Page 1
#tucamaraenaccion
REFORMACONTRIBUTIVA
LaCámara deComercio dePuertoRicoysu Comité deAsuntos Contributivos presentan elForo:
Aspectos Relevantes: Corporaciones, Sociedades y Ciertos Otros
Rosa M. Rodríguez, Directora EjecutivaErnst and Young Puerto Rico LLC
Page 2
#tucamaraenaccion
REFORMACONTRIBUTIVA
Thispresentationisprovidedsolelyforthepurposeofenhancingknowledgeontaxmatters.Itdoesnotprovidetaxadvicetoanytaxpayerbecauseitdoesnottakeintoaccountanyspecifictaxpayer’sfactsandcircumstances.
Theseslidesareforeducationalpurposesonlyandarenotintended,andshouldnotbereliedupon,asaccountingadvice.
TheviewsexpressedbythepresentersarenotnecessarilythoseofErnst&YoungLLP.
Thispresentationis©2018Ernst&YoungLLP.AllRightsReserved.
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.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.
Disclaimer
Page 3
#tucamaraenaccion
REFORMACONTRIBUTIVATaxrates– RegularandAMT• fortaxableyearscommencingafterDecember31,2018:
- reductiononcorporateregulartaxrates:- normaltaxisreducedto18.5%- surtax:nochanges- maximumtaxrate(normalandsurtax)wouldbe37.5%
- alternativeminimumtax- thegreaterof$500or18.5%ofthealternativeminimumnetincome- inthecaseoftaxpayerswithvolumeofbusinessof$3millionormorethetaxratewillbe23%- newlimitationsareimposedregardingdeductibleexpensestodeterminethenetincomesubjecttoalternativeminimumtax- optiontoclaimalltheordinaryandnecessaryexpensesiftaxpayersubmitsauditedfinancialstatements,AgreedUponProcedures(AUP)orComplianceAttestationReportsbyaCPAwithlicensetopracticeinPR
Page 4
#tucamaraenaccion
REFORMACONTRIBUTIVA
TaxratesandOtherRegularandAMTRules• fortaxableyearscommencingafterDecember31,2018:
- alternativeminimumtax- newlimitationsareimposedregardingdeductibleexpensestodeterminethenetincomesubjecttoalternativeminimumtax- optiontoclaimalltheordinaryandnecessaryexpensesiftaxpayer
submitsauditedfinancialstatements- $3Millionormore- AgreedUponProcedures(AUP)orComplianceAttestationReports–
lessthan$1Million,or$1butlessthan$3Million- AllcasesthereportmustbeissuedbyaCPAwithaPuertoRicovalid
license
Page 5
#tucamaraenaccion
REFORMACONTRIBUTIVAAlternativeMinimumNetIncomeDeductionsallowedtodeterminethenetincomesubjecttoalternativeminimumtax– TaxyearscommencingafterDecember31,2018• AMTnetincome–
• Onlycertaindeductionsallowed• GrossincomeperSection1031.01lessalloweddeductions
• AMTnetincomedeterminedonthesamebasisasthenetincomeforregulartaxpurposes• Onlyifauditedfinancialstatements,ortheAUPorCAreportasapplicableare
submittedwiththereturn• Secretarymustestablishbyregulationoradministrativeguidancethemannerin
whichthesenewruleswouldapply• Includingtransitionmeasures
Page 6
#tucamaraenaccion
REFORMACONTRIBUTIVA
AlternativeMinimumNetIncomeDeductionsallowedtodeterminethenetincomesubjecttoalternativeminimumtax– TaxyearscommencingafterDecember31,2018
• 125%deductionforsalariespaidandreportedontheW-2's• amountofpaymentsforservicesdirectlyrelatedtothetradeorbusinessreported
oninformativereturns(withorwithoutwithholding),includes:• Rent• Telecom• Internetaccess
• contributionstohealthoraccidentplans
Page 7
#tucamaraenaccion
REFORMACONTRIBUTIVAAlternativeMinimumNetIncomeDeductionsallowedtodeterminethenetincomesubjecttoalternativeminimumtax– TaxyearscommencingafterDecember31,2018
• Waterandelectricityservicesdirectlyrelatedtotheoperationofthetradeorbusiness
• Amounts paid inthe tax year directly related tothe operation ofthe trade orBusiness,andproperly reported inthe informative returns- advertising- promotion- Marketing
• Amountspaidinthetaxyearandpropertly reportedintheinformativereturnsfor:Property,contingencyandpublicliability(responsibility)insurance
Page 8
#tucamaraenaccion
REFORMACONTRIBUTIVAAlternativeMinimumNetIncomeDeductionsallowedtodeterminethenetincomesubjecttoalternativeminimumtax- TaxyearscommencingafterDecember31,2018
• depreciationdeductionunderstraightline• interest,othertaxes,baddebts,contributionstoanemployeetrust,annuity
orcompensationunderadeferredpaymentplan,charitablecontributions,agriculturalincome,butonlyifaredirectlyrelatedtotheoperationofthetradeorbusiness
Page 9
#tucamaraenaccion
REFORMACONTRIBUTIVA
Summary of AMT deductions-Deductible expenses Requirement
Salaries(125%deduction) W-2Servicesdirectlyrelatedtothetradeorbusiness InformativereturnContributionstohealth oraccidentplans -Rent,telecommunications, internet InformativereturnWaterandelectricityservices -
Advertising,promotion andmarketing- directlyrelatedthetradeorbusiness Informativereturn
Property,contingencyandpublicliabilityinsurance Informativereturn
Depreciationdeductionunder straightline -Interest,othertaxes,baddebts,contributionstoemployeetrusts ordeferredpaymentplan,charitablecontributions,agriculturalincome– directlyrelatedtothetradeorbusiness
-
Page 10
#tucamaraenaccion
REFORMACONTRIBUTIVA
Optionalcomputationforcorporationsthatprovideservices
• Corporationsmayopttopayanoptionaltax• Sourceofincomeissubstantiallyfromtherenderingofservices• Effectivedate:
• fortaxableyearscommencingafterDecember31,2018• Secretaryhastheauthoritytopostponetotaxyears2020forward
Page 11
#tucamaraenaccion
REFORMACONTRIBUTIVA
Gross Income Tax rate
Up to $100,000 6%Between$100,001-$200,000 10%Between$200,001-$300,000 13%Between$300,001-$400,000 15%
Between$300,001-$500,000 17%Over$500,000 20%
Optionalcomputationforcorporationsthatprovideservices-AppliesfortaxableyearcommencingafterDecember31,2018
Page 12
#tucamaraenaccion
REFORMACONTRIBUTIVAOptionalcomputationforcorporationsthatprovideservicesRequirements– allthree(3)mustbemet:
- Totalgrossincomeisderivedsubstantiallyfromservicesrendered- Totalgrossincomewasreportedoninformativereturns- Totalgrossincomewassubjecttowithholdingatsourceorthepaymentofestimatedtaxes
• Iftheoptionalcomputationiselected• Applicabletaxratewouldbeappliedtothegrossincome• Taxpayerwillnotbeabletoclaimanyexpensesordeductions• Waivedfromtherequirementtosubmitauditedfinancialstatements,orAUPorACreportsasapplicable
Page 13
#tucamaraenaccion
REFORMACONTRIBUTIVA
Corporate tax returns
• Onlyonesignaturewillberequired• Ifthetotaltaxongrossincomewaspaidbywithholdingatsourcenotaxreturnwillberequiredtobefiled
• InthecaseofLargeTaxpayers- returnneedstobecertifiedasreviewedorpreparedbyaCertifiedPublicAccountantwithlicensetopracticetheprofessioninPuertoRico
Page 14
#tucamaraenaccion
REFORMACONTRIBUTIVA
Corporate tax returns
• Extensiontofile• TaxyearsthatcommencedafterDecember31,2016– 6months• Thiswouldalsobeapplicabletocorporationofindividuals,partnershipsandspecialpartnerships
• Filingofthereturn• Secretaryhasauthoritytorequiremandatoryelectronicfiling
• Paymentofthetax• Secretaryhasauthoritytorequiremandatoryelectronicpayment
Page 15
#tucamaraenaccion
REFORMACONTRIBUTIVA
