transferencia de precios o “transfer pricing analysis”

De tener alguna pregunta o duda en cuanto como estos cambios pudieran afectarles y/o como solicitar las dispensas, no dude en comunicarse con nosotros al 787-722-3620 o por correo electrónico [email protected].

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication including any attachments) was not intended or written to be used, and cannot be used, for the

purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein

mailto:[email protected]

© 2013 FPV & Galíndez,

CPA’s, PSC

HouseProject#1073�“theBill”�HouseProject#1073�“theBill”�HouseProject#1073�“theBill”�HouseProject#1073�“theBill”�

Aftermonthsofspeculations,discussions,lobbying,andanalysis,thelegis-

laturehascompletedtheTaxBillthatwillprovidethegovernmenttheaddi-tional$1.5billiondollarsneededtobalancethebudget.

Sadly,theendingresultmakesourtaxsystemmorecom-plex, less attractive for the development of new opera-tionsand less fairsince it fallsalmost entirelyupontheIsland’s productive groups. On the bright side the ap-provedlegislationislessharmfultotheeconomythantheoriginalproposals.

AlternativeMinimumTax�“AMT”�forcompaniesAlternativeMinimumTax�“AMT”�forcompaniesAlternativeMinimumTax�“AMT”�forcompaniesAlternativeMinimumTax�“AMT”�forcompanies

TheAMTismodi'iedsubstantiallyinvariousaspects. TheAMTwasamini-

mumtax forentitiesthatwerenotpaying incometaxesastheresultof the

applicationofthetaxlawsandspecialrules. TheAMTusedtohavetheim-

pactofminimizingthebene'itofthesetaxingrulesandimposedaminimum

taxtothecompaniesthatotherwisewouldhavenotpaidincometaxbecause

ofthebene'itsofthesetaxingrules. Asyouwillsee,theAMTwillnowbea

tax foranycompanywithout considering if theentity isactually inaneco-

nomicnetincomepositionornot.

Among the changes included in the AMT are:

♦ Thetaxrateisincreasedfrom20%to30%.Notethatthisratewas22%foralongtimeandwasreducedwiththeimplementationoftheNewPuertoRicoInternalRev-enueCode(“PRCode”).

♦ Commencingwith taxable year 2013, to get to the alternativeminimumnetincome,noaddbackadjustmentforpaymentsmadetorelatedentitiesnotsubjecttotaxwithholdingsforservicesrenderedoutsidePuertoRicoisnecessary.

♦ Anincreasefrom50%to60%fortheadjustmentregardingtheexcessoftheadjust-ednetbookincomeoverthealternativeminimumnetincome.

♦ ThenetoperatinglossesadjustmentforAMTpurposeswillnowbelimitedto80%ofthealternativeminimumnetincome.Itwaspreviouslyat90%.

♦ The sales of the companies that are subject to the tax on the personal propertyboughttorelatedcompaniesoutsidePuertoRicoisloweredfrom$50millionsto$10millions.

Change in the Computation of the AMT:

TheAMTcomputationwillnowhavetwoparallelcomputationsofwhichthecompanywillelectthehighest,compareitwiththeregulartaxandpaythehighestofthethree.

1. The'irstcomputationisthesumoftheregularAMTasitwasknownbeforethisBillbutconsideringthechangesincludedintheBillandthenewenactedadditionaltaxongrossincomeasdescribedinsection1023.10(e)ofthePRCode.Thisnewtaxwillbefurtherexplainedinthenextsection.

2. Thesecondcomputationisthesumofthreefactors,asfollows:

a) 20%oftheexpensesincurredorpaidforservicesrenderedbyarelatedpersonnotsubjecttoincometaxwithholdingatsource;

b) ifthecompanieshavesalesofmorethan$10millions,a2%appliedtothevalueofthepurchasesofpersonalpropertymadetoarelatedpersonortothetrans-ferofsuchpropertyfromaHomeOf'iceoutsidePuertoRico;and

c) theamountofthenewenactedadditionaltaxongrossincomeasdescribedonsection1023.10(e)ofthePRCode.

© 2013 FPV & Galíndez, CPA’s , PSC

2222

FPV&Galíndezcomments:

It will appear that the AMT credits are still in place, therefore the amount paid here

will be available to be credited at any time the regular tax is higher than the AMT.

However, unless a change is made to the law, it is possible that no credit will ever be

realized. The logic of imposing the new additional tax on gross income as an income

tax item is to made it available to be credited in jurisdictions outside Puerto Rico. Also,

please be advise that a reduction of this tax may apply in certain cases. We strongly

suggest to consult with your tax specialist.

GrossIncomeAdditionalTaxGrossIncomeAdditionalTaxGrossIncomeAdditionalTaxGrossIncomeAdditionalTaxTheBillimposesanadditionaltaxonthegrossincome.AsdiscussedabovethistaxispartoftheAMTcomputationandwillapplyevenifthetaxpayermadeanOption94Election.Theapplicabletaxratewillbedeterminedasfollows:

Thegrossincometodeterminethetaxratewillconsiderthegrossincomeofalltheapplicableentitiesofa controlledgroupor relatedentities,without consideringa'inancialinstitution.Also,andasageneralrule,grossincomewillbethegrossincomefromallsources,lessanyexemptincomeasprovidedunderthePRCode.Inthecaseofgainonsaleofproperty,thegrossincomewillbethegrosssaleswithoutconsideringthecostofthepropertysold(costofsales).

If the gross income is: The tax rate will be:

For business other than a financial business:

From $1 million to $3 million .20%

In excess of $3 million up to $300 million .50%

In excess of $300 million up to $600 million .70%

In excess of $600 million up to $1,500 million .80%

In excess of $1,500 million .85%

For a financial business:

All gross income 1%

3333© 2013 FPV & Galíndez, CPA’s , PSC

TheBill provides for thede'initionofwhatwill constitute gross income for certainspeci'icindustries,suchas:insurancebusiness,gasstations,commissioners,brokers,agents, contractors, advertisement agencies, auto concessionaires or distributors,amongothers. Accordingly, specialattentionshouldbeconsideredwhendetermin-ingthegrossincomeforsuchkindofindustries.AcreditagainsttheincometaxortheAMTmightbeclaimedfortheadditionaltaxongrossincomepaid,butonlyfora'inancialbusi-ness.Thecreditwillbelimitedto.5%ofthegrossincome,andanyexcesscreditnotclaimedcouldbecarriedforward.Innocase,thecreditnotusedwillbereimbursed.

Thefollowingentitieswillbeexemptfromthepaymentofthisaddi-tionaltaxonthegrossincome:

1.Corporationsenjoyingfromataxexemptionunder:a)The2008EconomicIncentiveDevelopmentAct(Act73-2008),oranyequivalentpriororsubsequentact.b)The2010TourismDevelopmentActofPR,oranyequivalentpriororsub-sequentact.c)Anyotherspecialactthatgranttaxexemption,butwithrespecttothein-comederivedfromitsoperationsandcoverunderadecree,resolutionortaxexemptiongrantedundersuchspecialact.

2. Corporationsthatoperatebona'ideagriculturebusiness.3. Nonpro'itorganizations.

4. PremiumincomefromMedicareAdvantage,Medicaid,MiSaludInc.andannuities.

Apartialwaiver topay thisadditional taxmightbegrantedby theSecretaryof theTreasury to corporations other than a 'inancial business if it can be demonstratedthatsuchtaxwillcauseanundueeconomicdamageduetoitssigni'icanceoncecom-paredtothegrossmarginoftheentity.SuchwaiverwillrequireanAgreedUponPro-ceduresfromaPRlicensedCPAthatparticipatesinaPeerReviewProgram.Also,theadditionaltaxmustbeconsideredintheestimatedtaxrequiredpayments.Accordingly,theBillprovidesthatsuchtaxmustbeconsideredintheremainingesti-matedtaxpaymentsinstallmentsdueaftertheeffectivedayoftheactonceenacted.Thisrequirement to include theadditional taxon theestimated taxremainingpay-mentswillapplynotonly to individualsandcorporations,butalsototheestimatedtaxpayments required tobemadeon thedistributable shareof a shareholderof apartnership,specialpartnershiporcorporationofindividuals.

4444

© 2013 FPV & Galíndez, CPA’s , PSC

REACTIVATIONOFTAXCREDITMORATORIUMREACTIVATIONOFTAXCREDITMORATORIUMREACTIVATIONOFTAXCREDITMORATORIUMREACTIVATIONOFTAXCREDITMORATORIUM

Anewtaxcreditmoratoriumisimposed,similartotheoneimposedunderAct7of2009.TheBilllimitstheuseofcertaintaxcreditsfortaxableyearsthatbeginafterDecem-ber31,2012andpriortoJanuary1,2016.Amongthecreditsthathavebeenlimitedare:solidwaste,capitalinvestmentfunds,SanturceTheaterDistrict,easementcon-servation,revitalizationofurbancenters(212credits),certainsocialinteresthous-ingandhousing infrastructurecredits, andcredit forpurchaseof locallymanufac-turedproducts. Creditsgeneratedbymanufacturingoperations, tourismactivitiesandcinematographicprojectsarenotcoveredbythemoratoriumandshouldnotbeaffectedbyit.Ifoneoftheaforementionedtaxcreditswasacquiredbypurchase,orgranted,priortoJune30,2013suchcreditshallnotbesubjecttothemoratorium;however,anycreditsuchclaimedwillbelimitedto50%ofthecorrespondingtaxofthetaxableyearinwhichthecreditisclaimed.Also,theBillincludesa50%limitationoncertain212creditsissuedfor'iscalyear2013-2014,2014-2015and2015-2016.

Furthermore,theBillrequiresthe'ilingofaformwiththeTreasuryDepartmentpri-ortoJuly31,2013detailingallcreditsissuedandownedbyaperson,evenifthecreditsarenotsubjecttothemoratorium.Failuretoincludeanycreditonsuchin-formativereturnmightcausethecancellationofthecredit.

