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Counter COVID-19 Emergency Tax Relief Act

The Complementary Act to Counter the Effects on Puerto Rico’s Economy caused by the Covid-19 Emergency, signed by the Governor on June 14, 2020 (Act 57-2020), incorporates certain permanent and temporary tax measures, which we summarize below:  

I. Exemption from Income Tax and Municipal License Tax for PPP Debt Cancellation, and for Federal and Local Subsidy, Stimulus and Aid Payments

Income derived from cancellation of debt, including from total or partial cancellation of loans granted under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), and any subsidies, stimulus or aid payments received under federal legislation or program related to Covid-19, including the CARES Act, and under any local legislation related to Covid-19, including refundable tax credits and other assistance:

  • will be excluded from: (a) gross income for Puerto Rico (“PR”) income tax purposes, including the alternate basic income tax and the alternative minimum tax, and (b) income subject to municipal license tax; and
  • taxpayers will be allowed to claim ordinary and necessary business expenses against their taxable net income, even if such expenses are paid with these federal or local aid funds.

II. Net Operating Loss Carryback Election

Net operating losses (“NOLs”) directly caused by the Covid-19 emergency during the 2020 taxable year (presumably those commenced during calendar year 2020) may be carried back to the two (2) previous taxable years, and will not be subject to the use limits established by Section 1033.14(b)(1)(D) of the Puerto Rico Internal Revenue Code of 2011, as amended; (the “PR-IRC”).  However, the maximum amount of NOLs that may be carried back is $200,000, and the maximum refund for taxes paid in previous taxable years is $50,000. 

The NOLs carry-back election is only available for taxpayers with a volume of business of $10 million or less; should be made on or before the due date for filing the 2020 Puerto Rico (“PR”) income tax return, including extensions; and applies for purposes of computing the alternate basic income tax and the alternative minimum tax.

III. NOLs Carryforward

Subject to certain special rules, NOLs directly caused by the Covid-19 emergency during the 2020 taxable year may also be carried forward and will not be subject to the 90% use limits established by Section 1033.14(b)(1)(D) of the PR-IRC.

IV. Sales and Use Tax (“SUT”) Exemption on Certain Services

The four percent (4%) SUT should not be charged on invoices for services rendered between merchants or designated professional services during the following months: April, May and June 2020. 

V. Tentative Minimum Tax on Corporations

For taxable years beginning after December 31, 2018 and before January 1, 2020, the $500 tentative minimum tax on corporations will not apply.

VI. Agreed Upon Procedures and Compliance Attestation Reports

For taxable years beginning after December 31, 2018 and before January 1, 2020, the Agreed Upon Procedures or Compliance Attestation reports issued by a PR licensed Certified Public Accountant will not be required for filing the following PR income tax returns:

  • those in which a self-employed individual claims all ordinary and necessary business expenses; and
  • those in which a corporation claims the same deductions in computing the income subject to normal tax and its net income subject to the alternative minimum tax.

VII. Commercial Licenses

All licenses and bonds under the PR-IRC, as well as any license or permit issued by the PR Permit Management Office or any other PR Government agency or Municipality that expire as of March 1, 2020, are automatically extended for a period of six (6) months.

VIII. Compliance with Certain Requirements on Tax Exemption Grants

For the 2020 taxable year, taxpayers with tax exemption grants issued pursuant to the provisions of Act 60-2019, known as the PR Incentives Code, or any other previous tax incentives acts, will be deemed to have complied with the following requirements of their tax grants, as long as the incompliance is directly associated with the emergency caused by Covid-19:

(a)        job creation and retention;

(b)       gross income or sales volume; and

(c)        investment in machinery and equipment.  

The above summary is intended for information purposes only. It cannot be considered a legal opinion, and it does not intend to consider all the tax and legal considerations that could be relevant to any particular person or entity.  

