Webcast – SUT Transition Period June 24, 2015

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Tax Reform Process in Puerto RicoAct 72 - 2015

Webcast – SUT Transition PeriodJune 24, 2015

María de los Angeles Rivera, Partner Head of Taxand Javier Oyola, Tax Manager


Disclaimer

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Agenda

• Summary of the tax reform process as of today:– P. de la C. 2329 “Act to Transform the Tax

System of the Commonwealth of Puerto Rico”

– Substitute P. de la C. 2329– Act 72 – 2015 ( P. de la C. 2482)

• Changes to Sales and Use Tax– P. del S. 1433– Questions


P. de la C. 2329

"Act to Transform the Tax System of the Commonwealth of Puerto Rico" Substitute

P. de la C. 2329 P. de la C. 2482

Changes Proposed to Puerto Rico's Tax System

Filed 2/11/2015 Filed 4/29/2015 Filed 5/18/2015

Public Hearings

Killed 4/30/2015Signed 5/29/2015

Act 72 - 2015

P. del S. 1433"Technical Amendments"

Filed 6/16/2015


Sales and Use Tax


Sales and Use Tax

• Sales and Use tax– as a transition method/period, the SUT

provisions of 2011 Code, as amended, will still apply until March 31, 2016, but the applicable tax rate will increase from a 6% to a 10.5% (resulting in a combined state and municipal SUT of 11.5%) effective on July 1, 2015.


Sales and Use Tax (cont.)

• Sales and Use tax– commencing on October 1, 2015, a new special

SUT rate of 4% will be imposed on (i) certain services rendered to a merchant and (ii) designated professional services.

– provides that the 1% municipal SUT will not apply to services rendered to other merchants or to designated professional services.


Taxable Services

• The term "taxable services" means any service rendered to any person, including:– storage of tangible personal property, excluding

motor vehicles and every type of food– leases, including those operating leases of

motor vehicles that constitute a daily lease


Taxable Services (cont.)

• The term "taxable services" means any service rendered to any person, including:– computer programs– installation of tangible personal property by the

seller or a third party– repair of tangible personal property



• Proposed Bill 1433 adds the following services to the definition of taxable services:– taxable services, as defined, provided by a

non- resident person to a person in PR



• Sales and Use Tax– the following services previously taxed by Act

40 of 2013 at 7% will now be subject to 11.50%:• certain bank charges,• collection services, • security services, including armored services

and private investigations, except security services provided to associations of residents or condo-owners,



• Sales and Use Tax – the following services previously taxed by Act

40 of 2013 at 7% will now be subject to 11.50%:• cleaning services, except cleaning services

provided to association of residents or condominiums

• laundry services



• Sales and Use Tax – the following services previously taxed by Act 40

of 2013 at 7% will now be subject to 11.50%:• non capitalized repair and maintenance

services of real and personal property, except those services provided to associations of residents or condominiums

• telecommunication services



• Sales and Use Tax – the following services previously taxed by Act 40

of 2013 at 7% will now be subject to 11.50%:• waste collection services, except waste

collection services provided to association of residents or condominiums

• operating leases of motor vehicles that constitute a daily lease, except those leases of motor vehicles that are essentially equivalent to a purchase.


Excluded Services for Sales and Use Tax 10/1/15 – 3/31/16

• services rendered to other merchants (special tax)• designated professional services (special tax)• services provided by the Government of Puerto

Rico• educational services, including tuition costs;• interest and other charges for the use of money


Excluded Services for Sales and Use Tax 10/1/15 – 3/31/16 (cont.)

