CÁMARA DE COMERCIO DE PUERTO RICO. Rosa M. Rodríguez Executive Director-Tax Department Ernst & Young Puerto Rico LLC

Transcription

1 CÁMARA DE COMERCIO DE PUERTO RICO Rosa M. Rodríguez Executive Director-Tax Department Ernst & Young Puerto Rico LLC

2 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.

3 Agenda Introduction Individual Tax Corporate Tax Option 94 Alternative Minimum Tax / Patente Nacional Tax credit moratorium Sales and Use Tax, Act (nexus expansion) and Act (payment of use tax at the port) Act : 1.5% charge on governmental service contracts Questions

4 Individual income tax

5 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

6 2% Special additional tax 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

7 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

8 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

9 Corporate & Conduit Entities Income Tax

10 Corporate Income Tax Rates 2011 Code Act 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

11 Surtax Rate Additional Tax Rate applicable to Surtax net income: Not greater than $75,000 5% $75,001 - $125,000 $3, % excess of $75,000 $125,001 - $175,000 $11, % excess of $125,000 $175,001 - $225,000 $19, % excess of $175,000 $225,001 - $275,000 $27, % excess of $225,000 In excess of $275,000 $36, % excess of $275,000

12 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

13 Example No. 1 - Tax Rates Increase 2011 Code Act Taxable Income $960,000 $960,000 (1) Regular Tax: Normal Tax $192,000 $192,000 Surtax 10, ,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

14 NOL Carry Forward Limitations Limited to 90% - regular tax Years: Until years years 2013 after 10 years

15 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

16 Example No. 2 - NOL Limitation 2011 Code Act 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 (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

17 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 Conduit entities: 100% of expenses paid to a 50% or more partner if not subject to PR taxation or withholding at source

18 Non-deductible Expenses Circular Letter 13-06: Option to apply for a waiver stress test for certain expenses Circular Letter 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

19 Corporate AMT 2011 Code Act AMT Tax Rate 20% 30% Book Income Adjustment 50% 60% NOL Limitation 90% 80%

20 Option 94

21 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

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