06.25.15 summary of sales and use tax transition rules

Tax Alert: Special Sales and Use Tax transition rules applicable to qualified contracts On June 25, 2015, the Puerto Rico Department of Treasury (PRTD) published five communications that deal with the requirements that merchants must comply with in order to benefit from the transition rules included in Act 72-2015, applicable to the new Sales and Use Tax (SUT) rates effective July 1 and October 1, 2015. Act 72-2015 includes important changes to the SUT rate.

- On July 1, 2015 - the general state SUT increases from 6% to 10.5%.

- the Municipal rate remains at 1%. - in addition, effective October 1, 2015

until March 31, 2016, a 4% tax applies to services rendered to other merchants and to designated professional services.

The transition rules included in Act 72-2015 provide that in the case of preexisting contracts, the rates applicable to sales of taxable items pursuant to duly qualified contracts by the PR Secretary of the Treasury will be the rates that would apply to such sales as of June 30, 2015. The communications issued by the PRTD on June 25, 2015 are: • Tax Policy CC 15-08 – dealing with returns

of merchandise after June 30, 2015. • Tax Policy CC 15-09 – dealing with

preexisting contracts for the sale of taxable items

• Tax Policy CC 15-10 – dealing with Construction Projects

• Tax Policy CC 15-11 – dealing with preexisting contracts to provide services to other merchants (B2B) and designated professional services

• Administrative Determination 15-10 – dealing with sales of tangible personal property before June 30, 2015 but not collected as of such date.

The following tables summarize the general provisions included in each of these communications. Please be aware of the due dates established for certification and or qualification of the contracts. Special attention must be provided in the case of the contracts for which payment must be received on or before June 30, 2015. Please contact our Tax Department should you require additional information regarding this or any other tax issue; we will be glad to assist you.

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DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant should be obtained prior to taking action on any issue dealt with this update. © 2015 Kevane Grant Thornton LLP All rights reserved. Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit www.kevane.com for further details.

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Summary of Sales and Use tax transition rulesKevane Grant Thornton LLP 33 Calle Bolivia Ste 400 San Juan, Puerto Rico 00917-2013 T + 1 787 754 1915 F + 1 787 751 1284 www.kevane.com

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Treatment of sales of tangible property and services rendered before July 1, 2015 and October 1, 2015

(1) Taxable services are those currently paying the 7% even when rendered to other business (i.e. cleaning, repairs and maintenance, collections, etc.).(2) Municipal rate remains at 1% when applicable.

Description SUT rate at state level

Accounting Method Payment Received Invoice issued Official

Document

Sale of tangible personal property before July 1, 2015

6%(2) Accrual N/A N/A DA 15-10

Taxable services rendered before July 1, 2015(1)

6%(2) Cash or Accrual Before or After July 1, 2015.

Must be issued and sent to client no later than July 20, 2015.

DA 15-10

Services B2B or designated services rendered before October 1, 2015

0% Cash or Accrual After October 1, 2015. Must be issued and sent to client no later than October 20, 2015.

DA 15-10

Information as of June 25, 2015.

DISCLAIMER: This update and its content do not constitute advice. Clients should not act solely on the basis of the material contained in this publication. It is intended for information purposes only and should not be regarded as specific advice. In addition, advice from proper consultant should be obtained prior to taking action on any issue dealt with this update.

© 2015 Kevane Grant Thornton LLP All rights reserved. Kevane Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit www.kevane.com for further details.

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https://www.facebook.com/KevaneGrantThornton

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Treatment of merchandise sold or imported before July 1, 2015 returned after June 30, 2015

Description Return to be amended Process Refund available Official

Document

Merchants that receive returns of merchandise sold before July 1, 2015 during months after June 2015

June 2015 Amend the return as many times (through PICO) as needed to carry the credit or excess SUT to following months.

No. Excess created by amendment to be carried forward to following months until completely used.

Tax Policy CC 15-08

Importers that return merchandise introduced before July 1, 2015 (for which the 6% SUT was paid) after June 30, 2015

N/A N/A Must apply for a refund of the SUT paid. The process is established in Tax Policy CC 15-08.

Tax Policy CC 15-08




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Treatment of sale of tangible personal property or services provided pursuant to preexisting contracts (executed before July 1, 2015). (Transition period for the lesser of 12 months or the term of the contract)

Description State SUT

SUT return to include

sales/services Services Paid by

SUT paid by

Requirements to both parties to the

contract Official

Document

Taxable services(1) 6%(2) June 2015 June 30, 2015 (allows for partial payments pursuant to the contract).(3)

SUT to be paid by July 20, 2015.

No need to obtain Certification of Qualified Contract subject to SUT.

Tax Policy CC 15-09

Designated Services Exempt(4) June 2015 June 30, 2015 (including services to be rendered after 9/30/15).

N/A Apply to obtain Certification of Qualified Contract subject to SUT no later than September 30, 2015. See Tax Policy CC 15-11 for requirements.

Tax Policy CC 15-11

Services B2B Exempt(4) June 2015 June 30, 2015 (including services to be rendered after 9/30/15).

N/A Apply to obtain Certification of Qualified Contract subject to SUT no later than September 30, 2015. See Tax Policy CC 15-11 for requirements.

Tax Policy CC 15-11

Sale of tangible personal property

6%(2) Full amount of the contract must be included in June 2015.(5)

N/A SUT to be paid by July 20, 2015

Apply to obtain Certification of Qualified Contract subject to SUT no later than August 10, 2015. See Tax Policy CC 15-09 for requirements.

Tax Policy CC 15-09

(1) Taxable services are those currently paying the 7% even when rendered to other business (i.e. cleaning, repairs and maintenance, collections, etc.)(2) Municipal rate remains at 1% when applicable.(3) Only the amount paid by June 30, 2015 will qualify for the 6%. The service will be included in the Municipal SUT return for the month of June 2015.(4) 4% from 10/1/15 – 3/31/16.(5) Sale of tangible property will be included in the Municipal SUT return for the month in which the sale occurs.(6) Merchant may qualify to obtain a refund of the 4.5% in certain cases.



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Description State SUT

SUT return to include

sales/services Services Paid by

SUT paid by

Requirements to both parties to the

contract Official

Document

Imports subject to use tax introduced after June 30, 2015 pursuant to a Qualified Contract

10.5%(6) Month of introduction

N/A By due date of SUT return

Apply to obtain Certification of Qualified Contract subject to SUT by August 10, 2015.

Tax Policy CC 15-09

Qualified Contract for the sale of tangible personal property granted after June 30, 2015 pursuant to a PR or US government Bid executed before July 1, 2015

6%(2) Full amount of the contracted amount in the SUT return for the month the contract is formalized in.(4)

N/A By due date of such return.

Apply to obtain Certification of Qualified Contract subject to SUT by the later of August 10, 2015, or the 10th day of the month following in which the contract was formalized. See Tax Policy CC 15-09 for requirements.

Tax Policy CC 15-09

(1) Taxable services are those currently paying the 7% even when rendered to other business (i.e. cleaning, repairs and maintenance, collections, etc.)(2) Municipal rate remains at 1% when applicable.(3) Only the amount paid by June 30, 2015 will qualify for the 6%. The service will be included in the Municipal SUT return for the month of June 2015.(4) 4% from 10/1/15 – 3/31/16.(5) Sale of tangible property will be included in the Municipal SUT return for the month in which the sale occurs.(6) Merchant may qualify to obtain a refund of the 4.5% in certain cases.




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Treatment of contracts granted pursuant to a Construction or Works Project started as of 5/31/2015

Description State SUT Covered period SUT

Return Requirements(3) Official Document

Taxable services rendered in connection with one of these contracts(1)

6%(2) For the lesser of 12 months after 6/30/15 or the contract term. The Secretary may extend the certification for up to 12 additional months.

SC 2915 E The owner of the project must submit all documents required by Tax Policy CC 15-10 on or before August 10, 2015 to register the project. Once the registration is obtained, contracts must be registered in order to benefit of rates as of 6/30/15.(4)

Tax Policy CC 15-10

Purchase of tangible personal property to be used in connection with one of these contracts

6%(2) For the lesser of 12 months after 6/30/15 or the contract term. The Secretary may extend the certification for up to 12 additional months.


Tax Policy CC 15-10

B2B services received in connection with one of these contracts

Exempt For the lesser of 12 months after 6/30/15 or the contract term. The Secretary may extend the certification for up to 12 additional months.


Tax Policy CC 15-10

(1) Taxable services are those currently paying the 7% even when rendered to other business (i.e. cleaning, repairs and maintenance, collections, etc.)(2) Municipal rate remains at 1% when applicable(3) In the case of Government Bids, the primary contractor may obtain the Qualified Contract Certification.(4) Primary and Secondary contracts must be registered on or before August 10, 2015 to benefit of rates as of 6/30/15.



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Description State SUT Covered period SUT Return Requirements(3) Official Document

Designated services received in connection with one of these contracts

Exempt For the lesser of 12 months after 6/30/15 or the contract term. The Secretary may extend the certification for up to 12 additional months.


Tax Policy CC 15-10

Imports subject to use tax introduced after June 30, 2015 pursuant to one of these contracts

10.5%(5) For the lesser of 12 months after 6/30/15 or the contract term. The Secretary may extend the certification for up to 12 additional months.


Tax Policy CC 15-10

(3) In the case of Government Bids, the primary contractor may obtain the Qualified Contract Certification.(4) Primary and Secondary contracts must be registered on or before August 10, 2015 to benefit of rates as of 6/30/15.(5) Merchant may qualify to obtain a refund of the 4.5% in certain cases.




06.25.15 summary of sales and use tax transition rules

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