The Puerto Rico tax code (enacted in 2011) introduced the AMT—computed as 1% on the purchases of tangible property from related parties.
House Bill 917, if enacted, would amend the AMT provisions, as summarized below.
Tentative minimum tax
The tentative minimum tax would be increased from 1% to 4%. However, related-party purchases of the following items would be subject to AMT at certain specified rates (instead of the proposed standard 4% rate):
- Certain alcoholic beverages, at a rate of 0.5%
- Certain fuel and crude oil or any petroleum-derived product, at a rate of 1%
- Certain motor vehicles, at a rate of 1.5%
Related person, threshold amounts, credits
The definition of “related person” would be extended to include any foreign corporation engaged in trade or business within Puerto Rico that conduct a business activity in Puerto Rico through a branch, and which acquires tangible personal property from its home office when outside of Puerto Rico.
The applicable threshold triggering AMT would be reduced so that the AMT would apply to businesses with more than $10 million in sales (instead of the current threshold of $50 million in sales)
Certain investment credits that effectively reduce the AMT liability would be revised. Generally, the credits would be measured as 10% to 50% of the AMT, depending on factors such as the period of investment, and if the business invests an amount equal to at least 5% of the total purchases made from a related person in “eligible investments” for a fixed period of time, ranging from six months to three years.
In this regard, “eligible investments” means:
- Deposits in banks or cooperatives engaged in trade or business in Puerto Rico
- Government obligations
The proposed legislation does not affect a provision that exempts businesses from application of the AMT computation of credits to the extent the taxpayers can demonstrate to the Puerto Rico Treasury Secretary that the price at which purchases are made from a related party is “substantially similar” to the price at which “such related party sells such property to a non-related person in Puerto Rico” (i.e., arm’s length).
For more information, contact a tax professional with KPMG in Puerto Rico: