IPT 2015 Sales Tax Symposium Indian Wells, California. Amended SUT and VAT Update Act

Transcription

1 IPT 2015 Sales Tax Symposium Indian Wells, California Amended SUT and VAT Update Act

2 Today s presenters Tamara Volmer Dish Network LLC Director of Tax Tamara.volmer@dish.com Pablo Hymovitz Ernst & Young Puerto Rico LLC Executive Director PR VAT Market Leader pablo.hymovitz@ey.com The information contained herein is a summary in nature. Viewers should consult their own professional advisors to address their individual circumstances and concerns.

3 Agenda Overview of Puerto Rico Economy Timeline Amended Sales and Use Tax Provisions 3 Introduction of VAT in Puerto Rico

4 Overview of Puerto Rico economy 4 Puerto Rico s economy has been stagnant for more than eight years Economic activity remains flat at a depressed level and there are no signs that meaningful recovery is under way Default in certain government bonds has already occurred Krueger Report issued on 29 June outlining PR debt is much higher than originally reported For the first time in PR s history, on 3 August 2015 the government defaulted on a $58 million bond payment Restructuring of the Puerto Rico Treasury Department and step up in enforcement measures are in process Fiscal and Economic Growth Plan issued on 9 September 2015 found a $27.8B financing gap for FY absent corrective action Increase in SUT rate as a transition to VAT already in effect Act 72 of 29 May 2015

5 Timeline 5 Original SUT commenced in December 2006 Hybrid SUT-VAT system introduced in 2013 Act 72 of 29 May 2015 Creates the Consumption Tax Transformation Alternatives Commission (CATIC by its Spanish acronym) Submitted report to the Governor and legislative assembly on 12 August 2015 clearing the path towards the implementation of a VAT Transactions occurring after 31 March 2016 (or the extended end date of the SUT) will be subject to a VAT of 10.5% or 0% Municipal SUT of 1% will be maintained after the implementation of the VAT under SUT rules Hybrid system 1 % Municipal SUT will not apply to B2B and designated professional services Technical Amendments Senate Bill 1433 presented on 16 July 2015

6 Amended Sales Today s and Use agenda Tax Provisions Basic VAT concepts and practices Proposed Puerto Rico VAT VAT readiness

7 Amended Sales and Use Tax Provisions 7 SUT transition provisions towards VAT system Increase in rate Ability to credit 100% of use tax on imports only tangible property Expansion of tax basis to include business to business services Integration of all merchants to PICO system Portal Integrado del Comerciante (Merchant Integrated Portal) Mandate requiring electronic filing of monthly return Transition hurdles Use tax on imports tax credits properly reflected in PICO Paper form filings monthly returns properly reflected in system Business to business services consider and compare nature of services to revised definitions

8 Amended Sales and Use Tax Provisions 8 Transition period from 1 July March 2016 State portion of SUT rate is increased from 6% to 10.5% effective on 1 July 2015 Municipal portion of SUT of 1% remains unchanged Thus, total combined SUT will be 11.5% Upon importation, as of 1 July 2015, the Use Tax to be paid in order to take possession of the merchandise will be 10.5% 75% credit limitation eliminated for periods commencing after 30 June 2015 only on sale of tangible personal property Merchant reseller will be able to take a credit of 100%

9 Amended Sales and Use Tax Provisions 9 1 October March % reduced rate on services which were fully exempt prior to Act : Business to business (B2B) services - this will hit companies with a parent company outside of PR particularly hard Designated professional services 1% of Municipal SUT will not apply to these services during this period 1 July 2015 through 30 September 2015 these services will continue to be exempt Services rendered by non PR resident to PR resident merchant taxable services Related entities services rendered between them will not be subject to SUT if both entities are engaged in a trade or business in Puerto Rico Designated professional services cash basis method allowed

10 Amended Sales and Use Tax Provisions 10 1 October March 2016 B2B are those rendered to a person dedicated to trade or business in PR, except: Taxable services specific list (generally taxable in theb2b context) PR Government services, including water sewer service Educational services, including tuition costs Interest and other charges imposed by financial institutions (except bank charges) Insurance services and commissions Health or hospital medical services Services rendered by persons with annual volume of business of less than $50,000 Services among affiliates which are dedicated or engaged in trade or business in PR

11 Amended Sales and Use Tax Provisions 11 1 October March 2016 Designated professional services subject to 4% rate: Agronomists Architects and landscape architects CPA Brokers, sellers and real estate companies Professional draftspersons Professional real estate appraisers Geologists Engineers and surveyors Lawyers Tax return, statements or refund claims specialist (new)

12 Amended Sales and Use Tax Provisions Administrative Determination of 23 July 2015 Reinstates electronic filing requirements that had been established by Circular Letter and Administrative Determination SUT e-filing platform likely to carryover to VAT Special attention to carryforward of SUT credits Tax Policy Circular Letter of 8 August 2015 Beginning on 1 September 2015 registered merchants providing designated professional services must update the merchant registry data 12

13 Amended Sales and Use Tax Provisions Administrative Determination of 31 July 2015 Procedures related to paying July 2015 SUT in installments (only available to merchants with annual gross sales < $1m) Administrative Determination of 31 August 2015 Application of SUT to services rendered business to business and designated professional services New return created to report 4% SUT collected (or self assessed) is due on the 20 th day of the month following of the taxable transaction, among other noteworthy determinations 13

14 Introduction of VAT in Puerto Rico

15 Introduction of VAT in Puerto Rico Overview Nexus Filing Requirements Credits, overpayments and refunds VAT Certificates PR VAT Rules not business as usual VAT Readiness 15

16 Global trends Global shift to indirect taxes 164 countries in the world levied a VAT as January 2014 Standard VAT rates are increasing as the top personal income tax (PIT) and corporate income tax (CIT) rates fall in the European Union Emerging markets are introducing new VAT/GST regimes Source: OECD s Consumption Tax Trends 2014 European Commission, 2014

17 Introduction of VAT in Puerto Rico Overview 17 Act introduces a VAT effective on 1 April 2016 PR VAT statute based on existing PR SUT provisions PR VAT follows general VAT concepts, tax is: Collected at every stage of the supply chain Tax charged on sales (output VAT) Tax paid on purchases (input VAT) In general, VAT system allows registered merchants to take a credit on the VAT paid on their inputs The actual VAT burden is therefore borne by the final consumer Puerto Rico Treasury Department has not issued administrative guidance interpreting the VAT statute

18 Introduction of VAT in Puerto Rico Overview (cont.) 18 Transactions occurring after 31 March 2016 (or the extended end date of the SUT) will be subject to a VAT of 10.5% Act 72 also provides a zero rate for certain transactions, namely: Sale of goods for export Rendering services for export, and Import of articles used in the manufacturing process by a manufacturing plant with a valid exemption certificate Excluded from the scope of VAT: Services among the members of controlled group of corporations doing business in Puerto Rico Municipal SUT of 1% will be maintained after the implementation of the VAT under SUT rules Hybrid System 1% Municipal SUT will not apply to B2B and professional services after VAT goes into effect

19 Introduction of VAT in Puerto Rico Overview (cont.) The party responsible for the payment of the VAT will be the person that: Introduces or imports goods into Puerto Rico Purchases goods or receives a service (except in the case of retail sales) in Puerto Rico Receives the service in Puerto Rico, in the case of services rendered by a non-resident of Puerto Rico Certain transactions, such as the sale of prescription drugs, unprepared food and food ingredients, gasoline, lease of real property used for commercial purposes, financial and insurance services among others, are not subject to VAT A total of 22 items are exempt from VAT 19

20 Introduction of VAT in Puerto Rico Nexus 20 Nexus rules are those by which a person is subjected to Puerto Rico's power to levy and collect VAT Nexus rules for purposes of VAT are similar to those under the SUT VAT nexus provisions also provide a seemingly allencompassing clause that provides that a person shall also have nexus if it has sufficient connection with or relationship with Puerto Rico with the purpose of creating sufficient nexus with Puerto Rico to impose the responsibility of collecting the VAT

21 Introduction of VAT in Puerto Rico Nexus (cont.) Leading case Quill Corp v. North Dakota, 504 U.S. 298 (1992) established that an in-state physical presence is required before a state can impose SUT Open question if VAT nexus analysis should take into account this case 21

22 Introduction of VAT in Puerto Rico Filing Requirements VAT Filing requirements remain similar to those currently in place for SUT purposes (except for Small Merchant Return) Imports Declaration Merchants will have to file an imports declaration detailing the VAT to be paid for goods introduced to Puerto Rico before claiming the goods at the port Monthly Imports Return Merchants who are importing goods will have to file on or before the 10th day of the month following the introduction a monthly imports return 22

23 Introduction of VAT in Puerto Rico Filing Requirements (cont.) Monthly VAT Return Due on or before the 20th day of the month following the taxable transaction Small Merchant s Annual Informative Return Must be filed 60 days after filing the income tax return 23

24 Introduction of VAT in Puerto Rico Credits, overpayments and refunds In case of fully taxable use, a merchant may claim a credit on its monthly VAT return for the VAT paid: Upon the introduction of the goods, as reported in the Monthly Imports Return The purchase of goods and services reflected in a VAT invoice For services purchased from a non-puerto Rico resident provider as reflected in the Monthly VAT Return VAT incurred on acquisitions connected with exempt activities should in principle not be recoverable Statute provides a formula to determine the deductible VAT amount in case of `mixed use` acquisitions 24

25 Introduction of VAT in Puerto Rico Credits, overpayments and refunds (cont.) 25 Refunds: A merchant will be able to claim a refund if for any month, after complying with its monthly VAT return filing, such merchant has an overpayment in excess of $10,000 Refunds: Overpayments in excess of $10,000 for any particular month for eligible merchants would qualify for a refund upon request Overpayments in excess of $10,000 for any particular month that is the third consecutive month of overpayments (for non-eligible merchants) could qualify for a refund upon request

26 Introduction of VAT in Puerto Rico Credits, overpayments and refunds (cont.) The refund request must be filed directly with the Secretary through the corresponding form The secretary will have 30 days to respond to the request and if approved, the refund should be received by the merchant within the next 5 working days after the approval 26

27 27 Introduction of VAT in Puerto Rico Credits, overpayments and refunds(cont.)

28 Introduction of VAT in Puerto Rico VAT Certificates Merchant Registration Certificate All merchants need to be registered in the Merchant registry of Puerto Rico. Once registered, the certificate needs to be kept in a visible place at the commercial establishment Small Merchant Registration Certificate- any merchant who s gross sales do not exceed $125,000 can request a small merchant certificate. Small merchant will not be required to collect the VAT Exemption and Zero Rate Certificate for Manufacturing Plants - will be able to import and acquire articles without having to pay VAT 28

29 Introduction of VAT in Puerto Rico PR VAT Rules not business as usual Atypical PR VAT rules that parallel current SUT rules Very broad nexus rules As a general rule, the person purchasing the good or rendering the service in PR is responsible for the payment of VAT Exemptions may be based on the status of the customer and not only the type of the transaction Very broad scope of exemptions, also including vehicles and fuel 29

30 Introduction of VAT in Puerto Rico PR VAT Rules not business as usual 30 Atypical PR VAT rules that represent a departure from PR SUT rules Business customers to ask their taxable suppliers to issue VAT invoices To be issued in taxable transactions between merchants, the purchaser may request a VAT invoice, which must be issued by the seller within 30 days of the request Title; name, address and number of the merchant seller and the merchant buyer; date; sequential number; description of goods; sales price; VAT applicable to the sale; total invoice amount, including the VAT; any other information requested by the PR Secretary of the Treasury Automatic VAT grouping for related party transactions between entities engaged in business in PR, but restricted to services

31 Introduction of VAT in Puerto Rico PR VAT Rules not business as usual Atypical PR VAT rules that represent a departure from PR SUT rules Certain taxpayers may obtain a direct pay permit and pay VAT directly to the PR Secretary of the Treasury Certain irrecoverable consumption taxes incurred outside Puerto Rico may be claimed as a credit against VAT payable in Puerto Rico Companies might need to calculate a deductible prorata even if this is not the case in other jurisdictions 31

32 Introduction of VAT in Puerto Rico VAT Readiness Considered the VAT impact in your business? Pricing & budgeting Product design Business model Contracts & other business documents Customer and vendor re-negotiation Training Compliance Operations VAT Finance Can you properly account for and manage VAT? Revenue Costing Profitability Cash flow Forecast Accounting Reporting Enhanced compliance requirement for VAT? Can your systems adapt? 32 Invoice compliance management (issuance and verification) VAT filing compliance management Internal control management Policies, guidelines, manuals IT Business operating systems Accounting system Related interfaces Internal control system Tax management system

33 Amended SUT and VAT Update Act FIN Thank you for your Participation! 33

34 Disclaimer This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. The views expressed by the presenters are not necessarily those of Ernst & Young LLP. This presentation is 2015 EYGM. All Rights Reserved. EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. 34 EY refers to the global organization, and may refer to one or more, of the member firms, of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.