Issuance of Credits upon approval of the Act

NotaxcreditsshallbeissuedfortaxableyearsthatbeginafterDecember31,2012andprior to January1,2016. Among thecredits thathavebeen limitedare:solidwaste,capital investment funds,SanturceTheaterDistrict,easementconservation,Revitalization of Urban Centers (212 credits), certain social interest housing andhousing infrastructure credits, and credit for purchase of locally manufacturedgoods.However, in thecaseof212Credit, if theprojecthadaneligibility certi'icate 'iledwiththeTreasuryDepartmentbeforetheeffectivedateoftheactanditdoesnotex-ceed $15,000,000, the credit could be issued. A maximum aggregate of$40,000,000 in credits per year can be granted during thismoratoriumperiod.Also,inthecaseofalltheabovementionedcredits,ifallthedocumenta-tiontorequest thecredithadbeenduly 'iledprior to June30,2013, thecreditcouldbeissuedbythecorrespondingagency.


Notwithstandingtheabove,anycreditsuchgrantedcouldbeclaimedupto50%ofthecorrespondingtaxofthetaxableyearinwhichthecreditisclaimed.

ChangestoSalesandUseTaxProvisionsChangestoSalesandUseTaxProvisionsChangestoSalesandUseTaxProvisionsChangestoSalesandUseTaxProvisions

MerchantIssuesMerchantIssuesMerchantIssuesMerchantIssues

TheBillmadevariouschangestotheSalesandUseTax,asfollows:♦ EverymerchantengagedinanybusinessthatsellstaxableitemssubjecttotheSales

andUseTax(“SUT”)hasthe obligationtocollecttheSUTasawithholdingagentex-cept:

a)Merchantsthatprovidesrepairservicestoaregisteredmerchant.Inthistransaction thepurchasermerchant is theresponsible for thepaymentofthetax.b)ManufacturersoftaxableitemsthatrequestandobtainfromtheSecre-taryawaiverforwithholdingtheSUTinsalestowholesalers.

♦ TheexemptionforpaymentoftheSUTformerchantholderofaResellerExemptionCerti'icateendsonJuly31,2013.AtaxableitemacquiredexclusivelyforresalebymerchantsholderofaResellerExemptionCerti'icatequali'ies forawaiver topaytheSUTwhentheitemisorderedandpaidpriortoAugust1,2013.

♦ After July 31, 2013 the Reseller Certi'icate only entitles themerchant to claim a

creditfortheSUTpaidontaxableitemsforresale.Thiscerti'icatewillbevalidforoneyear.ThecreditmustbeclaimedintheMonthlySalesandUseTaxReturnoftheperiodwhentheSUTwaspaid.Anyunclaimedcreditmaybecarriedovertosubse-quentMonthlySalesandUseTaxReturns,untilfullyexhausted.

♦ Everymanufacturing plant is entitled to request an Exemption Certi'icate for thepaymentofSUT.Thiscerti'icatewillbevalidforthreeyears.

♦ Merchantsthatopena“demanddepositaccount”,asexplainedlater,mayclaimonehundredpercent(100%)ofthecredit.Inothercasesthecreditislimitedto70%ofthetax.

♦ TheBillalsointroducedanewtermnamed“EligibleReseller”.AnEligibleReseller

isde'inedasadulyregisteredmerchantthatpurchasestaxableitemsmainlyforthesaletoapersonthatmayacquiretheitemsexemptfromthepaymentofSUTases-tablishedonChapter3ofSubtitleDof thePRCodeor forexportation.TheBillau-thorized the Secretary to issue an Exemption Certi'icate to this kind of reseller.Thiscerti'icatewillbevalidforoneyear.

© 2013 FPV & Galindez, P.S.C


Theterm“mainly”meansthatduringaperiodofthree(3)taxableyearspriortothedeterminationyear,aneightypercent80%)ormoreoftheinventoryretiredisforthequali'iedsales.

♦ The Bill authorizes the Secretary to demand as a requirement to establish a

“demand deposit account”inalocal'inancialinstitutionforpurposestoremittheSUTtotheDepartmentoftheTreasury.TheSecretarywillestablishbyregulationstheprocessrelatedwiththisrequirement.

♦ TheBillreducestheannualgrosssalesrequirementto$100,000inor-

der foramerchant toberequired toelectronic transfer theSUTcol-lectedduringthemonth.

♦ TheBillordertheSecretarytoestablishthe“TheSalesandUseTaxAuditPlan”to

increasethecollectingoftheSUT.

FPV&Galíndezcomments:In our opinion the major change that introduced the Bill is the payment of the SUT im-

posed to the resellers after July 31, 2013 in the purchase of inventory for sale. Resellers

will have a negative impact in their cash /low, especially those that are required to

maintain large amount of inventory. Also, these merchants will have to establish addi-

tional accounting controls in order to assure the claim of the credit for the SUT paid.

SalesandUseTaxonTaxableServicesSalesandUseTaxonTaxableServicesSalesandUseTaxonTaxableServicesSalesandUseTaxonTaxableServices

TheBillimposesoraddssalesandusetaxonthefollowingservices:

♦ Leasesincludingthoserentsofordinaryautosuchasoperatingleasesthatcon-stitutesadailyrentcommonlyknownas“DailyRental”.

Inaddition, it emphasizes that services rendered toapersonengaged ina tradeorbusiness or for the production of income (commonly known as “B2B”) is excludedfromsalesandusetaxwiththeexceptionofsomespeci'icservicesthatnowwillbesubjecttosalesandusetaxasfollows:

• Bankservicechargesmadeby'inancialinstitutionstotheircommercialclients• Collectionservices• Securityservices,exceptforthoseservicesprovidedtoresidentsassociationor

condominium.• Cleaningservices


• Laundryservices • Repairservicesincludingthoseservicesprovidedunderawarrantyandthatare

notcapitalized• Telecommunication services as de'ined under Section 4010.01(kk)of the

PRCode.• Collectionofwaste

If theservicesmentionedaboveareprovidedbyaperson that ispartofacontrolledgroupofcorporationsorbyacontrolledgroupofrelatedentityasde'inedunderSec-tions1010.04and1010.05ofthePRCode,nosalesandusetaxwillapply.

BRIEFOFTHEJOBSNOWACT:Bene:itsandIncentivesBRIEFOFTHEJOBSNOWACT:Bene:itsandIncentivesBRIEFOFTHEJOBSNOWACT:Bene:itsandIncentivesBRIEFOFTHEJOBSNOWACT:Bene:itsandIncentives

OnFebruary10,2013theJobs Now Act (Act) wasenactedaspartoftheGovernmentini-tiativetostimulatethecreationof50,000jobsduringthefirst18monthsfollowingtheact.TheActprovidesforaprogramtoencouragethecreationofjobsandaprogramtoexpeditetheprocessofestablishingorexpandingoperationsinPuertoRicoprovidingfortheagilitytoobtainpermitsrequiredtooperateintheIsland.TheprovisionsoftheActareapplicabletoanEligible Businesswhichcoversanynatu-ralorlegalperson(corporate,limitedliabilitycompany(LLC),partnerships,individu-al,etc.),whichasageneralrule,doesnotenjoy froma tax incentiveunderotherincentiveacts,suchastourism,industrialorfilmindustryact,exportofservice,hospitalunits,amongothers.

InordertoqualifyasanEligible Business,theentitymust:

• have a minimum capital investment of 15%, or

• must deposit or keep 1% of its Puerto Rico gross sales in a local

bank or cooperative, for a period of at least 3 years.

AsanEligible Business,theentitywillenjoyfromthefollowingbenefits:♦ Alternateexpediteorquickprocessfortheevaluationandgrantofpermits.♦ Flexibleprogramstofacilitatethefinancingofitsoperations. ♦ Anenergycreditof$500to$2,000peremployee,foranyincreaseoncertaineligi-

blejobs.Asamatteroffact,andbyexception,thisenergycreditmightbeenjoyedbyanentitythatalsoenjoysfromanincentiveact,aslongastheincentivesorbene-'itsreceivedundersuchincentiveactisnotcausedbythecreationofjobs.

Also,theActprovidesforcertainadditionalbenefitsorincentivestobeestablishedun-deraSpecial Agreement, however,thebenefitstobeagreedwilldependontheclassifi-cationoftheEligible BusinessasaNew Business,Existing Business Expansion,orBusi-

ness under Development,asfollows:


New Business–AbusinessthathasnotcommenceditsprincipalbusinessoperationatthetimetheSpecial AgreementforthecreationofJobsissigned.BenefitsorIncentives:1. Fixedincometaxrateof10%forthefirstyear,and15%forthesecondyear2. Netoperatinglosscarryoverof10years3. 100%exemptiononpersonalpropertytaxduringthefirst2years4. 100%exemptiononrealpropertytaxduringthefirst2years5. 100%exemptiononmunicipaltaxesduringthefirst2years6. ReducedminimumpaymentforChristmasBonus7. Partialreimbursementofsalaryforjobscreatedwithemployeesdischargedunder

Act7,women56yearsoldormore,lowincomeemployeesof25yearsorless,orresidentsofpublichomes

8. RentalofPRIDCOorExportandCommerceCompanyfacilitiesat$1annualfeeforthefirst2yearsofoperations

9. Double deduction for investment on improvement to rented facilities, includingmachineryandequipment

Existing Business Expansion–Existingbusinessthatmakesacapital investmentofatleast25%ofitsassetsbookvalue,increaseitsfulltimeemployees(orequivalent)by25%betweenJanuary1,2013andJune30,2014,orthathasmadeanychangesinitsoperationsthatmightqualifyasanexpansion.BenefitsorIncentives:1. 100%exemptiononrealpropertytax2. Partial reimbursement of salary for jobs created with employees

dischargedunderAct7,orwomen56yearsoldormore3. RentalofPRIDCOorExportandCommerceCompanyfacilitiesat$1

annualfeeforthefirst2yearsofoperations4. Doubledeductionforinvestmentonimprovementormachinery

Business under Development –IncludeasmallormediumentitythatasofDecem-ber31,2012employed15individualsorlessasfulltime(oritsequivalent)BenefitsorIncentives:1. 50% discount on the premium established by the Puerto Rico State Insurance

Fundforanyincrementaleligibleemployee2. 100%exemptiononrealpropertytax3. Partialreimbursementofsalaryforjobscreatedwithemployeesdischargedunder

Act7,orwomen56yearsoldormore4. 50%reimbursementonfreightsforexports,100%incaseofagricultureproducts5. RentalofPRIDCOorExportandCommerceCompanyfacilitiesat$1annualfeefor

thefirst3yearsofoperations6. Doubledeductionforinvestmentonimprovementormachinery


Theaboveisabriefofthebenefitsandincentivesprovidedunderthe Act. If you understand that you or your business can enjoyfrom any of the provisions of the Act, we recommend to contactyourtaxaccountantinordertomaximizethebenefitsthatyouoryourentitycouldenjoy. Also, foradditional information,youcanaccesswww.empleosahora.pr.

