On March 22, 2017, the Committee for the Authorization of Disbursements and Tax Concession, pursuant to the provisions of Administrative Order No. OA-2017-01 (the “Order”), issued Resolution 2017-01 (the “Resolution”) to authorize the use of the tax credits granted/approved before the date the Order was issued (i.e. March 7, 2017) for Tax Year 2016.
By way of the Order, the Fiscal Agency and Financial Advisory Authority of Puerto Rico (better known as “AFFAF”) addresses the halt of new tax credits, imposes a new informative requirement to holders of tax credits, and limits the use and the timing of tax credits granted. For more details regarding the Order, please refer to our Newsletter published on March 9, 2017.
Use of Granted Credits
Pursuant to the Resolution, a Granted Credit (as listed below) may be used by a credit holder without any further limitations, except to those already included in the Internal Revenue Code of Puerto Rico of 2011, as amended (the “Code”) or the special law that provides for such credit. A Granted Credit may be sold by the holder or claimed against his/her income tax for the Tax Year 2016. For this purpose, the term Tax Year 2016 means calendar year 2016 or tax year beginning during calendar year 2016.
A Granted Credit means the following tax credits generated and issued before the date of the Order:
- Act 98-2001, known as the “Infrastructure Tax Credits Act”;
- Act 183-2001, known as the “Conservation Easements of Puerto Rico Act”;
- Act 212-2002, known as the “Urban Centers Revitalization Act”;
- Act 159-2011, known as the “Tax Incentives for Investment in Reduction, Disposal and/or Solid Waste Treatment Facilities”;
- Act 83-2010, known as “Green Energy Incentives Act of Puerto Rico”;
- Section 5.A. of Act 135-1997, known as “Tax Incentives Act of 1998”;
- Section 6 of Act 73-2008, known as “Economic Incentives Act for the Development of PR”;
- Act 78-1993, known as the “Tourism Development Act of 1993”
- Act 74-2010, known as the “Tourism Development Act”;
- Act 362-1999, known as the “Act for the Development of the Film Industry”;
- Act 27-2011, known as the “Puerto Rico Film Industry Economic Incentives Act”;
- Act 140-2001, as amended by Act 77-2015, known as the “Tax Credits for Investment in New Construction and Rehabilitation of Affordable Housing Act”;
- Act 302-2012, which amends the Internal Revenue Code of 2011 (the “Code”) to grant a contributory credit to charitable foundations of former governors;
- Credits authorized under Sections 1051.04, 1051.05, 1051.06, 1051.07,1051.09, 1051.14, 1113.14 and 4050.10 of the Code; and,
- Tax credits granted by final agreements that have been signed by the Secretary of the Treasury.
The Resolution is not applicable to a tax credit authorized under Act 154-2010 (4% excise tax on certain acquisitions by related parties) or to a tax credit authorized under the Code that is not expressly included in the definition of a Granted Credit.
INTERNAL REVENUE INFORMATION BULLETIN NUM. 17-08
The Order states that the Secretary of the Treasury Department must prepare an inventory of tax credits granted and that said credits must be informed by the holders as an essential condition to be claimed. Thus, On April 17, 2017 the Secretary of the Treasury published Internal Revenue Circular Letter No. 17-07 (“CL 17-07”) to provide specific requirements and instructions for holders and acquirers of tax credits to file Form 480.71– Informative Return for Tax Credits Holders (“Form 480.71”) on or before May 15, 2017.
Further on, on April 20, 2017, the Treasury Department issued Informative Bulletin No. 17-08 to substitute CL 17-07 and to clarify that to comply with the Order every original holder and acquirer holder of a Granted Credit must electronically file Form 480.71 to be able to claim such credits for Tax Year 2016 and subsequent years.
According to Form 480.71 and its instructions, every “Original Holder” (those who generated the Granted Credit) must include in Form 480.71 the original amount of the Granted Credit and the portion of Granted Credit not sold by April 19, 2017 and that (i) is being claimed or will be claimed for Tax Year 2016; (ii) is available to be claimed for Tax Year 2017 and/or subsequent years, or (iii) is available for sale after April 19, 2017.
Form 480.71 must also be electronically filed by the “Acquirer Holder” (those who acquired the Granted Credit) to inform any tax credits purchased by April 19, 2017. Specifically, the Acquirer Holder must include the total amount of Granted Credits acquired by April 19, 2017 that were claimed or will be claimed for Tax Year 2016 and/or subsequent years.
Form 480.71 must be completed and electronically filed on or before May 15, 2017, through the online platform established by the Treasury Department, known as “Hacienda Virtual”. Failure to comply by the due date will disqualify a holder or acquirer from claiming the Granted Credit for Tax Year 2016 and subsequent years.
To discuss these matters in the context of your particular circumstances, please contact one of our Tax Advisory experts.