27 October 2016 Indirect Tax Alert News from Americas Tax Center Puerto Rico s Treasury Department issues guidance on new electronic sales and use tax filings and mandatory validation of merchants registration through SURI EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: www.ey.com/taxalerts Executive summary Puerto Rico s Treasury Department (PRTD) issued guidance (Circular Letter (CL) 16-12 and CL 16-13) on the new electronic unified system, SURI, which merchants will use to validate their registrations and file monthly sales and use tax (SUT) returns. Detailed discussion CL 16-12 of 3 October 2016 SURI SURI is the new system that the PRTD will use to administer the tax system. As part of a first phase of implementation, SURI will unify the current electronic filing systems for SUT, including the Filing and Payment System for the Monthly Sales and Use Tax Return (Monthly SUT) and the current merchant portal (PICO). SURI will also allow individuals and merchants to report SUT transactions through any electronic device with internet access (e.g., tablets, cell phones). Furthermore, through SURI, taxpayers will be able to conduct the following transactions: Make queries, update and modify their accounts File or amend import declarations, monthly import returns and Monthly SUT
2 Indirect Tax Alert Make tax payments, including those related to declarations and returns Request a new Merchant Registration Certificate Request an electronic copy of an Exemption Certificate for a Manufacturing Plant, an Eligible Reseller Certificate, a Reseller Certificate and a Municipal SUT Exemption File claims Changes to the Merchant Registration Certificate Under SURI, the Merchant Registration Certificate will be issued electronically as soon as the registration request is processed. SURI can handle multiple Codes from the North American Industry Classification System (NAICS) for the same locality. As a result, merchants may include all commercial activities carried out in a locality, but will have to identify their primary activity. Merchants will no longer have to hold multiple certificates for the various business activities in a locality. New certificates will be effective for two years. At the end of the two-year period, the merchant must file a renewal request. Mandatory validation of registration for merchants registered with the PRTD Merchants with an active Merchant Registration Certificate and a PICO account should access SURI beginning 15 October 2016, to provide their PICO user information and password to allow their information to be transferred from PICO to SURI. They also should update their account information and answer any additional questions required by SURI. Merchants with an active Merchant Registration Certificate but no PICO account should access SURI beginning 15 October 2016, and provide their merchant registration number and the access code (PIN) associated with the registration to facilitate the transfer of information to SURI. Once the registration is processed, merchants will be able to access SURI 31 October 2016 (after the migration from PICO). Merchants will then be able to print their certificates, which must be displayed in a place visible to the general public. It is mandatory for all merchants, even those that are not withholding agents, to update their account information. Any merchant that fails to comply with the merchant registration and validation procedures may be subject to a US$500 penalty and will not be allowed to file an Importation Declaration or Monthly SUT, which means the merchant may be subject to additional penalties. Merchants should complete their registration on or before 20 November 2016, the deadline for filing the first Monthly SUT through SURI for October 2016. Merchants that are importers should complete their registration on or before 10 November 2016, the deadline for filing the first Monthly Tax Return for Imports through SURI. Registration procedure for new merchants starting 31 October 2016 Beginning 31 October 2016, all new merchants must register with SURI and request a Merchant Registration Certificate. Once they complete the registration, they should print their certificates and display them in a place visible to the general public. If they do business in various localities, they should identify each locality in which they are registered. New Provisional Merchant Registration Certificate Because some financial institutions and government agencies require a Merchant Registration Certificate to open bank accounts and apply for loans, the PRTD created a Provisional Merchant Registration Certificate for merchants that do not have any commercial activity within 30 days after filing the certificate request. The provisional certificate will be valid for six months from its issuance date and may not be extended. Merchants with a provisional certificate are not required to file a Monthly SUT for six months. If, however, a merchant has a taxable transaction during that period, the merchant must file a return for that transaction. If a merchant commences business before the expiration of the provisional certificate, the merchant should request a Merchant Registration Certificate as provided under the general rules by no later than 30 days before commencing business. CL 16-13 of 18 October 2016 New unified electronic filing form SURI consolidates the Monthly SUT, Monthly Sales and Use Tax Return Applicable to Contracts and Pre-existing Auctions (Monthly SUT Contracts and Auctions) and Monthly Sales and Use Tax Return for Merchants and Designated Professional Services for the Special 4% Tax Rate (Monthly SUT Special) into one electronic form that will be available beginning 1 November 2016. Taxpayers must use the separate monthly SUT returns to report SUT for the period ending 30 September 2016. The due date for those returns is 20 October 2016. For the period ending 31 October 2016, taxpayers must use the new unified