ProposedBillImposesWithholdingonGovernmentContractsProposedBillImposesWithholdingonGovernmentContractsProposedBillImposesWithholdingonGovernmentContractsProposedBillImposesWithholdingonGovernmentContracts

ABillthatincludesthetreatmentofslotmachinesincludesaprovisionwheregovern-

mentpayments for serviceswillbesubject toa1.5%withholding fromtheGovern-

ment. The provision establishes that itwill be applicable to all thebranches of the

government(Executive,JudicialandLegislative).Furthermore,itrequiressuchenti-

ties toadoptthenecessarycontrols toensure that theratesandamountofbillsre-

mainsthesameforthenext'iscalyears(2013-2014and2014-2015).Suchwithhold-

ingtaxcannotbedeductedortakenasacreditforincometaxpurposes.


*

Form AS 2915.1—Sales and use tax monthly return—prior month. If holiday, filing next working day—only for non-electronic filers.Form 480.9A—Deposit of 7% (or 3%) income tax withheld on prior month from services.

Corporations, Domestic life insurance companies, foreign life insurance companies, Puerto Rico Income Tax returns— Calendar year 2012—(extended due date 3-months).

Form 481 or 482.0—2012 Puerto Rico Individual Income Tax Return—extended due date – 3 months.

Annual Corporation Report— with additional 30 day extension

480.80—Fiduciary Income Tax Return – extended due date – 3 months.

Form 482.0(C) – Composite Return Partners and Individual Members of Partnerships and Limited LiabilityCompanies – Calendar year 2012 – extended due date – 3 months.

Form 480.9—Deposit of income tax withheld at source on dividends, partnership distributions, interest on bankdeposits or certificates of deposits, interest on individual retirements accounts (IRA) and penalties onIRA—prior month.

Form 480.31—Deposit income tax withheld from nonresidents—prior month if in excess of $200.

Form 480.60.1—Information return regarding investment requirements under 1978 Individual IncentiveAct—Calendar year 2012.Form 499.R-1—Employer’s monthly return of income withheld—prior month.

Form TSCH-1—Quarterly payment Chauffeurs’ Social Security.

Municipal volume of business tax—first semester payment 2013-2014 (Taxpayers paying in twoinstallments—not claiming discount).

July 22 Form FSE 693—Workmen’s Compensation Insurance—annual payroll declaration. Should pay 50% of the Form 499R-1B—Employer’s quarterly return on income tax withheld (Quarter April—June 2013).

Form 941PR-FICA quarterly return. Payment with return if less than $2,500 (Quarter April—June 2013).

Form PR-U1-10 and PR-U1-10A—Puerto Rico Unemployment Insurance and Puerto Rico Disability Benefits(Quarter April—June 2013).New Informative return for tax credits.Concessionaires Quarterly Report for personal property leasing companies (Quarter April—June 2013).

Form 480.36-Q – Quarterly return of excise on certain personal property and services (Quarter April – June 2013).

August 10Form AS 2915.1—Sales and use tax monthly return—prior month. If holiday, filing next working day—only for non-electronic filers.

Abandoned or Unclaimed Money and Other Liquid Assets Annual Report

Form 480.9A—Deposit of 7% (or 3%) income tax withheld on prior month from services.

Form AS 29-I-2010—Personal Property Tax Return extended due date (90 days) and 60 days additionalextension for organizations other than corporationsExempt Corporations Annual Report—Calendar year 2012—For calendar year corporations—Extended due date (30 days after filling the income tax return with a 3-month extension).Form 480.9— Deposit of income tax withheld at source on dividends, partnership distributions, interest on bankdeposits or certificates of deposits, interest on individual retirements accounts (IRA) and penalties onIRA—prior month.Form 480.31—Deposit income tax withheld from nonresidents—prior month if in excess of $200.Form 499.R-1—Employer’s monthly return of income withheld—prior month.Form 480.36 – Deposit temporary 2.75% excise tax on certain personal property and services –prior month (Act No. 154 of 2010).Deposit special 10% tax withheld on Capital Investment Fund Distributions—prior month.

July 16

July 31

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July 2013 August 2013

*For a more detailed list, please refer to our 2013 Tax Calendar

Sun Mon Tue Wed Thu Fri Sat

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“Interested in Other Services? - Audit / Assurance / Consulting / Information Technology" Contact Julio A. Galíndez, Managing Partner, at (787) 725-4545.

Thiscommunicationmayconstituteanadvertisementorsolicitationunderthelaw.Youmaychoose

nottoreceiveadvertisingandpromotionalmessagesfromFPV&Galındez,CPA’s,PSCatthise-mail

addressbyforwardingthismessagewiththetitle“UNSUBSCRIBE”[email protected]

youdoso,thesenderofthismessagewillbenoti2iedpromptly.ThecontentofthisTaxLetterhas

beenpreparedbyus for informationpurposesonly. This communication isnot intendedas, and

doesnotconstitutetax,accounting,consulting,orlegaladvice.

PLEASECONTACTOURTAXDEPARTMENTAT(787)[email protected]@fpvgalindez.comIFFURTHERASSISTANCE

“Taxesgrowwithoutrain.”-JewishProverb

KennethRivera,TaxPartner AxelRamírez,TaxPartner

LevíVillegas,TaxDirector IrisN.Otero,TaxDirector

EdgardoRosa,TaxManager YelitzaR.López,TaxManager

YelitzaNet,TaxManager JazmarieRivera,TaxConsultant

DelmalisHernández,TaxConsultant RicardoEstrella,TaxConsultant

DiegoS.Colón,TaxConsultant IxchelleQuintana,TaxConsultant

MariettaMatos,TaxIntern KeyshaTorres,TaxIntern

CarlosRodríguez,TaxIntern MargaretMarrero,AdministrativeAssistant

StephanieDelaCruz,AdministrativeAssistant


.

ADA TAX NEWS

Taxes, Taxes and MORE TAXES.

On June 30, 2013, government enacted Act 40-2013, changing dramatically the Puerto

Rico tax system for corporations and individuals that are engaged in trade or business in

Puerto Rico. This Act is intended to provide about $1.5 billion dollars to balance the

2013-2014 governmental budget. Among the new changes are:

I. Alternative Minimum Tax:

1. Applicable rate is increased to 30% (from 20% in 2012)

2. No adjustment will be required for service payments paid to related

entities that are rendered outside Puerto Rico.

3. Adjustment for net book income over alternative minimum tax income

is increased from 50% to 60%.

4. Net operating loss deduction is limited to 80% of alternative minimum

tax income (previously 90%).

5. Threshold for the computation of AMT based on purchases from related

parties is lowered from $50Millions to $10 Millions.

6. Consideration of three different computations to determine the

requirement of payment of AMT. Now you must compare and choose

the higher of:

i. Regular Tax (based on the 1994 Code tax Rates)

ii. The AMT (30%) + Gross Income Additional Tax

iii. 20% of purchases to related parties or charges from Home

Office + 2% of purchases of personal property from a

related party or Home Office + Gross Additional Tax.

REACH YOUR GOALS, WE’LL TAKE YOU THERE!

TAX CHANGES TO THE 2011 PUERTO RICO TAX CODE

If you need more information on this particular tax or any other tax issue, we are at your service. If you have any questions or comments please feel free to contact us at our offices (787) 253-9595. Our Team:

Partner: Jerry De Cordova CPA, JD

[email protected]

Manager: Astrid Ortiz Couvertier CPA, Esq.

[email protected]

Supervisor: José E. Pagán Ramírez, CPA

[email protected]

VOLUME 3 ISSUE 4

P.O. Box 70262, San Juan, Puerto Rico 00936-8262

7 Rosa Street, Cond. Cecilia’s Place Suite C-1 Isla Verde, PR 00979

(787) 253-9595 office • (787) 253-9511 fax www. adacpa.com

THE CONTENTS OF THIS DOCUMENT ARE FOR INFORMATIONAL PURPOSES ONLY AND DO NOT

CONSTITUTE LEGAL OR TAX ADVICE. THE PUERTO RICO SECRETARY OF THE TREASURY MAY

ESTABLISH BY CIRCULAR LETTER OR OTHER ADMINISTRATIVE DETERMINATION OF A GENERAL

NATURE THE NECESSARY STANDARDS FOR THE APPLICATION

JULY 2013



http://www.your-url-goes-here.com/

Taxes, Taxes and MORE TAXES. (cont.)

“Let’s take your company to new heights-together.”

II. Gross Income Additional Tax

1. Applicable to Corporations and pass-thru entities.

2. Also, applies to entities that elected to be taxed under the

provisions of the 1994 Code. (94-Option)

3. Tax based on the gross income generated by the business

entity during the year. Some exceptions apply.

4. Financial institutions are subject to a 1% tax rate, but can

claim a credit limited to .5% of gross income.

5. Applicable Tax Rates are:

6. For controlled groups of corporations or related entities the

applicable rate will be determined considering the gross

income from all the members of the group.

7. Waiver can be requested to Treasury if the tax will result in

economic hardship to the entity. Entity is required to submit

an Agreed Upon Procedure from a PR licensed CPA that

participates in a peer review program. (Treasury will publish

additional requirements)

8. Tax is not applicable to:

i. Entities with tax exemption grants.

ii. Nonprofit businesses

iii. Bona fide agriculture businesses

iv. Premiums from Medicare Advantages, Medicaid,

government insurance (“Mi Salud”) and annuities.

9. Tax is NOT DEDUCTIBLE, and will be part of the entity tax

estimated tax computations.

III. Alternative Basic Tax (ABT)- Individuals

1. For taxable year 2014 individuals with net income subject

to ABT in excess of $500,000 will be subjected to a 24% tax

rate.

VOLUME 3 ISSUE 4

JULY 2013

Gross Income Tax Rate

From $1MM to $3MM .20%

In excess of $3MM up to $300MM .50%

In excess of $300MM up to $600MM .70%

In excess of $600MM up to $1,500MM .80%

In excess of $1,500MM .85%

10. Must be considered for the remainder estimated tax installment

for taxable year 2013.

11. It will be applicable for taxable year 2013.

III. 1994 CODE Corporate Tax Tables are reintroduced

1. Maximum Tax – 39%

2. Additional Tax rates are from 5% to 19%

3. Additional tax credit is reduced from $750,000 to $25,000.

Also applicable to controlled groups.

4. Limitation on expenses paid to related parties, branches, and

subsidiaries that are not subject to PR Tax. (51% disallowance).

Waiver is available.

IV. Net Operating Loss limitation

1. Deduction is limited to 90% of net income.

2. Carry forward period was amended as follows:

V. Reactivation of Tax Credit Moratorium

1. Limitation in the use of certain tax credits for taxable years

2013 thru 2015.

2. Credits purchased on or before June 30, 2013 can be claimed

during the moratorium period, but subject to a 50% limitation

of the tax.

3. Informative Return must be filed as of June 30th listing the

credits that will be covered by the moratorium.

VI. OPTION-94

1. Taxpayers can revoke the election effectively for year 2013.

Period when loss was generated Carry forward

period

Up to year 2004 7 Years

From year 2005 thru 2012 12 Years

On or after year 2013 10 Years

OTHER TAXES: 1% as an additional tax on Premiums.

Not Applicable to Premiums from Medicare Advantages, Medicaid, government insurance (“Mi Salud”) and annuities.

Cooperatives- Will not be exempt from SUT.

EFECTIVENESS OF CHANGES?

Income Tax Provisions for Individuals

and Corporations- Taxable Years

commenced After December 31, 2012.

o Tax Credit Moratorium:

July 1, 2013

SUT Provisions- July 1st

, 2013:

o Resellers Provisions

August 1, 2013.

REACH YOUR GOALS, WE’LL TAKE YOU THERE!

VII. Special Surtax of 2% for Service Providers

1. Applicable to individuals with gross income from services in excess of $200,000. Must consolidate all service income to determine tax basis. (no salary income included)

VIII. Limitation on Mortgage Interest Deduction (Individuals)

1. Maximum Deduction- $35,000 per year

2. Deduction is still limited to the 30% of the modified adjusted gross income.

IX. Alternate Basic Tax (“ABT”)- Individuals

1. Applicable rate was increased for those individuals with net income subject to ABT in excess of $500,000 from 20% to 24%.

X. Sales and Use Tax (“SUT”)

1. Effective December 1, 2013- Rate will be reduced from 7% to 6.5%.

2. Reseller Exemption ends on July 31st, 2013. As of August 1, 2013 most resellers will be required to pay SUT on the purchase of inventory for resale. Resellers will be entitled to a credit of the SUT paid, limited to 70% of the tax reported on the monthly return. If a demand deposit account is opened the credit will be 100%.

3. Manufacturers will continue with the SUT exemption. The exemption certificate will be valid for three years.

4. Introduction of term “Eligible Reseller”- For those resellers that purchase taxable items MAINLY for the sale to persons that are exempt from the SUT payment. These Eligible Resellers will have an exemption certificate subject to certain limitations.

5. Merchants are required to have a “demand deposit account” in a local financial institution to remit the SUT payment to Treasury. (Pending for Regulations).

6. Taxable Services:

a. Leases, including ordinary vehicle leases (“operating leases”) that constitute a daily rental.

b. The following Business to Business services are now taxable services:

i. Bank services charges by financial institutions

ii. Security Services- exemption for residential services

iii. Cleaning and Laundry Services

iv. Telecommunication services

v. Collection of Waste

vi. Repair and Maintenance

VOLUME 3 ISSUE 4

VOLUME 3 ISSUE 3

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Taxes, Taxes and MORE TAXES. (cont.)

JULY 2013

American International Plaza 250 Muñoz Rivera Ave, Suite 800 Tel (787) 764-8181 San Juan, Puerto Rico 00918-1813 Fax (787) 753-8944 July 2013

TAX ALERT

TAX BURDEN ADJUSTMENT AND REDISTRIBUTION ACT

APPROVED The following summarizes the major provisions of the “Tax Burden Adjustment and Redistribution Act” signed by the Governor of Puerto Rico as Act 40 of June 30, 2013 to generate revenues to cover the Budget deficit for fiscal year 2013-2014 and provide revenues for fiscal years thereafter. Income Tax Provisions A new 2% surtax is imposed on self-employed

individuals with gross income in excess of $200,000. This surtax is based on gross income and is not subject to payment of estimated tax. This surtax is not deductible for income tax purposes. The alternate basic tax for individuals at the

maximum bracket of income subject to alternate basic tax in excess of $500,000 is increased from 20% to 24%. Surtax exemption is reduced from $750,000 to

$25,000. The surtax exemption must be allocated among members of controlled group of corporations.

The corporate surtax rates are reinstated to pre 2011 levels ranging from 5% to 19% for a maximum combined corporate income tax rate of 39% on net income in excess of $300,000.

The option to remain under the provisions of

the 1994 (“Opción 94”) IRC is amended to provide for voluntary revocation. Once revoked, the election may not be changed again.

Special Additional Tax on Gross Income A new special additional tax on gross income is imposed at the following rates: Gross Income Rate Less than $1,000,000 0% $1,000,000 to $3,000,000 .2% $3,000,000 to $300,000,000 .5% $300,000,000 to $600,000,000 .7% $600,000,000 to $1,500,000,000 .8% In excess of $1,500,000,000 .85% Financial Businesses 1% Financial institutions may credit .5% of their gross income against their regular tax or AMT. The credit may be carried over indefinitely but may not be refunded. Except in the case of financial institutions, the special additional tax will only form part of the alternative minimum tax of corporations. It is also applicable to pass-through entities, but only as part of the alternative basic tax or alternative minimum tax of its members or partners. The special additional tax on gross income will not be applicable to (i) companies with tax exemption grants under Act 73, Tourism Development Act and other tax incentives laws that provide income tax exemptions with respect to income from operations covered by their grants; (ii) bona fide agricultural businesses; and (iii) non-profit entities; (iv) affiliates of tax exempt companies subject to tax under the

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modified source of income rule; and (v) Medicare Advantage, Medicaid, Mi Salud premiums and annuities. The special additional tax may be reduced by the Secretary to a minimum of 0.2% if the taxpayer can show undue burden by submitting documentation for an Agreed Upon Procedures from a Puerto Rico licensed CPA that participates in Peer Review Program. The special additional tax is considered part of the income tax for the year and is subject to estimated tax. It will not be deductible for income tax purposes. Alternative Minimum Tax of Corporations The alternative minimum tax of corporations is

substantially amended. The highest of the regular tax or the following alternative taxes will apply.

(i) The sum of:

(a) 30% (increased from 20%) of the alternative minimum taxable income plus

(b) the new special additional tax on gross income; or

(ii) The sum of:

(a) 2% of the value of purchases from related parties, including transfers from home office to branches of foreign corporations doing business in Puerto Rico with the following exceptions:

- 0.5% in the case of alcoholic beverages.

- .25% in the case of gasoline and crude oil

products. - 1.5% in the case of motor vehicles; (b) 20% of deduction for expenses incurred or

paid to related parties outside Puerto Rico, including the home office in the case of foreign corporations doing business in Puerto Rico through a branch, which are not subject to Puerto Rico income tax; and

(c) the new special additional tax on gross

income (except in the case of financial businesses).

The 2% on purchases from related parties does not apply to:

(a) Purchases that derive less than $10,000,000 gross income from Puerto Rico trade or business for any of the three preceding taxable years. This threshold is reduced from $50,000,000 to $10,000,000.

(b) Purchases of property used in exempt

operations under Act 73 or prior or subsequent similar tax incentives laws.

(c) The Secretary of Treasury may reduce

applicable percentage (but not below 0.2%) in the case property purchased from a related party is sold by the related party for a substantially similar price to a third party. The rate may be reduced to less than 0.2% in the case of gasoline and crude oil products. A transfer pricing study would be required.

(d) Purchases or transfers from an affiliate that

is subject to Puerto Rico income tax on the sale or transfer.

AMT book income adjustment is increased

from 50% to 60%. NOL deduction for AMT purposes is

decreased from 90% to 80% of AMTI.