Group ofrelated entities – Section 1010.05Changesinthedefinitionusingtheconceptof“entities”insteadof“corporations”• Addsnewdefinition:Entity• Entityisdefinedaseveryindustryorbusinesscarriedonbya:
• corporation,limitedliabilitycorporation(LLC)orpartnershiptaxedasacorporation
• LLCorpartnershipsubjecttotaxationasapartnership• corporation,LLCorpartnershipsubjecttotaxationasaspecialpartnership• corporationorLLCsubjecttotaxationasacorporationofindividuals• Corporation,LLC,partnershiporanyothertypeofforeignentitythatifengagedinbusinessinPR,wouldfallonanyoftheabovecategories
Page 16
#tucamaraenaccion
REFORMACONTRIBUTIVA
DefinitionsLimitedLiabilityCompany(LLC)
• ProvidesforLLCseries• Statutoryrule– partnershiptaxationifconsidereddisregardedorpartnerssubjecttotaxation• WouldonlyrequirethepartnershipmandatorystatustoforeignLLCs
• Newdefinition– Tradeorbusinesswouldnotinclude• Tradinginsecurities:residentindependentagentorforitsownaccount
• Residentindependentagentrule-OnlyapplicableifnoofficeorotherfixedplaceofbusinessinPRinthetaxyear
• Othernewdefinitions:PROMESA,mathematicalerror,amongothers
Page 17
#tucamaraenaccion
REFORMACONTRIBUTIVA
LargeTaxpayers
• $50millionormore- volumeofbusinessdeterminedusingtheaggregateamountofallthemembersofthegroupofrelatedentities
• NotLargeTaxpayeranymore– taxpayercanrequestfromtheSecretarytobeexcludedfromtheLargeTaxpayerscategory• Requestmustbemadethroughfilingofanadministrative
determination
Page 18
#tucamaraenaccion
REFORMACONTRIBUTIVADeductions-deductionsingeneral
- depreciation- businesseswithvolumeofbusinessof$3MMorlessmaycompute
thedeductionusinganusefullifeof2yearsforfixedassets,exceptforrealproperty,automobiles,amongothers(taxyearsafter12/31/2018)
- Automobiles- Expensesafter12/31/2017,allowsthedeductionforactualexpensesincurredfortheuseandmaintenance,subjecttoalimitthatwillbeestablished- AmounttobeestablishedbySecretaryshouldneverbelessthan
theonepublishedbytheUSInternalRevenueService
Page 19
#tucamaraenaccion
REFORMACONTRIBUTIVADeductions-deductionsingeneral
- charitablecontributionsmadebycorporations- Taxableyearsbeginningafter12/31/2018- deductionwillonlybeallowedifmadetononforprofitentitiescertifiedbytheSecretary,thatprovideservicestoresidentsofPuertoRico
-Netoperatinglosses(carryover&deduction)- Taxableyearsbeginningafter12/31/2018- 90%ofgrossincome
limitationisreestablished- Eliminatesreferencestolimitationsaboutrelatedpartyexpenses
(51%/49%)
Page 20
#tucamaraenaccion
REFORMACONTRIBUTIVA
Deductions-deductionsingeneral- Netoperatinglosses- corporatepartnerthatowns50%ormoreoftheinterestinapartnershiporspecialpartnership(seemsthatcouldbeapplicablefortaxyear2018dependingwhenthebillissigned)
- NotallowedtoclaimtheNOLdeductionagainstthedistributableshareincomeofsuchpartnership/specialpartnership
- NotallowedtouseitscurrentNOLtooffsetthedistributableshareincome
- Lossesfromotherpartnershiporspecialpartnershipsagainstshouldcontinuebeingallowedsubjecttotaxbasisandotherpertinentrules
Page 21
#tucamaraenaccion
REFORMACONTRIBUTIVADeductions-deductionsingeneral
- lossespassthroughentities- reducesthelimitationto90%oftheshareofnetincomeinpassthroughentitiesfortaxyearsbeginningafter12/31/2018
- employmentofyoungcollegestudents/recentgraduates- establishes150%- 200%deductionsonsalariespaidtocollege
studentsandrecentlygraduatedindividuals- capitallosses– reinstates90%limitationfortaxyearscommencingafter
December31,2018
Page 22
#tucamaraenaccion
REFORMACONTRIBUTIVA
Deductions• nondeductibleitems
- meals&entertainmentexpensesReducesto25%thedeductibleportion-taxyearscommencingafter12/31/2018
- travelandlodgingexpensesNottoexceed50%- taxyearscommencingafter12/31/2018
- paymentsandrelatedlegalexpensesforsexualharassmentNotdeductible- taxableyearscommencingafter12/31/2018- applicabletoagreementswithanondisclosureclause
Page 23
#tucamaraenaccion
REFORMACONTRIBUTIVADeductions• nondeductibleitems
- 51%disallowanceofrelatedpartycostsandexpenses- Eliminateslimitationfortaxableyearscommencingafter12/31/2018- requirestransferpricingstudythatincludesanalysisoftheoperationscarriedoutinPR- preparedinconformitywiththeprovisionsoftheUSIRCSection482- ReferencetobeingrevisedbytheUSIRS- ControlledgroupinwhichnomemberhasoperationsintheUS-transferpricingstudyinconformitywithOECDwouldbeallowed
- Secretaryshallissueregulationoradministrativeguidance-toestablisheffectiveness/validityofthetransferpricingstudy
- Secretaryisauthorizednottoacceptthosestudiesthatarenotincompliancewiththerules
Page 24
#tucamaraenaccion
REFORMACONTRIBUTIVA
Sourceofincomerules- Saleofinterestinapartnership• Saleofaninterestinapartnership
• PartnershipthatgeneratesincomefromsourceswithinPR• 2011PRIRC– sourcefromplaceoforganizationorresidenceofseller• PRsourcesincome- totheextentthatthepartnershipwouldhave
generatedPuertoRicosourceincomehaditsoldalltheassetsatfairmarketvalue(FMV),regardlessof• residenceofthepartner,and• ruletomakedeterminationatthepartner,shareholderormember
• Transactionsafter12/31/2018
Page 25
#tucamaraenaccion
REFORMACONTRIBUTIVAWithholdingatsource– nonresidentindividualsSaleofinterestinapartnership• Specialruletonon-residentpersons
• Buyerrequiredtodowithholdingof15%ontheportionofthegainthatisconsideredfromPRsources
• Buyerrequiredtododeposittaxandfileannualreturnwithrespecttowithholdingmade• Buyernotallowedtoclaimdeductionifdepositandannualinformative
filingarenotmade• Totheextentdeductibleasordinaryandnecessaryexpenses(most
likelynotthecaseinapurchasefromanon-PRresident)• Transactionsafter12/31/2018
Page 26
#tucamaraenaccion
REFORMACONTRIBUTIVA
Sourceofincomerules– Personalservicestogovernmentalentities
• PuertoRicosourceincome- ServicesrenderedtoanyagencyorinstrumentalityoftheGovernmentofPR,publiccorporation,legislature,judicature,municipalitiesoreanyotherentitycreatedbystateorFederallaws• FundingfromGeneralFund• EveniftheservicesarerenderedfromoutsidePR• Effectivedate:asofthedateofsignature
Page 27
#tucamaraenaccion
REFORMACONTRIBUTIVA
Distributablesharetopartners– limitationonallowanceoflosses
• Specialruletopartner’sadjustedbasis– Indeterminingthepartner’sdistributableshareinthelossesofapartnership• shouldincludethepartner’sdistributableshareofthecharitable
contributionsmadebythepartnership• donationofpropertywithfairmarketvalueinexcessofitsadjusted
basis- onlytheadjustedbasismaybeconsidered• partner’sdistributableshareinFTCs
Page 28
#tucamaraenaccion
REFORMACONTRIBUTIVA
Continuationofpartnership
• saleorexchangeof50%ormoreofthetotalinterestinapartnership'sprofitsandcapitalwouldnotbeconsideredaterminationofthepartnership
Page 29
#tucamaraenaccion
REFORMACONTRIBUTIVAAuditedFinancialStatements(AFS)Requirements
VolumeofBusiness 2011PRIRCHB1544
TaxYear2018 Commencingafter12/31/2018
Lessthan$1,000,000 NoAFSrequired. NoAFSrequired.
VoluntarysubmissionofAUPorCAnottobesubjecttoABTandAMTlimitations. CPAwithvalidlicenseinPR.
Equalorgreaterthan$1,000,000butlessthan$3,000,000
NoAFSrequired;optionaltoobtain7%fullwaiver(corporations)orpartialwaiver(other).
NoAFSrequired;optionaltoobtain7%fullwaiver(entities)orpartialwaiver(other).
VoluntarysubmissionofAUPorCAnottobesubjecttoABTandAMTlimitations.CPAwithvalidlicenseinPR.
Equalorgreaterthan$3,000,000 AFSrequired. AFSrequired. AFSrequired.Also,willnotbe
subjecttoABTandAMTlimitations.
AUP– Agreeduponproceduresreport;CA– ComplianceAttestationReport
Page 30
#tucamaraenaccion
REFORMACONTRIBUTIVAAuditedFinancialStatements(AFS)Requirements– Consolidatedorcombined
VolumeofBusiness 2011PRIRCHB1544
TaxYear2018 Commencingafter12/31/2018
Equalorgreaterthan$3,000,000(relatedentitiesandpersons)
Members- lessthan$1,000,000,noAFSrequired.
Members- lessthan$1,000,000,noAFSrequired. AUPorCArequired.
Members- equalorgreaterthan$1,000,000,stand-aloneAFSrequiredlistinginthenotesallrelatedentitiesETBinPuertoRico.
Members- equalorgreaterthan$1,000,000,stand-aloneAFSrequiredlistinginthenotesallrelatedentitiesETBinPuertoRico.
Members- equalorgreaterthan$1,000,000,stand-aloneAFSrequiredlistinginthenotesallrelatedentitiesETBinPuertoRico.
ETB– Engagedintradeorbusiness
Page 31
#tucamaraenaccion
REFORMACONTRIBUTIVA
AuditedFinancialStatements– Notforprofit
• non-for-profitcorporationswithunrelatedbusinessincomeof$3,000,000ormorewillberequiredtosubmitauditedfinancialstatementsfortaxableyearsbeginningafterDecember31,2018
Page 32
#tucamaraenaccion
REFORMACONTRIBUTIVA
SupplementalInformation(SI)
• Generally,sameruleswouldapply• Secretarywouldestablishbyregulationandadministrative
guidancethedatetosubmittheSIwhichshouldbeadateaftertheduedateoffilingthereturn,includingextensions
• SecretaryisalsoauthorizedtoestablishtherequirementsfortheSIschedulestogetherwiththePRCPAStateSociety
Page 33
#tucamaraenaccion
REFORMACONTRIBUTIVA
UncertainTaxPosition(UTP)
• Everyentityrequiredtosubmitauditedfinancialstatementsmustincludeastatementwiththereturn
• StatementmustincludedetailofUTPspursuanttoguidanceinaccountingforincometaxesstandards
• Secretarytoestablishcontentofthestatement• TaxyearsthatcommenceafterDecember31,2018
Page 34
Gracias
www.camarapr.org #tucamaraenaccion