On March 7, 2017 the Puerto Rico Fiscal Agency and Financial Advisory Authority ("FAFAA") issued Administrative Order 2017-01 (hereinafter, "AO 2017-01"), which limited the authority of the Government of Puerto Rico to issue new tax credits and ordered the Secretary of the Puerto Rico Treasury Department (hereinafter, "Secretary" and "Treasury", respectively) to prepare an inventory of outstanding tax credits that had been granted by Treasury. Pursuant to AO 2017-01, these tax credits must be disclosed by their holders as a condition to claim (or sell) the credits. As required by the FAFAA in AO 2017-01, Treasury published Internal Revenue Circular Letter 17-07 ("CL 17-07") on April 12, 2017 which explains the procedure to electronically report the ownership of certain tax credits.
Please note that failure to electronically file Form 480.71 by May 15, 2017 will deprive any Holder (as defined below) of their right to claim or sell a Granted Credit in their income tax return for taxable year 2016 and subsequent taxable years.
Below we have included a brief summary of CL 17-07, including a list of the laws that authorize the issuance of tax credits that are now under FAFAA's review and need to be timely disclosed.
A. Tax credits to be included in Form 480.71
CL 17-07 requires that all holders of granted credits useable in taxable year 2016 and subsequent taxable years complete and electronically file the "Informative Return on Tax Credits Held", Form 480.71 (hereinafter, "Form 480.71"). Applicable Puerto Rico laws and regulations define "Holder" as any natural or legal person that generated or acquired a Granted Credit. In turn, a "Granted Credit" is any tax credit that was granted pursuant to the following:
- Act 98 of 2001 - Extraordinary investment in housing infrastructure;
- Act 73 of 2008 - Economic incentives;
- Act 183 of 2001 - Conservation easements;
- Act 212 of 2002 - Revitalization of urban centers;
- Acts 135 of 1997 - Industrial incentives;
- Act 83 of 2010 - Green energy incentives;
- Act 159 of 2011 - Investment in solid waste reduction, disposal and/or treatment;
- Act 140 of 2001 - Investment in new construction and rehabilitation of rental housing for low to moderate income families;
- Act 302 of 2012 - Gifts/donations granted to former governors' foundations;
- Acts 362 of 1999 & 27 of 2011 - Film industry development;
- Act 78 of 1993 & Act 74 of 2010 - Tourism industry development;
- Sections 1051.04, 1051.05, 1051.06, 1051.07, 1051.09, 1051.14, 1113.14 and 4050.10 of the Puerto Rico Internal Revenue Code of 2011, as amended (as they apply to certain assorted credits); and
- Any other credit arising from Closing Agreements which the Secretary executed prior to the date of issuance of AO 2017-01 (March 7, 2017).
Granted Credits disclosed in Form 480.71 must have been held as of April 19, 2017 and meet at least one of the following requirements to be eligible for continued use:
All or a portion of the credit was or will be claimed against the income tax due for taxable year 2016; or
Any outstanding credit balance can be sold or claimed against the income tax due for taxable year 2017 or subsequent taxable years.
B. Information Required on Form 480.71 for each Tax Credit
The tax credit holder must electronically file Form 480.71 on or before May 15, 2017 providing the following information for each credit included and the type of holder, as applicable:
I. For original Holders of Granted Credits:
a) Act under which the credit was granted;
otal amount of the credit originally granted;
Total amount of original tax credit granted sold as of April 19, 2017 and/or claimed by the original Holder on its income tax returns prior to taxable year 2016; and
Total amount of the original credit granted that was claimed or will be claimed by the original Holder in its income tax return for taxable year 2016.
II. For non-original holders of Granted Credits:
a) Act under which the acquired credit was granted;
Balance of the credit acquired as of April 19, 2016 that was claimed or is available to be claimed in the income tax return for taxable year 2016 and/or subsequent taxable years; and
Amount of the credit acquired as of April 19, 2016 that was claimed or will be claimed in the income tax return for taxable year 2016.
Treasury may request copy of the documents that the grant and approval of the tax credits informed on Form 480.71.
Goldman Antonetti & Córdova LLC stands ready to assist you and your business in understanding whether these changes apply to you. We look forward to help you safeguard your compliance with local laws and regulations.
If you need further assistance in this area, please feel free to contact the following members of our Tax Department:
Rebecca Cuevas-Fontán, Esq., CPA
Fernando J. Bruno Ramírez de Arellano, Esq.
Roberto Montalvo-Carbia, Esq.
Although the information included in this document may concern legal issues, it is not a legal opinion or professional advice and clients shall not use it as such. We assume no responsibility or liability of any kind for any information contained herein, and we expressly disclaim all liability for any claim for damages arising from the use, reference to, or reliance on, such information. If legal or other expert assistance is required, the services of a competent professional should be sought.
IRS Circular 230 Disclosure:
To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.