CÁMARA DE COMERCIO DE PUERTO RICO
Rosa M. Rodríguez
Executive Director-Tax Department
Ernst & Young Puerto Rico LLC
Disclaimer
• Ernst & Young refers to the global organization of member firms of Ernst &
Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP
is a client-serving member firm of Ernst & Young Global Limited located in the
US.
• This presentation is © 2013 Ernst & Young LLP. All rights reserved. No part of
this document may be reproduced, transmitted or otherwise distributed in any form
or by any means, electronic or mechanical, including by photocopying, facsimile
transmission, recording, rekeying or using any information storage and retrieval
system, without written permission from Ernst & Young LLP. Any reproduction,
transmission or distribution of this form or any of the material herein is prohibited
and is in violation of US and international law. Ernst & Young and its member
firms expressly disclaim any liability in connection with use of this presentation or
its contents by any third party.
• The Views expressed by panelist in this workshop are not necessarily those of Ernst
& Young.
Agenda
• Introduction
• Individual Tax
• Corporate Tax
• Option 94
• Alternative Minimum Tax / “Patente Nacional”
• Tax credit moratorium
• Sales and Use Tax, Act 42-2013 (nexus expansion) and Act 46-2013 (payment of use tax at the port)
• Act 48-2013: 1.5% charge on governmental service contracts
• Questions
Individual income tax
2% Special additional tax
• 2% special additional tax to self-employed
– Gross income in excess of $200,000
– Gross income: sales less cost of sales
– Services and any other trade or business
• Exception: Not applicable to services as an employee
– Gross income on a consolidated basis (from
services and any other trade or business)
– Payable with the individual income tax return
• Not “deductible” against regular income tax
• Not subject to the payment of estimated taxes
• Applicable to individuals under Option 94
• Conduit entities:
• Extent: Would it be applicable to partners
• PRTD’s position
2% Special additional tax
Mortgage interest - Deduction
• Deduction is limited to $35,000 in total
– Maintains the limitation of 30% of modified adjusted
gross income
– Implications for taxpayers with CO Schedule and
related
Alternate Basic Tax
• Increase in Alternate Basic Tax (ABT)
– From $150k to $250k 10%
– Over $250k to 500k 15%
– More than $500k 24% (Increased from 20%)
– ABT includes the distributable share on Additional Tax on gross
income (“Patente Nacional”)
– Effective date: Taxable year 2014
• In conflict with effectiveness clause: taxable year 2013
• Technical amendments
2013 Income and Sales Tax Changes Under Act 40
Corporate & Conduit Entities Income Tax
Corporate Income Tax Rates
2011 Code Act 40-2013
Normal Tax Rate 20% 20%
Maximum Tax Rate 30% 39%
Surtax Exemption $750k $25k
Surtax Rate 5%-10% (approx.) 5%-19% (approx.)
Recapture None None
Consolidated surtax
calculation
Yes Yes
Surtax Rate
• Additional Tax Rate applicable to Surtax net income:
Not greater than $75,000 5%
$75,001 - $125,000 $3,750 + 15% excess of $75,000
$125,001 - $175,000 $11,250 + 16% excess of $125,000
$175,001 - $225,000 $19,250 + 17% excess of $175,000
$225,001 - $275,000 $27,750 + 18% excess of $225,000
In excess of $275,000 $36,750 + 19% excess of $275,000
Example No. 1- Facts - Tax Rates Increase
• Net income per books - $950,000
• Meals & entertainment - $20,000
• Net income per taxes - $960,000
• Gross revenues - $10,000,000
• Gross revenues during the previous 3 taxable years equals or exceeds $10,000,000
• No purchases of tangible personal property to related parties
• No expenses or allocations paid or accrued to relate parties
Example No. 1 - Tax Rates Increase
2011 Code Act 40 - 2013
Taxable Income $960,000 $960,000
(1) Regular Tax:
Normal Tax $192,000 $192,000
Surtax 10,500 162,150
Total $202,500 $354,150
(2) AMT:
Tentative Minimum Tax $192,000 $288,000
Gross Receipts Tax n/a 50,000
Total $192,000 $338,000
Tax Liability (Higher 1 or 2) $202,500 $354,150
NOL Carry Forward Limitations
• Limited to 90% - regular tax
• Years:
• Until 2004 7 years
• 2005 – 2012 12 years
• 2013 – after 10 years
Example No. 2- Facts - NOL Limitation
• Net income per books - $1,490,000
• Meals & entertainment - $20,000
• Net income per taxes - $1,500,000
• Gross revenues - $10,000,000
• Gross revenues during the previous 3 taxable years equals or exceeds $10,000,000
• No purchases of tangible personal property to related parties
• No expenses or allocations paid or accrued to relate parties
• NOL Carryover $5,000,000
Example No. 2 - NOL Limitation
2011 Code Act 40 – 2013
Taxable Income before NOL $1,500,000 $1,500,000
Less: NOL (1,500,000) (1,350,000)
Taxable Income after NOL 0 150,000
(1) Regular Tax:
Normal Tax $0 $30,000
Surtax 0 11,250
Total $0 $41,250
Alternative minimum net income before NOL $1,500,000 $1,500,000
Less: NOL plus Exempt amt. $50,000 1,400,000 1,250,000
Alternative minimum net income after NOL 100,000 250,000
(2) AMT:
Tentative Minimum Tax $20,000 $75,000
Gross Receipts Tax n/a 50,000
Total $20,000 $125,000
Tax Liability (Higher 1 or 2) $20,000 $125,000
Non-deductible Expenses
• National Gross Receipts Tax
• Corporations: 51% of expenses paid to foreign
affiliates not subject to tax in Puerto Rico
– Includes Branches
– Not applicable to tax exempt entities
– Waiver from the Secretary – Circular Letter 13-06
• Conduit entities: 100% of expenses paid to a 50% or
more partner if not subject to PR taxation or
withholding at source
Non-deductible Expenses
• Circular Letter 13-06: Option to apply for a
waiver “stress test” for certain expenses
– Circular Letter 13-06 establishes requirements
– Requires technical memorandum to support petition
– Requires Agreed Upon Procedure performed by a
local CPA on peer review program
– Lists information to be submitted for the last 4 years
Corporate AMT
2011 Code Act 40-2013
AMT Tax Rate 20% 30%
Book Income
Adjustment 50% 60%
NOL Limitation 90% 80%
Option 94
Option 94
• Permits adoption of Option 94 in 2013 – Individuals, corporations and conduit entities (partnerships,
special partnerships, LLC and corporations of individuals)
– Irrevocable election
• Obligation to comply with the Additional Tax on Gross Income (“Patente Nacional”) applies under Option 94 – Need to consider in estimated tax obligation
– Would safe harbor rules be applicable for first year of effectiveness • PRTD’s position appear to be that the 100% safe harbor rule would
not be applicable in first year
• Different set of rules of estimated taxes under 1994 PRIRC
• Technical amendments
Gracias
Síguenos en: