Puerto Rico approves tax technical amendments, many with retroactive effect

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May 2020

Overview

The Governor of Puerto Rico on April 16 signed House Bill No. 2419 into law as Act No. 40-2020 (Act 40), which includes several technical amendments to the Puerto Rico Internal Revenue Code of 2011, as amended (PR-IRC).  In particular, Act 40 introduces a trading in commodities safe harbor for foreign corporations and nonresident individuals, increases the threshold for submitting audited financial statements with Puerto Rico income and personal property tax returns, and clarifies the date on which a partnership classification election becomes effective for entities that convert into limited liability companies (LLCs) during the tax year.

Act 40 also:

  • amends the transfer pricing study requirements in connection with the 51% cross-border intercompany expense disallowance rules
  • increases the capital loss deduction allowable during the tax year
  • amends the due date for filing the income tax returns for entities that hold tax exemption decrees under Puerto Rico tax incentives laws
  • limits and repeals certain tax credits
  • grants the Secretary (Secretary) of the Puerto Rico Treasury Department (PRTD) authority to apply tax payments to past due debts in strict maturity order
  • clarifies the reporting requirements for severance payments made pursuant to Act 80 of May 30, 1976 (Act 80), and
  • introduces provisions affecting other Puerto Rico taxes such as sales tax. 

The takeaway

Many of the amendments to the PR-IRC under Act 40 have retroactive effect to tax years beginning after December 31, 2018.  Taxpayers immediately should evaluate how these amendments may impact their 2019 Puerto Rico income tax reporting.

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Doug McHoney

International Tax Services Leader, PwC US

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