The deadline for applying for partial relief from the AGRT for the 2013 tax year is February 28, 2014.
Read more about the gross revenue tax in TaxNewsFlash-United States (July 2, 2013).
Criteria to evaluate undue hardship
Pursuant to Puerto Rico tax code section 1023.10(a)(3) and Regulation No. 8444, a taxpayer may file a request for partial relief from the AGRT.
For the tax relief request to be accepted by Puerto Rico’s Treasury Secretary, taxpayers must adequately demonstrate that the imposition of the AGRT creates an undue hardship.
The only criterion listed in Regulation No. 8444 for determining whether the taxpayer has grounds to request a reduced tax rate is: Does the AGRT represent more than 7.5% of the taxpayer’s gross margin? Regulation No. 8444 defines “gross margin” as net sales less cost of goods sold (as defined by GAAP).
If a taxpayer meets this initial requirement, the tax authorities will then evaluate the application by following a series of steps described in Regulation No. 8444.
Once it is established that the taxpayer is entitled to the partial exemption, the Puerto Rico Treasury Secretary will determine the reduced rate of the surtax to be applicable for the two tax years covered by the tax relief waiver.
Regulation No. 8444 does not focus on taxpayers operating in the service sectors (i.e., the definition of gross margin refers to costs of goods sold with respect to the undue hardship criterion), but tax professionals understand that the tax authorities will evaluate this situation.
Deadline for submitting application for partial relief
The deadline for submitting an application for partial relief for tax years beginning during 2013 is February 28, 2014.
Applications for tax years beginning after December 31, 2013, must be filed with the Puerto Rico Treasury Department no later than the last day of the tax year for which the partial relief is requested.
Once filed—assuming no further information is required—the Puerto Rico Treasury Secretary will have 90 days to evaluate and accept or reject the application.
If no answer is received after this period, the application will be deemed to be automatically accepted and the applicable AGRT rate will be 0.1%.
The provisions under the guidance are effective immediately.
For more information, contact a tax professional with KPMG in Puerto Rico: