The IRS has issued guidance stating that it will not challenge a taxpayer’s position that Puerto Rico's newly enacted excise tax is a creditable "tax in lieu of an income tax" under Section 903 of the Internal Revenue Code. (Notice 2011-29). According to the Notice, pending completion of a review of the "novel" issues raised by this new tax, the IRS will not challenge a taxpayer's position that the excise tax is creditable.
Notice 2011-29 is effective for excise tax paid or accrued on or after January 1, 2011. Any change in the foreign tax credit treatment of the excise tax will be prospective, and will apply to excise tax paid or accrued after the date that further guidance is issued.
The new excise tax will significantly impact pharmaceutical, life science and medical device companies, since these companies represent one of the largest single industry groups which have operations in Puerto Rico.