webcast – sut transition period june 24, 2015
TRANSCRIPT
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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
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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
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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
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Sales and Use Tax
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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.
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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.
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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
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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
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Taxable Services (cont.)
• 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
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Taxable Services (cont.)
• 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,
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Taxable Services (cont.)
• 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
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Taxable Services (cont.)
• 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
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Taxable Services (cont.)
• 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.
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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
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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,
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Excluded Services for Sales and Use Tax 10/1/15 – 3/31/16 (cont.)
• 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
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Excluded Services for Sales and Use Tax 10/1/15 – 3/31/16 (cont.)
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
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Excluded Services for Sales and Use Tax 10/1/15 – 3/31/16 (cont.)
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.
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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
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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,
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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:– services rendered between members of a
controlled group. Bill 1433 establishes the same requirements as mentioned before on slide 18.
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Business to Business Servicessubject to 4% effective October 1, 2015 (cont.)
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
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Business to Business Servicessubject to 4% effective October 1, 2015 (cont.)
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
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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)
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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
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Designated Professional Servicessubject to 4% effective October 1, 2015 (cont.)
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.
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Designated Professional Servicessubject to 4% effective October 1, 2015 (cont.)
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.
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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.
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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.
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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.
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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.
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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
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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.
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SUT rate applicable to preexisting contracts and auctions (cont.)
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
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SUT rate applicable to preexisting contracts and auctions (cont.)
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
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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
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SUT - Penalties
Number Description Section 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
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SUT – Penalties (cont.)
Number Description Section Penalties
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
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SUT – Penalties (cont.)
Number Description Section Penalties
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
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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
6043.06(c) $20,000 for each violation
5 Obstruct the inspections or audit of the fiscal terminal
6043.06(c) $20,000 for each violation
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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
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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.
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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
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Up to 6/30/15General SUT = 6%*
Designated Serv. = exempt
B2B = exempt
07/01/15 - 9/30/15General SUT = 10.5%*
Designated Serv. = exempt
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%
Designated Serv. = exempt
B2B = exempt
07/01/15 - 9/30/15General SUT = 1%
Designated Serv. = exempt
B2B = exempt
10/1/15 – 3/31/16General SUT = 1%
Designated Serv. = exempt
B2B = exempt
4/1/16General SUT = 1%
Designated Serv. = exempt
B2B = exempt
* resellers get a credit and applies to taxable B2B
Summary
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