• insurance services and commissions • health or hospital services• services rendered by persons whose annual

volume of business is $50,000 or less,



• services rendered between members of a controlled group.– Proposed Bill 1433 eliminates the requirement

of both merchants to be located in PR, but establishes that:• both entities are subject to tax in PR or• the services are subject to the special

disallowance for income tax or AMT purposes



Proposed Bill 1433 adds the following services to the exclusion list:• security services, cleaning services, and repair and

maintenance services provided to associations of residents or condo-owners



Proposed Bill 1433 adds the following services to the exclusion list:• the sale of transmission time on radio and

television programs, including the rights, sale of commercial time, including the commissions of the advertising agencies as long as the commissions are part of the invoice

• production services for radio and television programs or commercials produced in Puerto Rico.


Business to Business Services subject to 4% effective October 1, 2015

Are services rendered to a person engaged in a trade or business or in the production of income except for:– taxable services (Act 40 taxable B2B)– services provided by the Government of Puerto

Rico– educational services, including tuition costs;– interest and other charges for the use of money


Business to Business Servicessubject to 4% effective October 1, 2015 (cont.)

Are services rendered to a person engaged in a trade or business or in the production of income except for:– insurance services and commissions – health or hospital services– services rendered by persons whose annual

volume of business is $50,000 or less,



Are services rendered to a person engaged in a trade or business or in the production of income except for:– services rendered between members of a

controlled group. Bill 1433 establishes the same requirements as mentioned before on slide 18.



Proposed Bill 1433 adds the following services to the exclusion list:– designated professional services– the sale of transmission time on radio and

television programs, including the rights, sale of commercial time, including the commissions of the advertising agencies as long as the commissions are part of the invoice



Proposed Bill 1433 adds the following services to the exclusion list:– production services for radio and television

programs or commercials produced in Puerto Rico

– subcontracted services– services provided by a non-resident to a person

in PR


Designated Professional Servicessubject to 4% effective October 1, 2015

• Agronomists• Architects and landscape

architects• Certified Public

Accountants• Brokers, sellers and real

estate companies• Professional

draftspersons

• Professional real estate appraisers

• Geologists• Engineers and

surveyors • Legal Services• Specialist of tax

returns (from 10/1/15)


Designated Professional Servicessubject to 4% effective October 1, 2015 (cont.)

Proposed Bill 1433 adds the following services to the designated services list :• Designated services, as defined, provided by a

non-resident person to a person in PR



Proposed Bill 1433 provides that the following designated professional services will not be subject to the tax rate of 4%:• services rendered by persons with an annual volume of

business that does not exceed $125,000• legal services provided by members of the legal

profession authorized by the Supreme Court to exercise the practice only with respect to fees for legal representation in the General Court, Federal Court or administrative agencies of the Government of PR, and notary services.



Proposed Bill 1433 provides that the following designated professional services will not be subject to the tax rate of 4%:• services rendered by a person engaged in trade or

business to another person engaged in trade or business and that forms part of a controlled group, provided that both the provider and the recipient of the service are subject to income tax in PR, or such services:– are considered services provided to a related person

subject to limitations established by the Code; or– are subject to the AMT.


Accounting method for Merchants dedicated to provide designated professional services

– allows merchants dedicated to provide designated professional services to use the cash method of accounting for purposes of the SUT provisions for tax events occurred after 9/30/15.


Person responsible for tax payment

– Effective October 1, 2015 in the case of

services (taxable services, services provided to other merchants and designated professional services) provided by a non-resident person to a person in PR, the person responsible for the payment of the SUT is the person that receives the service in PR.


Credit for taxes paid by a reseller merchant

– until June 30, 2015 the credit is 75%, except for

taxpayers engaged in the sale of unprepared

food and provisions which is 100%. – for periods after June 30, 2015, the credit is

increased to 100% of the tax liability shown on

tax return.


Merchants with gross sales of less than $1million for the preceding taxable year

Sales and Use tax corresponding to the month of July 2015 will be paid:• 55% of the sales tax will be paid not later than

August 20, 2015• 45% will be paid not later than the 20th day of

the months of September, October and

November.


SUT rate applicable to preexisting contracts and auctions

– retail sales covered by executed contracts or approved bids at auction before July 1, 2015 will be subject to the SUT applicable to such taxable item at June 30, 2015.