Net Operating Losses

NOL carryover is extended from 10 to 12 years for losses incurred in taxable years commencing after December 31, 2004 and before January 1, 2013. NOL carryover for 10 years for losses incurred in taxable years commenced after December 31, 2012. For taxable years commenced after December 31, 2012, NOL deduction is limited to 90% of net income of the year in which deduction is claimed regardless of year in which loss is incurred. Other Provisions The total deduction for mortgage interest on

residential property is limited to $35,000. Payments to nonresident partners, shareholders

or members owning 50% or more of interest in pass-

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through entities are disallowed as deductions if payments are not subject to tax in Puerto Rico, such as payments for services rendered outside Puerto Rico. This disallowance is not applicable to entities with tax exemption grants under Act 73 and similar tax incentives laws that provide income tax exemption. The Secretary of Treasury is given discretion to waive this disallowance.

51% of payments or transfers to related parties not engaged in trade or business in Puerto Rico or to home office are disallowed as deductions if payments are not subject to tax in Puerto Rico, such as payments for services rendered outside Puerto Rico. This disallowance is not applicable to persons with tax exemption grants under Act 73 and similar tax incentives laws that provide income tax exemption. The Secretary of Treasury is given authority to waive this disallowance. Tax Credit Provisions

Establishes moratorium of various tax credits for taxable years commencing after December 31, 2012 to taxable years commencing before January 1, 2016.

Tax credits subject to the moratorium which have been purchased or granted prior to June 30, 2013 may be used during the moratorium period but may not reduce the income tax liability in more than 50%.

An informative return summarizing tax credits generated or owned on the taxpayer, including those generated under the various tax incentives laws, must be filed on or before July 31, 2013 to preserve the credits.

Sales Tax Provisions

Daily rental of motor vehicles is included as

taxable services. Financing leases are excluded. Business to Business exemption remains in

effect but the following services are not eligible for Business to Business exemption:

- bank service charges; - collection services; - security and armored services; - cleaning services; - laundry services;

- services of repair and maintenance of real and personal property that do not constitute capital expenditures (in this case the tax is paid by the person contracting the service);

- telecommunication services; and - waste disposal services.

If services are between related parties the

Business to Business exemption will apply.

Professional Business to Business services remain excluded from taxable services. Bank services charges to businesses are not

excluded from taxable services. Tax return preparer services remain excluded

from taxable services. Reseller’s exemption certificate is limited for

sales after July 31, 2013 to eligible resellers that mainly sell to businesses that purchase articles exempt from sales and use tax or for export. Commencing August 1, 2013, the sales and use tax must be collected on sales to resellers that do not qualify as Eligible Resellers. A reseller credit mechanism is established for resellers other than Eligible Resellers. The credit is limited to 70% of the sales tax for the month but can be carried over indefinitely. The credit may increase to 100% once a deposit account is established by the taxpayer in Puerto Rico. The Secretary of Treasury is given discretion to authorize credits of more or less than 70%.

A bank account in Puerto Rico may be

required to merchants even if they are not collectors of sales tax. The Secretary will provide by regulations the procedures for establishing the accounts.

Prescription medicines for human use are

exempted from sales and use tax.

Exemption for purchases made by universities and higher education institutions is repealed. Exemption for medical equipment used by

hospitals is partially repealed. The exemption will not apply to equipment used for administrative, maintenance or commercial functions. Back to school exemption is limited to

uniforms and school supplies. Sales of textbooks are exempted from sales and use tax any time of the year.

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The municipal sales tax is reduced from 1.5%

to 1% effective December 1, 2013 for a total sales tax of 6.5% instead of 7%. The decrease in sales tax may be postponed or reversed upon further study. Credit Unions and other cooperatives are

subject to sales tax. Premiums Tax Special 1% premiums tax is imposed for

taxable years commenced after December 31, 2012 on premiums earned after June 30, 2013 by insurance companies, authorized to do business in Puerto Rico, including domestic insurance companies. This excludes annuities and premiums for Medicare Advantage, Medicaid and Mi Salud programs. Property Tax The Municipal Property Tax Act is amended to exclude the sales and use tax from the valuation of inventory for personal property tax purposes.

Tax on Imports Act 46-2013 requires declaration and payment of the use tax on imported goods at the time of entry into Puerto Rico. This does not apply to goods imported for resale. Tax on Crude Oil Products Act 31-2013 reduces the tax on diesel from 8¢ to 4¢ per gallon and increases the tax on crude oil products and hydrocarbons from $3.00 per barrel under the current tax structure dependent on the price of crude oil to a fixed $9.25 per barrel. The bill provides for an adjustment for inflation every four years. Tax on Government Contracts Act 48-2013 imposes a special contribution of 1.5% of the value of contracts for professional and consulting services, including advertising, legal, public relations, communications and lobbying services executed by the Government of Puerto Rico or any of its agencies, instrumentalities, public corporations, including the legislative and the judicial branches. This contribution is not creditable or deductible for income tax purposes.

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Because of the general nature of this newsletter, nothing herein should be considered as legal advice or a legal opinion. For further information about the contents of this newsletter, or should you need further assistance in connection with these matters, please contact the firm’s Tax Practice Group.

Copyright July 2013©

TAX PRACTICE GROUP MEMBERS

Walter F. Chow Michelle Marichal Ivelisse Collazo Cristina Morazzani Giselle Flaqué Samuel Rosado-Domenech

Rosa M. González-Lugo Ismael Vincenty Amaya Iraolagoitia

1

Significant Tax Changes Recently Introduced by the Puerto Rico Government Act 40 of June 30, 2013 (“Act 40”or “the Act”) In our previous Tax NewsAlert we discussed various tax provisions proposed by the Puerto Rico House of Representatives and the Puerto Rico Senate contained on HR 1073 and S 544, respectively, that will affect the tax system of Puerto Rico and how the companies will do business in the future. After various public hearings and discussions with members of a number of professional organizations in different industries, the original bills suffered significant changes and Act 40 was finally enacted this past Sunday, June 30, 2013. We also brief you on Act 46 which also brings changes to the sales and use tax regime. The following is a summary of Act 40 main provisions: Income Tax Provisions (unless otherwise noted, these provisions are effective for taxable years commencing after December 31, 2012) Option 94 Election

Those taxpayers that elected to be taxed under the Puerto Rico Internal Revenue code of 1994, as amended (“1994 Code”), can now elect to be taxed under the 2011 Puerto Rico Internal Revenue Code, as amended ("2011 PR Code") for taxable years beginning after December 31, 2012. This election will be irrevocable. Tax Rates

Individual Taxpayer: A special tax of 2% will be imposed, in addition to any other tax imposed by

the 2011 PR Code, to any individual whose gross income from professional services or from an industry or business exceeds $200,000. For this purposes gross income from an industry or business means net sales less cost of goods sold. This special tax will also be applicable to taxpayers that elected to be taxed under the 1994 Code.

Corporate Taxpayers tax rate back to 39%: The surtax deduction available to corporations to compute the additional surtax will be decreased from $750,000 to $25,000. The normal tax rate will remain at 20%. However, the surtax rates will revert to the rates established by the 1994 Code, which range from 5% to 19%.

PwC Observation: Basically, what has been done is to return to pre-2011 Income Tax Code rates. For many taxpayers this has significant implications in tax accounting for Q2 2013. Note also that these new tax rates are retroactive to January 1, 2013 for those taxpayers with calendar year end.

AMT The alternative minimum tax (“AMT”) has

changed significantly and will now include additional components in order to calculate the tentative minimum tax. Such tentative minimum tax will be the higher of the following:

Puerto Rico Tax NewsAlert

2 July 3, 2013

o 30% of the alternative minimum net

income (previously 20%) plus (except financial institutions) the national gross receipts tax (as defined below), or;

o 20% on the expenses paid or incurred by a related party, including those expenses allocated from the home office to its PR branch, as long as these expenses or cost allocations are not subject to income taxes in Puerto Rico, plus 2% (previously 1%) on the value of personal property purchases from related parties, including those transfers of personal property from the home office to the PR branch, plus the national gross receipts tax.

o Please note that in the case of purchases of alcoholic beverages, fuel and oil crude the tentative minimum tax will be .5%, and in the case of purchases of vehicles the tentative minimum tax will be 1.5%, instead of the 2% mentioned above.

It is worth mentioning that the tentative minimum tax on personal property purchases will not apply to the following taxpayers, (among others):

o Purchasers of property whose gross receipts are less than $10,000,000 (previously $50,000,000) for the last three taxable years.

o Entities which are exempt under Act 73 of 2008 or any other analogous law, as long as the property purchased is used in the exempt operations.

National Gross Receipts Tax (part of AMT calculation) – As mentioned above, there will be a new additional tax (national gross receipts tax) imposed to all entities doing business in Puerto Rico based on gross income which will form part of the AMT calculation. This special tax ranges from .20% through .85% depending on the level of gross income. It is important to mention, that

this tax will not be deductible for purposes of computing the net taxable income.

The Act provides different definitions of the term “gross income” depending on the type of industry. However, in general, this term includes all the gross income generated from sales without deducting related costs.

In the case of financial institutions the national gross receipts tax will be a flat rate of 1% and is not part of the AMT calculation. In addition, subject to certain limitations, these entities will be able to claim .5% of its gross income as a credit against its regular income tax or the alternative minimum tax.

The national gross receipts tax will also be applicable to entities that elected to be taxed under the 1994 Code, not as part of the AMT calculation, but as an additional tax (subject to estimated income tax payments).

This tax will not be applicable to the following taxpayers:

o Entities cover under a tax grant granted by Act 73 of 2008 (Economic Incentives), Act 74 of 2010 (Tourism), Act 83 of 2010, Act 20 of 2012 (Export Services), or any other analogous law or any special law that provides income tax exemption, on the income covered by a tax grant.

o Bona fide farmers exempt under the Agricultural Tax Incentives Act (“Act 225”) or those who claim the 90% income deduction provided by Section 1033.12 of the 2011 Code.

o Non for profit entities exempt under Section 1101.01 of the 2011 PR Code.

o Premiums issued by Medicare Advantage, Medicaid, “Mi Salud”, nor to annuities.

o Entities subject to Act 154.

