Webcast – SUT Transition Period June 24, 2015

@2015 Kevane Grant Thornton LLP. All rights reserved.
Tax Reform Process in Puerto Rico
Act 72 - 2015
Webcast – SUT Transition Period
June 24, 2015
María de los Angeles Rivera, Partner Head of Tax
and
Javier Oyola, Tax Manager

Disclaimer
DISCLAIMER: These presentations and their content do not represent a consulting. Participants should not
act solely on the basis of this material and its content. Its usefulness is for information only and should not be
used as a specific consulting. In addition, you must obtain the consultation of an expert before acting or
taking a decision on any topic addressed in this presentation.

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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 4/30/2015
Signed
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,

– 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

– 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

– 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

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,

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

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

10/1/15 – 3/31/16 (cont.)
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

subject to 4% effective October 1, 2015 (cont.)
except for:
– insurance services and commissions
– health or hospital services
– services rendered by persons whose annual
volume of business is $50,000 or less,

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 Services
subject 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 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

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.

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

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

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
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

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 Bulletins
as 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 Bulletins
as 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 6/30/15
General SUT = 6%*
Designated Serv. = exempt
B2B = exempt
07/01/15 - 9/30/15
General SUT = 10.5%*
B2B = exempt
10/1/15 – 3/31/16
General SUT = 10.5%*
Designated Serv. = 4%
B2B = 4%
4/1/16
General VAT = 10.5% or 0%
(credit)
Designated Serv. = 10.5%
(credit)
B2B = 10.5% (credit)
State Level
Municipal Level
Up to 6/30/15
General SUT = 1%
B2B = exempt
07/01/15 - 9/30/15
General SUT = 1%
B2B = exempt
10/1/15 – 3/31/16
General SUT = 1%
B2B = exempt
4/1/16
General SUT = 1%
B2B = exempt
* resellers get a credit and
applies to taxable B2B
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Webcast – SUT Transition Period June 24, 2015

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