By: Yadira Portalatín-Méndez, CPA, Esq. & Yaritza Portalatín-Méndez, CPA, Esq.

On December 9, 2019, the Puerto Rico Treasury Department issued several pronouncements that are herein summarized in preparation for the 2019 tax season.

 Administrative Determination 19-08

For tax year 2019, payers of the following services will have to file an informative declaration in order for the Puerto Rico Treasury to recognize their payments as deductible for Alternative Minimum Tax (corporations’ “AMT”) or Alternative Basic Tax (individuals’ “ABT”) purposes:

• Advertising (Ads);
• Insurance premiums;
• Telecommunications services;
• Internet access; and
• Cable or Satellite TV

         Act 60-2019 placed the burden of filing such declaration on the service provider.  Nevertheless, the PR Treasury determined that only for tax year 2019 the new Form 480.7E (Informative Declaration- Advertising, Insurance, Premiums, Telecommunication, Internet and Cable or Satellite Television Services) should be filed by payers or service recipients, on or before February 28, 2020.

Before January 30, 2020, all suppliers of the above mentioned services must provide to clients the following information:

• Full Legal Name (including last name and mother’s maiden name, if an individual);
• Postal and Physical Address;
• Social Security Number or Employer Identification Number.

Internal Revenue Circular Letter 19-14

         For tax years beginning on 2019, certain expenses will not be deductible for ABT or AMT purposes, according to changes introduced by Act Number 257-2018.  Businesses that wish to take the deduction will either have to hire a Certified Public Accountant (“CPA”) to perform Agreed Upon Procedures (“AUP”) on the expenses or present audited financial statements with their tax returns.

Circular Letter 19-14 establishes that the expenses that will require an AUP to be deductible for ABT or AMT are:

1.   Auto expenses. 2.   Other motor vehicle expenses. 3.   Maintenance and Repair. 4.   Travel. 5.   Meals & Entertainment. 6.   Office Supplies and Materials. 7.   Materials directly used in a trade or business. 8.   Stamps, Government vouchers and tariffs. 9.   Shipping & handling charges. 10.  Uniforms. 11.  Parking and tolls. 12.  Office Expenses. 13.  Bank Charges. 14.  Contributions to Educational IRA’s for employee’s beneficiaries. 15.  Expenses incurred or paid to shareholders, or related persons or entities.

16.  Losses caused by fire, hurricane or other catastrophes or theft. 17.  Uncollectible Accounts. 18.  Administration Charges, not included in an informative statement. 19.  Expenses for properties under a lease with the Puerto Rico Industrial Development Company or Commerce and Export Company. 20   Memberships and Subscriptions. 21.  Expenses related to licenses and computer programs that are not capital expenditures. 21.  Donations. 23.  Deductions under Act 185-2014. 24.  Any expense not required to be included in an informative statement (Form 480).

 

The following expenses do not require an AUP to be deductible for AMT or ABT purposes:

1. Business debt interest;
2. Taxes, patents, licenses, including municipal taxes, sales and use taxes, excise and State Insurance Fund;
3. Depreciation and Amortization of business property;
4. Contributions to qualified pension plans; and
5. Deduction for employers of handicapped persons.

 

CC-19-14 further states that the following expenses should be informed to the service provider in an informative statement or withholding statement, as applicable, in order to be considered deductible for regular tax, ABT or AMT:

1.  Salaries paid to employees, including officers and directors. 2.  Employer portion of FICA and Medicare taxes. 3.  Federal and State Unemployment. 4.  Services rendered insurance. 5.  Subcontracted services. 6.  Commissions paid to other businesses or merchants. 7.  Rent paid (including real and personal property). 8.  Insurance premiums for health, accident, property, contingency, public liability and bonds. 9.  Telecommunication services, including internet, Cable or Satellite TV used in a trade or business. 10.  Water and Electricity.

11.  Advertising and publicity services. 12.  Royalties. 13.  Special Contribution due to professional and consulting services provided to Government under Act 48-2013. 14.  Interest paid on mortgage loans and car financial leases. 15.  Professional Association fees paid for the   benefit of employees. 16.  Maintenance fees paid to resident associations or condominiums. 17.  Continued Education expenses paid on behalf of employees.

 

Internal Revenue Circular Letters 19-15 and 19-16

Treasury also issued Internal Revenue Circular Letters 19-15 and 19-16 (CC 19-15 & CC19-16).  CC 19-15 announces the process of automatic issuance of the 2020 income tax withholding waivers to all eligible taxpayers that were issued such waiver for tax year 2019.  It also describes the process to request a waiver that is not automatically issued to the taxpayer for tax year 2020.

CC-19-16 states the guidelines for eligibility for the New Optional Tax and the process to obtain an optional tax waiver for a reduced 6% withholding for tax year 2020.  The Optional Tax was also introduced by Act 257-2018 and allows individuals and corporations to choose the optional tax and be subject to a flat rate (6%-20%) on their gross income, instead of the regular income tax and ABT for which deductions are now allowed with increased limitations and requirements.

 

This publication is a summary of the recently issued pronouncements referred to herein and is not intended to substitute legal advice.  We encourage you to contact us or your tax advisor if you have any questions or need assistance regarding any of the matters presented herein.  An attorney-client relationship with Pellot-González, P.S.C. cannot be formed by reading or responding to this memorandum.  Such a relationship may be formed only by express agreement with Pellot-González, P.S.C.