US Dept. of Treasury grants 1-year transition period for taxpayers under Act 154
The US Department of Treasury and the IRS released the final regulations related to the Foreign Tax Credit under Act 154, which grants an additional transition year to taxpayers who currently pay under that tax system, Puerto Rico Treasury Secretary Francisco Parés confirmed.
“The provisions in the regulations, regarding Puerto Rico, are the product of the efforts of the Gov. Pedro Pierluisi and the Treasury Department with the US Treasury, in confirming that the tax is creditable under the existing regulatory framework and the need to establish a transition period under the new regulatory standards. This confirms that the excise tax imposed under Act 154-2010 will continue to be creditable during 2022,” Parés said.
Act 154 established a special 4% tax on foreign corporations when buying tangible personal property manufactured in Puerto Rico and services provided related to that property, by a related entity in Puerto Rico whose annual gross sales exceed $75 million.
The government official called the postponement of the application of the regulation on the island as a “great achievement…and an important step to begin a necessary transition to bring Puerto Rico in line with the legal reality in international tax matters.”
As part of the talks, the Puerto Rico Treasury Department submitted a list of formal recommendations to the US Treasury on Feb. 9, 2021.
The regulation issued by the US Treasury, among other things, has the purpose of establishing new criteria in the way in which multinationals credit taxes paid in foreign jurisdictions around the world, including territories such as Puerto Rico.
Moving forward, local government officials will focus its efforts on continuing collaborative work with the US Treasury, including changes proposed by Congress in federal tax matters, Parés said.
“We will closely follow the most recent developments in Washington on this matter and we will work closely with the federal Executive branch and Congress to ensure fair and equitable treatment for Puerto Rico,” Parés said.