Indirect Tax Alert 3 electronic form in SURI to report SUT. The electronic form will include all of the information contained in the Monthly SUT, Monthly SUT Contracts and Auctions and Monthly SUT Special. Additional reporting on electronic filing form The electronic form will require additional information, such as: (1) a report of the transactions subject to SUT for each locality in which the merchant is registered; (2) a report of the purchases from other merchants, including detailed information about merchandise purchased for resale for which the merchant claims an exemption or credit; and (3) details of events for which the merchant collects an admission fee, regardless of whether the fees are taxable or exempt, in the period for which the merchant files a return. SURI will have a tab for each locality in which the merchant is registered. Merchants must provide the additional information under that tab. If a merchant does not have sales or transactions to report for a certain locality, the merchant should indicate in the space provided that it has had no sales. The PRTD advises merchants that it is not enough to put zeros in the spaces. For purchases from other merchants, SURI requires the merchant to provide information on the merchant supplier, including the supplier s name, merchant registration number, a description of the acquired merchandise, the reference number for the bill and the value of the merchandise subject to SUT or exempt from SUT. For this purpose, SURI also includes a template that, once completed, will allow the merchant to transfer the information to the appropriate fields of the Monthly SUT. An example of the template is attached to CL 16-13. For events resulting in the collection of admission fees, SURI includes a table where merchants should provide the name of the event, the ticket sales dates, the amount of the admission fees collected, and the value of the exempt admission fees. Additionally, SURI will allow merchants to withdraw a filed return and resubmit it without the return being treated as amended, provided the withdrawal and resubmission occur before the return s due date. The PRTD will treat a return as timely filed if the return is begun and submitted no later than the due date for the return (i.e., the 20th of the month following the month for which SUT must be reported). If the 20th falls on a weekend or holiday, the due date will be the next business day. Effective dates for the obligation to electronically file through SURI Beginning 31 October 2016, merchants must report all SUT transactions through SURI. For returns filed for periods before October 2016, the information will be transferred to the new electronic format with lines similar to those on the paper returns. SURI will maintain any credit balances and merchants may find those credit balances in a report titled, My Credit Balances. Implications The PRTD first announced the implementation of the SURI filing platform as part of the roll out of the now repealed value added tax (VAT). At the time, it was announced that SURI would eventually house all tax types handled by the PRTD (i.e., income tax, excise tax, etc.). After the repeal of the VAT, the implementation of SURI was temporarily placed on hold. With the issuance of CLs 16-12 and 16-13, the PRTD has moved to implement SURI for purposes of SUT compliance and has announced its expectation that, within three years, all other taxes it administers will also be migrated to SURI. The SURI mandate that all registered merchants, whether they are withholding agents or not, must update their information has wide ranging implications because it allows a very limited timeframe spanning from 15 October 2016 through 20 November 2016 (or 10 November 2016 or earlier in the case of merchants filing Monthly Tax Return for Imports) to assess potential consequences and take action. Updating the merchant profile will be particularly important for importers of goods by sea, as failure to have a SURI merchant account will prevent them from filing an Importation Declaration and paying any use tax due before taking possession of property at the port. Moreover, for certain merchants, the new format of the Monthly SUT under SURI requires information that was not previously reported or even compiled. A prime example is the report of purchases for resale (inventory that is not imported), which now requires a description of each purchase transaction, along with information about the supplier. Compliance with this new requirement could have a direct effect on the ability of merchants to claim the credit for the sales tax paid on purchases for resale.
4 Indirect Tax Alert The implementation of SURI is likely to result in the issuance of additional administrative guidance from the PRTD, including whether the requirement to provide purchases information applies solely to local purchases or covers imports as well. Also, merchants should have received notifications via email to access SURI and follow the validation and registration procedures. In the meantime, merchants should begin updating their merchant profiles through SURI as soon as possible and assessing the effect of this latest compliance mandate. Once the merchant information is updated, merchants should place special attention on printing the new merchant certificates under SURI and making sure they are displayed in a place visible to the general public by no later than 20 November 2016. Verification of SURI merchant certificates is likely to be the focus of initial compliance efforts that will be conducted by the PRTD s Internal Revenue Agents in the days and weeks following the November deadline. For additional information with respect to this Alert, please contact the following: Ernst & Young Puerto Rico LLC, San Juan Rosa M. Rodriguez +1 787 772 7062 rosa.rodriguez@ey.com Teresita Fuentes +1 787 772 7066 teresita.fuentes@ey.com Pablo Hymovitz Cardona +1 787 772 7119 pablo.hymovitz@ey.com Noeliz Suarez Archilla +1 787 772 7032 noeliz.suarezarchilla@ey.com
EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Indirect Tax 2016 EYGM Limited. All Rights Reserved. EYG no. 03584-161Gbl 1508-1600216 NY ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com