– the person may acquire the taxable items subject to such contract or auction during a period of: • 12 months • contract term


SUT rate applicable to preexisting contracts and auctions (cont.)

– in the case of services (services provided to other merchants and designated professional services), the above will apply for those services paid before 7/1/15.



Proposed Bill 1433 modifies the following:– special rules for contracts for construction of

commercial, industrial or residential projects started as of 5/31/15• may register in a Works and Building Registry

at the PRTD



Proposed Bill 1433 modifies the following:• rate and exclusions applicable are those in

effect as of 5/31/15 for purchases until 6/30/16. An extension of 12 months may be obtained

• certificates and waivers


SUT - Penalties

Number Description Section Penalties

1 Failure to register 6043.03(a) $10,000

2 Failure to display Merchant's Registration Certificate

6043.01(a) $1,000

3 Failure to notify changes or amendment to the required information

6043.03(d) $500


SUT - Penalties


4 Displaying a falsified Merchant's Registration Certificate

6043.01(d) $5,000

5 Falsifying Merchant's Registration Certificate

6043.03(e) $10,000

6 Improper advertisements 6043.01(b) $1,000 - $20,000


SUT – Penalties (cont.)


7 Failure to display a notice at the box office or other place where the admission charge is collected indicating that the price of the admission and the tax on the sale, shall be computed and collected on the basis of the price admission charged

6043.01(c) $100

8 Failure to collect the SUT as an Withholding Agent

6043.06(b)(1) $20,000


SUT – Penalties (cont.)


9 Wrongfully collecting the sales and use tax

6043.06(a) $100 for each receipt

10 Failure to display separately the sales and use tax or for not displaying notice

6043.01(c) $100 for each violation

11 Selling, ceding or otherwise transferring a Merchant's Registration Certificate

6043.03(b) $5,000

12 Providing false information 6043.03(c) $5,000


IVU Loto - Penalties

Number Description Article Penalties

1 Not issuing the IVU Loto receipt

6043.01(c) $100 for each violation

2 Refuse the installation or the use of a fiscal terminal

6043.06(c) $20,000 for each violation

3 Not using a fiscal terminal 6043.06(c) $20,000 for each violation

4 Disconnecting or removing a fiscal terminal


5 Obstruct the inspections or audit of the fiscal terminal



Other Matters

1. Filing of returns

2. Return of merchandise after 6/30/2015

3. Current bonds

4. Lay Away

5. Payables as of 6/30/2015


Informative Bulletinsas of June 24, 2015

Informative Bulletins issued by the PRTD after the approval of Act 72-2015:– Informative Bulletin 15-09: Amendments to the

2011 Code pursuant to Act 72-2015.


Informative Bulletinsas of June 24, 2015

Informative Bulletins issued by the PRTD after the approval of Act 72-2015:– Informative Bulletin 15-10: Upgrade of the

systems used by merchants for collection of SUT from July 1, 2015 on

– Informative Bulletin 15-11: Bonded importers should review their bonds to guarantee the SUT payment from July 1, 2015 on


Up to 6/30/15General SUT = 6%*

Designated Serv. = exempt

B2B = exempt

07/01/15 - 9/30/15General SUT = 10.5%*


B2B = exempt

10/1/15 – 3/31/16General SUT = 10.5%*

Designated Serv. = 4%

B2B = 4%

4/1/16General VAT = 10.5% or 0% (credit)

Designated Serv. = 10.5% (credit)

B2B = 10.5% (credit)

State Level

Municipal Level

Up to 6/30/15General SUT = 1%


B2B = exempt

07/01/15 - 9/30/15General SUT = 1%


B2B = exempt

10/1/15 – 3/31/16General SUT = 1%


B2B = exempt

4/1/16General SUT = 1%


B2B = exempt

* resellers get a credit and applies to taxable B2B

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Webcast – SUT Transition Period June 24, 2015

Economy & Finance