CPAs warn about implications of ‘last-minute’ Tax Reform amendments
The Puerto Rico Society of CPAs warned over the weekend about the implications of certain technical amendments approved in the Tax Reform during the legislative session ended last week, which were introduced at the last minute and without having been discussed in public hearings.
David González-Montalvo, president of the CPAs, said “many of the amendments included in the initial draft had been discussed and analyzed.”
“The problem is that during the last night [of the Legislative session] many changes were incorporated that were not previously discussed and that affect what had already been approved as part of the Tax Reform,” he said, referring to the measure containing 200+ pages.
“In some cases, paragraphs were amended that, due to their nature and implications, merit clarification and analysis and even more so because they were not necessarily agreed upon with the Treasury Department,” he said.
One of the changes included in House Bill 2172 — amended at the last-minute by the Senate — establishes that in the case of individuals with a business volume of less than $750,000, they can choose to submit together with the tax return, a certification signed by the new entity created as part of the amendments, of a “Tax Return Specialist,” that complies with the requirements set forth in Section 6074.01 of the Puerto Rico Internal Revenue Code of 2011, as amended, replacing the “Previously Agreed Procedures Report” or a “Compliance Report” prepared by a CPA.
“In this case, Treasury had been able to include in the Reform that a licensed CPA would issue a report that would certify that certain expenses that are not reported in the tax return could be used as deduction when there were no audited financial statements,” he said.
“Given its limited oversight resources, Treasury sought to delegate to a third party the function of validating expenses through a CPA. Only a licensed CPA has the legal authority to issue these types of reports, an authority that non-CPA accountant or a Payroll Specialist Accountant who is not a CP lacks, as determined by the Accounting Law,” González-Montalvo said.
“Therefore, this measure eliminates the purpose of the work that this type of specialist can really provide to the Treasury,” he said.
González-Montalvo criticized the approval on the last night of the Legislative session — Nov. 19 — of the joint report for House Bill 2172 that included additional language that establishes, as appropriate, that for taxable years beginning after Dec. 31, 2018, when the business volume is between $3 million and $10 million, the taxpayer may choose to submit an Agreed Upon Procedures report or a Compliance Attestation report done by a CPA instead of the Audited Financial Statements.
Among the changes, it is also established that the requirement to attach the Audited Financial Statements with the return will apply to taxpayers with an income volume of $10 million or more, which is a significant increase when compared to the $3 million of previously applicable income volume, he said.
“These changes were incorporated during the night, just before the bill was approved, without having been informed or consulted, and without any type of analysis or study despite the magnitude of the implications this may have for the oversight of the Treasury Department’s collections and how they could affect the projections of the current Fiscal Plan,” he said.
“This action weakens the Treasury’s oversight powers and could result in greater tax evasion, adversely affecting the reliability and stability of Puerto Rico’s economic environment,” González-Montalvo said.