House Bill 2329, the Tax System Transformation Act, was filed on February 11, 2015, and is comprehensive tax legislation that would effectively repeal the Puerto Rico Internal Revenue Code of 2011 (“2011 Code”) and purportedly replace it with a new Puerto Rico Internal Revenue Code of 2015 (“2015 Code”), to be generally effective for tax years beginning after December 31, 2015, but with certain provisions effective on or after April 1, 2015.
The 2015 Code, as proposed, is a “package proposal” with the purpose of essentially shifting from an income tax based system to consumption tax based system.
Among the most notable items, the proposal would:
The new VAT system would be effective for transactions occurring after December 31, 2015.
As a transitional measure, effective April 1, 2015, the current SUT rate would increase from 7% to 16%, and a credit mechanism for “eligible merchants” (as defined) would be created to mitigate the cascading effect in the cost of transactions along the supply chain during the transitional period.VAT imposition
VAT at a rate of 16% would be imposed on imports and taxable sale transactions in Puerto Rico. The VAT would be payable on every stage of the supply chain as follows:
The importer merchant and the merchant reseller generally would be entitled to claim a credit when the amount is paid and reported in the monthly VAT return or a when a fiscal voucher is issued by the merchant seller (as explained below).
VAT would be imposed on every taxable transaction. This includes the sale of goods, and the rendering of taxable services and bundle transactions, unless such transactions are exempt from the VAT.
The term “goods” would include prepaid cards, computer programs, and admission rights, and it specifically would exclude:
The following goods and services would be treated as exempt from VAT:
Under the VAT system, every merchant would have to comply with the following:
Declaration on imports - Generally due along with the VAT payment before taking possession of the goods to be imported into Puerto Rico, unless an extension is granted by the Secretary of Treasury and/or the merchant is a bonded merchant.
Monthly return on imports - Due on or before the 10th day of the following month in which the goods are imported to Puerto Rico. The VAT payment would also be due on the 10th day of the following month, unless an extension is granted by the Secretary of Treasury, among other exceptions.
Monthly VAT return - Due on or before the 20th day of the following month in which the VAT is collected. The VAT payment will be also due on the 20th day.
Annual informative declaration for small business - Within 60 days after the filling of the corporate or partnership income tax return.
In general, those merchants operating under the accrual accounting method would have to remit the amount of VAT at the time any of the following events occurs first:
For merchants having an agreement with a third party for the collection and deposit of the VAT to the Puerto Rico Treasury Department, the responsible person would still be the merchant that reports the income from the sales transactions in its accounting books.
Every merchant would be entitled to claim a VAT credit, which would be the sum of the following items:
The credit or refund could be claimed when paid with the filing of the monthly VAT return as reflected in the “fiscal voucher” (Comprobante Fiscal). Any unused credit amount would then be carried forward until exhausted.
A “fiscal voucher” would be requested by every merchant purchaser or customer to the merchant seller who collects and deposits the VAT, within 30 days after the sales transaction.
The merchant seller generally would be required to issue the fiscal voucher to the merchant purchaser or customer within 30 days after the request date. However, the merchant seller would not have the responsibility to issue a fiscal voucher for the following transactions:
A credit note would be issued by any merchant seller who has the duty to issue a fiscal voucher to a merchant purchaser or customer, when there is an increase in the original sales price.
On the other hand, a debit note would be issued when there is a decrease in the original sales price.
The credit note or debit note must be requested within 30 days after the merchant purchaser has knowledge of the adjustment. The merchant seller then must submit the credit or debit note within 30 days after the request date.
Any VAT refund may be requested to the Puerto Rico Treasury Department when the merchant complies with the following requirements: The VAT overpayment exceeds $10,000, and either (1) the merchant has an “eligible merchant” certificate, or (2) the merchant shows a VAT overpayment for three consecutive months in the monthly VAT return.
The Secretary of Treasury would then be required to issue an administrative determination authorizing the VAT refund, which would be requested by the merchant. If these requirements are not met, the VAT overpayment would then be credited in the monthly VAT return until exhausted.
Every customer may request a VAT refund from the merchant seller for any decrease in the sales price, or if articles are returned to the merchant seller. To claim the VAT refund, the customer would submit to the merchant seller a fiscal voucher as evidence of the payment made with the original sales transaction. Otherwise, the VAT would not be refunded to the customer.
As a measure to mitigate the regressivity of the broad-base VAT, the bill provides that certain individuals designated as “eligible consumers” would be entitled to receive from the Puerto Rico Treasury Department an amount of money as VAT relief.
In general, an eligible consumer would be defined as any person meeting any of the following:
Additional requirements, as well as the amount of the VAT relief, would be established by the Secretary of Treasury. The relief amount would be payable on the last day of the following months: November, March, and July.
For more information, contact a tax professional with KPMG in Puerto Rico:
Rolando Lopez | +1 (787) 756-6020 | firstname.lastname@example.org
Carlos Molina | +1 (787) 622-531 | email@example.com
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.