3 July 3, 2013

The disallowance of the payments made to related parties for services rendered outside of Puerto Rico for purposes of computing the AMT is repealed effective for taxable years that commence after December 31, 2012.

The adjustment related to the net adjusted book income for AMT purposes will be increased from 50% to 60%.

The NOL deduction allowed for the calculation of the alternative minimum taxable income will be reduced from 90% to 80%.

NOL

The NOL carryover period will be increased from 10 years to 12 years for losses incurred in taxable years that commenced after December 31, 2004 and ended before January 1, 2013. The carryover period for NOL incurred during taxable years commencing after December 31, 2012 will be 10 years. The carryover period for losses incurred before December 31, 2004 remains at 7 years.

In the case of taxpayers taxed as corporations, the NOL deduction for regular income tax purposes will be limited to 90% of the net taxable income. Other Disallowances

Act 40 establishes that 51% of the expenses attributable to payments made to a related party which is not engaged in a trade or business in Puerto Rico or to the home office located outside of Puerto Rico will not be deductible for purposes of computing the net taxable income, as long as these payments are not subject to income taxes in PR.

The Act establishes that in the case of partnerships, special partnerships and corporation of individuals, the payments made to a partner, stockholder or member who is a 50% or more owner, will not be deductible for

purposes of calculating the net taxable income of such entity, if those payments were not subject to income taxes in Puerto Rico or withholding at source in the year paid or incurred.

PwC Observation: Is important to note that the 51% disallowance applies to all expenses attributable to payments made to a related party not engaged in a trade or business in Puerto Rico and not just to services provided outside of Puerto Rico, as the previous AMT adjustment.

Moratorium of Credits

This Act establishes a moratorium to various tax credits effective for taxable years commencing after December 31, 2012 and before January 1, 2016. This moratorium does not apply to tax credits granted or purchased before June 30, 2013, however the credit claimed will be limited to 50% of the income tax liability. Finally, in order to be able to claim such tax credits after the moratorium period ends any person holding tax credits has to file an informative return on or before July 31, 2013.

Sales and Use Tax Provisions

Taxable Services

Include as taxable services subject to the sales and use tax ('SUT") the leasing of motor vehicles that constitutes a daily rental.

Business to Business Exclusion

The business to business exclusion applicable to services rendered from one registered business to another registered business remains in effect, except for the following services, which will be taxable:

o Service charges imposed by financial institutions to other businesses (commercial clients).

o Collection services o Security services, including armored

services and private investigations.

4 July 3, 2013

However, the security services provided to resident associations continue to be exempt.

o Cleaning services o Laundry services o Repairs and maintenance services (not

capitalized) of real and personal property.

o Telecommunication services o Solid waste collection services

In the case of merchants dedicated to the

rendering of repair services, including services under a warranty agreement, they will not be required to collect the SUT of such services, as long as the services are provided to another registered merchant and the service is related to the business of such merchant. In this particular case, the purchaser of the service will be responsible to pay the use tax. Resellers Exemption

Repeal the reseller's exemption certificate to purchase tangible personal property for resale effective for sales occurring after July 31, 2013. The resellers will now be required to pay the SUT on the purchases of taxable personal property acquired from other merchant doing business in Puerto Rico for resale; however, they will be able to claim a credit for the SUT paid. Such credit will be limited to a maximum of 70% of the total SUT liability reflected in the return for the month in which the SUT was paid. Any excess credit can be carried over indefinitely. Please be aware that in order to claim the credit the reseller is required to obtain a Certificate of Reseller which will be valid for one year.

Merchants will now be required to establish a bank account at a local financial institution in order to remit the SUT to the Secretary of the Treasury. Once this account is established, the merchant will be able to claim a 100% credit of the SUT paid on purchases of personal property for the resale.

The certificate of exemption will remain in effect

only for manufacturing entities.

The Act establishes a new Certificate of Eligible Reseller, which will be available to any merchant that exports the tangible personal property or sells such property to other persons who qualify for any of the SUT exemptions as provided by the 2011 PR Code. This new Certificate will be valid for one year.

The exemption for purchases made by universities and higher education institutions is repealed.

The exemption on medical and surgical equipment used by hospitals and health service facilities is amended to clarify that it only applies to machinery and equipment, medical and surgical material, supplies, articles and technology used exclusively in the process of treating and diagnosing diseases in humans.

The "Back to School Tax Free Holiday" exemption is limited only to uniforms, school supplies and textbooks and for two days twice a year, except for textbooks that are exempted all year.

Merchants with a volume of sales equal or higher than $100,000 (previously $200,000) will be required to remit the SUT by electronic means.

The municipal sales and use tax is reduced from 1.5% to 1% effective for transactions occurring on or after December 1, 2013; however, the effectiveness of this provision could be deferred to February 2014. The total sales and use tax rate will be 6.5% instead of 7%.

Credit unions and other cooperatives will be subject to the SUT and excise taxes. On the other hand, the housing cooperatives continue to be exempt from the SUT.

5 July 3, 2013

The sales and use tax provisions will be effective after July 1, 2013 except for the resellers’ certificate provisions which will be effective August 1, 2013.

Insurance Premiums Taxes A special premiums tax of 1% is imposed on

premiums subscribed after June 30, 2013 by insurance companies, authorized to do business in Puerto Rico, including domestic insurance companies. This special tax will be applicable for taxable years that commenced after December 31, 2012 and it is in addition to the premiums tax many insurance companies already pay. This tax will be paid to the Secretary of the Treasury through the Office of the Insurance Commissioner, on or before March 31 of the following calendar year. This will constitute a valid deductible business expense.

This special premiums tax does not apply to premiums issued by Medicare Advantage, Medicaid, premiums issued by the program “Mi Salud” nor to annuities.

Act 46 Act 46 provides in general that any importer introducing taxable items into Puerto Rico will be required to satisfy the use tax upon introduction (similar to the excise tax regime). Certain exceptions are contained in Act 46, including taxable items that will be sold in the ordinary course of business in Puerto Rico, among others. Furthermore, certain compliance requirements only applicable to excise tax will now include sales tax.

PwC comments – Acts 40 and 46 incorporate substantial changes to the current income tax and sales and use tax provisions, which will create an economic burden to most of the taxpayers in Puerto Rico. We encourage all of our clients to start now the planning for the next fiscal year in order to minimize the tax cost of these changes. We at PwC can help you to understand how these changes will affect your business.

For more detailed information, please do not hesitate to contact:

Tax Partner

Víctor R. Rodríguez, 787-772-7958 [email protected]

Managing Director

Héctor Bernier, 787-772-8035 [email protected]

Tax Directors

Denisse Flores, 787 772-7569 [email protected]

Darycel Collazo, 787-772-7593 [email protected]

Viviana Aguilú, 787-772-8039 [email protected]

Tax Managers

José Erba, 787-772-7597 [email protected]

Eyla Márquez, 787-772-8028 [email protected]

This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. Federal, state or local tax penalties. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2013 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

TAX ALERT ACT 40 OF 2013 HAS BEEN SIGNED

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Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:

“This Act significantly modifies income tax and sales & use tax filings...”

Reminders & Due Dates:

• July 10, 2013 - deposit of income tax withheld on payments to independent contractors.

• July 16, 2013 - extended due date for Puerto Rico Individual Income Tax Returns, Certain Puerto Rico Corporate Income Tax Returns, First Installment of Municipal License Tax and Deposit of Income Tax Withheld on Salaries

• July 22 2013 - Workmen’s Compensation Insurance Policy Returns

Year 2013, Issue #9

After long anticipation and discussion among the various economic sectors of the

Island, significant changes to the Puerto Rico Tax System have materialized during this past weekend. The Governor signed into law Act 40 of 2013. This Act brings changes on many important areas of the Puerto Rico Internal Revenue Code ("PRIRC") and amends other Acts. We will concentrate on the most important changes and those that have a direct impact to your business. We will also be coordinating a seminar for our clients regarding these changes, if you would like to participate please be sure to contact your Tax Advisor so we can send you the details accordingly.

INDIVIDUALS

Alternate Basic Tax ("ABT")-

• In computing ABT, individuals will now have to add the distributable share, from pass though entities, of the new Special Tax on Gross Income ("State Volume of Business Tax").

• Taxpayers using the optional method for calculating the tax should allocate the distributable amount of the "State-Volume of Business Tax" by 50% to each spouse.

• The ABT rates will change for years commenced after 12/31/12 (the Act states 12/31/13, however, this will likely be corrected). The new rates will be:

Special Tax to Self-Employed Individuals

• A special tax of 2% will be imposed on the Gross Income of taxpayers with gross revenues in excess $200,000 generated from services provided or from a trade or business.

• Gross Income from Trade or Business= Gross Sales - Cost of Goods

Sold.

• For purposes of determining the gross income subject to this tax, taxpayer must consolidate the gross income from all services provided and all trade or business activities held.

• This tax will also be applicable to taxpayers under Code 1994 Election (Option 94).

Net Income Subject to ABT: Rate Applicable

From $150,000 but not greater than $250,000 10%

From $250,001 but not greater than $500,000 15%

In excess of $500,000 24%

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Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:

“...the deductible interest will be limited to the 30% of the Modified Adjusted Gross Income or $35,000, whichever is smaller.”




• July 22, 2013 - Workmen’s Compensation Insurance Policy Returns

Year 2013, Issue #9

Mortgage Interest Deduction Limitation

• Mortgage interests are limited further by including a ceiling of $35,000. Thus, the deductible interest will be limited to the 30% of the modified adjusted gross income or $35,000, whichever is smaller.

Code 1994 Election-

• It allows a taxpayer that had previously elected to be taxed under the 1994 Code to revoke its election for taxable years commencing after 12/31/12 and be taxed under the 2011 Code. Nonetheless, this election to withdraw will be final and irrevocable.

• Also, all taxpayers that have elected under the 1994 Code and are subject to paying estimated taxes, will have to consider the "State Volume of Business Tax" to be paid in the estimated tax payments going forward.

CORPORATIONS AND PASS-THROUGH ENTITIES

State Volume of Business Tax (“SVBT”)

• A new tax on gross receipts will be paid under this Act.

• Corporations and pass-through entities will be subject to pay this tax based on gross income.

• This tax will be subject to the payment of estimated taxes, although the requirement for the year 2013 will only be applicable for the remaining estimated tax payments (i.e. 9/15 & 12/15).

• Pass-through entities will be required to make estimated tax payments of 30% of the distributable share or the distributable share of the applicable state “SVBT”, whichever is greater. Corporations will have to add the “SVBT” to income tax in determining estimated tax payments.

• This tax will be calculated as part of the AMT, in the case of corporations, or ABT, in the case of individuals with distributable share of income from pass-through entities.

Volume of Business Rate Applicable

From $1MM to $3MM .20%

In excess of $3MM to $300MM .50%

In excess of $300MM to $600MM .70%

In excess of $600MM to $1.5B .80%

In excess of $1.5B .85%

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787-751-6164

787-751-6865

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[email protected]


Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:

“...the surtax credit will be reduced from $750,000 to $25,000.”





Year 2013, Issue #9

State Volume of Business Tax

• Financial Institutions will also be subject to this tax at a 1% rate and will be allowed to take a credit in future years.

• Will not be applicable to Individuals (except partners of pass-through entities) and Corporations subject to Act 154-2010.

• Controlled groups of Corporations and Groups of Related Entities must determine the rate applicable to this tax using the aggregate gross revenues of the entire group.

• This Tax will not be applicable to entities with Tax Exemption under Act 73-2008, Act 74-2010, Act 83-2010, Act 20-2012, Act 225-1996 (Bona Fide Agriculture Entity) and any subsequent or prior Act similar to those indicated above.

Corporate Regular Tax Rates and Surtax

• Regular tax rates have been changed back to those enacted under the Puerto Rico Internal Revenue Code of 1994, as amended. This is composed of a 20% regular tax plus surtax described below (for years commencing after 12/31/12):

• For years commencing after December 31, 2012, the Surtax Credit will be reduced from $750,000 to $25,000. The $25,000 must be distributed among a controlled group in the same manner as the $750,000 credit was allowed.

$0 - $75,000 5%

If Income Subject to Surtax is:

$75,001- $125,000 $3,750 + 15% of excess of $75,000

$125,001 - $175,000 $11,250 + 16% of excess over $125,000

$175,001 - $225,000 $19,250 + 17% of excess over $175,000

$225,001 - $275,000 $27,750 + 18% of excess over $225,000

Then surtax will be:

In excess of $275,000 $36,750 + 19% of excess over $275,000

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787-751-6164

787-751-6865

www.rocpr.net

[email protected]


Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:

“Losses for AMT purposes will now be limited to 80% of income subject to AMT…”





Year 2013, Issue #9

Alternative Minimum Tax on Corporations

• The Alternative Minimum Tax (AMT) calculation will now be the greater of: 1. 30% of Income Subject to AMT + the “State Volume of Business

Tax”, or, 2. 20% of intercompany expenses paid to a related party that are not

subject to income tax in Puerto Rico + 2% of purchases of tangible personal property, or inventory, to a related party (0.5% alcoholic beverages, fuel or products derived from Oil and 1.5% for vehicles) + the “State Volume of Business Tax”.

• Exemptions: 1. A business that can prove that the intercompany expenses should

be excluded from the 20% calculation discussed above may do so under the rules and regulations that will eventually be issued by the Treasury.

2. Also, a business that can prove that the purchase of inventory is made at arm’s length can request a reduction of the 2% (or rate applicable) to as low as a 0.2%. A transfer pricing study will likely be necessary in order to obtain a reduction.

• The 2% rule will only be applicable to businesses with $10,000,000 in gross revenues during any of the prior three taxable years.

• The following entities are not subject to the 2% rule: 1. Entities with Tax Exemptions under Act 73-2008 or any

Law prior or subsequent of similar nature. 2. Premiums received by Insurance Companies for

Medicare Advantage, Medicaid and “Mi Salud”. 3. Entities covered under Act 225 of 1996 (Bona Fide

Agriculture Entity).

• Losses for AMT purposes will now be limited to 80% of income subject to AMT, previously 90%.

• The computation will now require that the adjustment of 50% of book net income over alternative minimum taxable income be increased to a 60%.

Net Operating Losses (NOLs)

• Before this Act, Net Operating Losses were allowed for a seven year carry-forward period as a general rule. However, for years beginning after December 31, 2004 and before December 31, 2012, the carry-forward period was extended to 10 years. This Act changes the rules in the following manner:

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787-751-6164

787-751-6865

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[email protected]


Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:

“The State Volume of Business Tax will not be a deductible expense.”





Year 2013, Issue #9

• Previously, the Code allowed you to deduct Net Operating Losses fully against current year taxable income, subject to the expiration periods discussed above. However, under this Act you would only be allowed to deduct Net Operating Losses up to 90% of the current year net taxable income. The remaining 10% would continue to carry-forward for the years explained above. This new limitation will be applicable for years commencing after December 31, 2012.

Other Items reported separately to Partners of Partnerships or Special Partnerships and Stockholders of Corporations of Individuals

• Expenses, incurred or paid, to a related person or a home office, located outside of PR and the value of purchases of tangible property made to such persons will be separately reported and subject to AMT (in the case of corporate partners).

Non-deductible Expenses

• Under this Bill, fifty-one percent (51%) of intercompany expenses paid to a related person that are not subject to Income Tax in Puerto Rico will not be allowed as a deduction for regular tax purposes.

• This disallowance is not applicable to business covered under Act 73-2008, Act 83-2010, Act 20-2012 or Act 74-2010.

• The Secretary of the Treasury will be allowed to issue rules and regulations to determine if any taxpayer can be excluded from this disallowance rule.

• The State Volume of Business Tax will not be a deductible expense.

• When determining the Net Income of a Pass-Through entity, no deduction will be allowed for expenses paid or incurred to a partner, stockholder or member that holds 50% or more of the interest or value of the stocks/units of the entity, if such payments are not subject to income tax or withholding at source under the PRIRC.

Before January 1, 2005

Losses incurred during:

Jan. 1, 2005 - Dec. 31, 2012

Jan. 1, 2013 and after

7 Years

7 Years

10 Years

Previously

7 Years

10 Years

12 Years

New

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787-751-6164

787-751-6865

www.rocpr.net

[email protected]


Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:

“repair services, although taxable, will not be charged by the service provider.





Year 2013, Issue #9

SALES & USE TAXES (“SUT”)

Imposition of SUT on Business to Business (“B2B”) Services

• The B2B exemption continues. However, some items will not be exempt under the B2B exemption (not applicable when the services are rendered by a merchant that is part of the taxpayer’s controlled group or related group of entities). These are:

1. Bank charges to commercial clients 2. Collection services 3. Security services, except for security services provided to

residents or condominium associations 4. Cleaning services 5. Laundry services 6. Repair services, and maintenance of real and personal

property that are not capitalized 7. Telecommunication services 8. Collection of waste services

• Please note that the repair services, although taxable, will not be charged by the service provider. Rather, the buyer of such services will be required to pay Use Tax on his/her monthly sales tax return.

• Services subject to the SUT now specifically include the leasing of motor vehicles (e.g. car rentals) that are not considered capital leases.

• The applicability of the changes to the B2B services are as of July 1, 2013.

Exemption Certificates and Related

• Under the prior rules, the Treasury would issue SUT Exemption Certificates to manufacturers and resellers. Under the new rules, there will be three types of Certificates: 1. Exemption Certificate - this will only be issued to manufacturers

under rules similar to those that existed prior to this Act. Manufacturers will be allowed to purchase materials and items used in the manufacturing process exempt from the SUT.

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787-751-6164

787-751-6865

www.rocpr.net

[email protected]


Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:






Year 2013, Issue #9

Exemption Certificates and Related (continued) 2. Eligible Reseller’s Certificate - this certificate will only be issued

to Eligible Resellers who are defined as merchants that purchase taxable items for resale to clients that can purchase exempt from the SUT or for exportation.

3. Reseller’s Certificate - this certificate is granted to merchants who purchase taxable items for resale and that 80% of inventory withdrawn is for resale. Resellers that possess a Reseller’s Certificate will be subject to the SUT on the purchase of inventory but will then be allowed to take a credit of up to 70% of the tax responsibility on their monthly sales & use tax returns.

• This Act also requires that merchants open a bank account that will be linked to the Treasury so that on each transaction, the SUT is directly deposited to the Treasury Department (Demand Deposit Accounts). Once a merchant complies with this requirement, the reseller will be allowed a credit on the monthly sales & use tax returns for SUT paid on their purchases of inventory up to 100%.

• These new requirements for exemption certificates and resellers will be effective August 1, 2013.

Changes on SUT exemptions

• The following items have also changed under the New Act: 1. Exemption to day-care centers would be limited to the basic tuition

and monthly charges, not educational or recreational services. 2. Higher education institutions and universities operating in Puerto

Rico would be subject to SUT or purchases of taxable items. 3. Health services facilities enjoying exemption under the Hospital

Facilities Tax Exemption Act or Section 1101.01(a)(2) of the 2011 Code would be subject to SUT on their purchases of equipment and supplies to be used on the administrative or commercial divisions, including parking lots, medical office buildings and pharmacies.

4. The back to school periods will be in July and January. The SUT exemption on purchases made during these periods would be limited to uniforms and certain school supplies. Text books and note books will now be exempt permanently.

5. Cooperatives and credit unions authorized under Act 255-2002, as amended, and Act 239-2004, as amended, would no longer be exempt from the SUT.

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787-751-6164

787-751-6865

www.rocpr.net

[email protected]


Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013

Highlights:






Year 2013, Issue #9

OTHER MATTERS

Tax on Premiums of Insurance Companies

• For years commencing on or after December 31, 2012, insurance companies will be required to pay one percent (1%) of income tax on all premiums in addition to those already imposed. This tax will be applicable to those premiums earned after June 30, 2013.

• This new tax will not be applicable to premiums earned from Medicare Advantage, Medicaid and “Mi Salud”.

• This tax will be due on or before March 31st of the following year and is payable to the Secretary of the Treasury through the Insurance Commissioner.

Credits under Moratorium

• This Act also establishes that certain Tax Credits (such as Solid Waste tax credits, capital investment fund credits and Low or Moderate Income Housing Credits, among others) be included in a three year moratorium where these credits will not be granted during the taxable years commenced after December 31, 2012 and before January 1, 2016.

• Also, any taxpayer that owns tax credits must file an informative return with a breakdown of all credits owned. This return will be due on July 31, 2013 and must include all credits that the taxpayer owned as of June 30, 2013. Taxpayers that fail to file this informative return will not be able to claim these credits after the moratorium is over.

Valuation of Inventory of Personal Property Tax Purposes

• This Act also amends Act 73 of 1991, known as the Municipal Property Tax Act, to clarify that the cost of inventory for purposes of the valuation subject to personal property tax, should not include the portion attributable to sales & use tax paid.

Municipal Sales & Use Tax

• Currently, the SUT is imposed at a combined 7% rate (5.5% state level plus 1.5% municipal level) of which the Treasury manages 6% and municipalities, other than participating municipalities, collect the remaining 1%. Effective on December 1, 2013 the municipal portion would be reduced to 1% for a combined rate of 6.5% (5.5% state level plus 1% municipal level). The municipalities would have the option to tax food and food ingredients. However, the effective date of the reduction could be postponed by the Legislature.

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787-751-6164

787-751-6865

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[email protected]


Reparto Loyola

San Juan, PR 00926

PO Box 10528

San Juan, PR 00922-0528

July

2013





Year 2013, Issue #9 Considering all the changes established in this Act, it is highly important to evaluate what impact, if any, this may have on future operations so that any adjustment necessary be made in a timely manner. If you have any questions or comments related to the content of this Tax Alert, please contact your Tax Advisor.

TAX ALERT ADDITIONAL TAXES ON PETROLEUM & PROFESSIONAL SERVICES PROVIDED TO GOVERNMENT

787-751-6164 787-751-6865 www.rocpr.net [email protected]

San Roberto Street # 1000 Reparto Loyola San Juan, PR 00926 PO Box 10528 San Juan, PR 00922-0528

July 2013

Highlights:

“...Act 31-2013 increases the tax on each barrel of petroleum and its derivatives to $9.25.”

“Act 48-2013 established a special tax for professional and consulting service contracts granted by governmental agencies”


July 10, 2013 - deposit of income tax withheld on payments to independent contractors.

July 16, 2013 - extended due date for Puerto Rico Individual Income Tax Returns, Certain Puerto Rico Corporate Income Tax Returns, First Installment of Municipal License Tax and Deposit of Income Tax Withheld on Salaries

July 22, 2013 - Workmen’s Compensation Insurance Policy Returns

July 31, 2013 - Employer Quarterly Tax Returns.

Year 2013, Issue #10 Tax on Petroleum & Derivatives

Act #31, signed by the Governor on June 25, 2013, increases the current taxes on the use of crude petroleum and its derivatives in Puerto Rico. Originally, the tax ranged from $3 to $6 per barrel, however, this Act increased the tax to $9.25 per barrel. Furthermore, starting on July 1, 2013, every four years the tax will be increased by an adjustment for inflation plus 1.5%. The Puerto Rico Government will calculate this increase based on the Consumer Price Index published by the US Department of Labor for the four years preceding the date of the adjustment. The Act also decreases the tax that is imposed on each gallon of Gas Oil and Diesel Oil from 8¢ to 4¢. Also, on July 3, 2013, the Secretary of the Treasury issued Informative Bulletin 13-11 to provide additional information and to clarify important aspects of Act #31. Tax on Professional Services provided to Government The Puerto Rico Governor signed Act #48 on July 2, 2013. The Act established a Special Tax of 1.5% to the contracts granted by governmental agencies for professional and consulting services. The special tax is based on the gross amount of the contract and the agency will withhold the full amount of the tax upon payment of each invoice. In addition, the tax paid cannot be claimed as a deduction or credit for income tax purposes. For purposes of Act 48-2013, professional and consulting services are those whose primary purpose consists in providing intellectual, creative or artistic products or in the management of highly technical or specialized skills. This Act also clarifies that professional services includes legal services, public relations and lobbying. We are available to discuss how these Acts may affect your business. If you have any questions or concerns about these issues, feel free to contact your Tax Advisor at RSM ROC & Company.

DISCLAIMER: This update and its content do not con stitute advice. Clients should not act solely on t he basis of the material contained in this publication. It is intended for information purpos es only and should not be regarded as specific advi ce. In addition, advice from proper consultant should be obtained prior to taking action on any is sue dealt with this update. © 2013 Kevane Grant Thornton LLP All rights reserve d. Kevane Grant Thornton is a member firm of Grant Tho rnton International Ltd (Grant Thornton Internation al). Grant Thornton International and the member firms are not a worldwide partnership. Servi ces are delivered by the member firms independently . July 29, 2013

Tax Alert: New complementary guidelines on Act 40 dispositions

To provide additional guidance and requirements with regards to the newly issued Act 40, better known as the Law for the Redistribution and Adjustment of the Tax Responsibility, the Puerto Rico Department of Treasury has released this week a series of new publications (i.e. circular letters, administrative determinations and informative bulletins). Herein you will find a brief summary of the publications issued and their effective dates:

Internal Revenue Circular Letter 13-08

sets forth the information required to be submitted with the Informative Return for Tax Credit Holders. This circular letter complements the provisions already established by Circular Letter 13-05, which extended the filing period of said return from July 31, 2013 to August 31, 2013. In addition, Circular Letter 13-08 establishes the filing address for Form 480.71, Informative Return for Tax Credit Holders.


comes to clarify that the services rendered by persons with $50,000 or less of volume of income remain exempt for sales and use tax purposes. Specially in regards to repair services providers and the sales and use tax remittance requirement set on the buyer of those services. In that respect, Circular Letter 13-09 provisions state that the buyer of the repair services needs to maintain copy of the merchant registration certificate that states that the service provider is not a withholding agent.


establishes the process for requesting the new

eligible reseller exemption certificate set forth by amended Section 4030.02 of the 2011 Puerto Rico Internal Revenue Code, for resellers whose sales are substantially made to the government and other exempt persons (e.g. manufacture, export, hospitals, etc.). In addition, Circular Letter 13-10 sets the bond amount needed to be posted and the documentation needed to be filed in order to obtain the certificate.

Administrative Determination 13-

06 provides an extension up to August 15, 2013 on the term of the reseller certificates for those merchants with exemption certificates that expired between June 30, 2013 and July 31, 2013. In addition, with Administrative Determination 13-06 the Puerto Rico Department of Treasury states that all of the exemption certificates issued by the Secretary before the enactment of Act 40 will expire on August 15, 2013 regardless of the expiration date printed on the certificate.

Administrative Determination 13-

07 comes to establish the provisions for the new reseller certificates to be issued by the Puerto Rico Department of Treasury which will be effective from August 16, 2013. With Administrative Determination 13-07, the Puerto Rico Department of Treasury sets forth the following guidelines:

� That provided the short period of time to review all of their records, a provisional

Contact us For assistance on this matter, please contact us via [email protected] or [email protected]

DISCLAIMER: This update and its content do not con stitute advice. Clients should not act solely on t he basis of the material contained in this publication. It is intended for information purpos es only and should not be regarded as specific advi ce. In addition, advice from proper consultant should be obtained prior to taking action on any is sue dealt with this update. © 2013 Kevane Grant Thornton LLP All rights reserve d. Kevane Grant Thornton is a member firm of Grant Tho rnton International Ltd (Grant Thornton Internation al). Grant Thornton International and the member firms are not a worldwide partnership. Servi ces are delivered by the member firms independently . July 29, 2013

reseller certificate will be issued by the Department,

� That the provisional certificate will not be issued to all merchants that have not filed or not paid in total for 9 or more sales and use tax monthly returns within a period of 12 months, and

� That the provisional certificate will be effective for a period of not more than one

(1) year.

It is important for each registered merchant to keep in mind that the new certificate only allows him to claim a credit in its sales and use tax monthly return, and that they must apply for the new reseller certificate before the provisional certificate expires. The Secretary will determine on a case by case basis if the new reseller certificate applies. In Administrative Determination 13-07 the Secretary states that both the provisional certificate and the new reseller certificate shall be valid at the municipal level, for which resellers that are holders of a reseller certificate will be exempt from the municipal sales and use tax when they make their inventory purchases for reselling purposes. Please note that this is so, for both participant and non-participant municipalities.

Informative Bulletin 13-12 establishes that the process to claim the 100% credit on the sales and use tax paid upon setting up a special deposit bank account for the remittance of the sales and use tax has been suspended until the new regulations are issued by the Secretary.

Informative Bulletin 13-13 comes to clarify that every merchant with a volume of business of $100,000 or more will be required to deposit and file their sales and use tax monthly return electronically. Said disposition is effective on July 1, 2013 for which every merchant with a volume of business of $100,000 or more is required to deposit and file the July sales and use tax monthly return due on August 10, 2013 electronically.

Please contact our Tax Department if you need further information regarding this or any other tax issues; we will be glad to assist you.

alerta contributiva 07-13 - camarapr.org

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