The contents of PUERTO RICO BUSINESS LAW NOTES may not be reproduced, transmitted, or distributed without the express written consent of AMG.  The material contained herein is intended for information purposes only and is not to be considered legal advice. Qualified counsel should be consulted based on individual circumstances. 

As required by US IRS rules, please understand that any information contained herein is not written to be used and cannot be used for the purpose of avoiding penalties.  We provide formal tax advice only upon completion of a formal written tax opinion in compliance with US Treasury Circular 230. 

If you need AMG’s further advise on these matters, please contact any of the following attorneys:

IX. PR Income Tax/SUT Returns and SUT Bimonthly Deposits

(1)       PR Income Tax Return.  All taxpayers, including pass-through entities, required to file PR income tax returns with original due dates between March 15 and June 15, 2020 may file them on or before July 15, 2020 without any penalties.  The due date for any income tax payment associated with such return is also extended until July 15, 2020.

(2)       Tax on Imports Monthly Return. The new due dates for the filing and payment of the Tax on Imports Monthly Returns are as follows:

PeriodNew Due Date
March 2020May 10, 2020
April 2020June 10, 2020
May 2020July 10, 2020

 (3)      SUT Monthly Return. The new due dates for filing and payment of the SUT Monthly Returns are as follows: 

PeriodNew Due Date
February 2020April 20, 2020
March 2020May 20, 2020
April 2020June 22, 2020
May 2020July 20, 2020

(4)       SUT Bimonthly Deposits.  No penalties will be imposed for failure to comply with the SUT bimonthly deposits for the months of March, April, May and June 2020, provided that the total SUT liability for each of those months is paid with the corresponding SUT Monthly Return.

The above summary is intended for information purposes only. It cannot be considered a legal opinion, and it does not intend to consider all the tax and legal considerations that could be relevant to any particular person or entity.

The contents of PUERTO RICO BUSINESS LAW NOTES may not be reproduced, transmitted, or distributed without the express written consent of AMG. The material contained herein is intended for information purposes only and is not to be considered legal advice. Qualified counsel should be consulted based on individual circumstances.

As required by US IRS rules, please understand that any information contained herein is not written to be used and cannot be used for the purpose of avoiding penalties. We provide formal tax advice only upon completion of a formal written tax opinion in compliance with US Treasury Circular 230.

If you need AMG’s further advise on these matters, please contact any of the following attorneys:

Mariangely González-Tobaja, Esq. 787-281-1804 mgonzalez@amgprlaw.com
Caridad Muñiz-Padilla, Esq. (LLM in Taxation) 787-281-1817 cmuniz@amgprlaw.com
César R. Rosario, Esq. (LLM in Taxation) 787-281-1820 rosario@amgprlaw.com
José E. Villamarzo, Esq. 787-281-1801 jvillamarzo@amgprlaw.com
Ricardo Muñiz, Esq. (LLM in Taxation) 787-281-1818 muniz@amgprlaw.com
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United States Supreme Court Holds that Gay and Transgender Employees Are Protected by Title VII of the Civil Rights Act of 1964

On June 15, 2020, in a landmark decision, the United States Supreme Court (“Supreme Court”) held in the case of Bostock v. Clayton County, that employers cannot take adverse employment actions against employees on the basis of their sexual orientation or gender identity. The Court’s opinion, authored by Justice Neil Gorsuch, states succinctly,

“Today, we must decide whether an employer can fire someone simply for being homosexual or transgender. The answer is clear. An employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex. Sex plays a necessary and undisguisable role in the decision, exactly what Title VII forbids.” Bostock, at p. 2.

This decision rules on a trio of cases argued before the Supreme Court in October 2019. In each case, the employer terminated a long-time employee shortly after the employee revealed that they were homosexual or transgender, and for no other reason than the employee’s affirmation of sexual orientation or gender identity. In its opinion, the Supreme Court determined that Title VII of the Civil Rights Act of 1964 (“Title VII”) forbids employers from taking adverse employment actions against their employees because of their status as homosexual or transgender persons because to discriminate on these grounds requires an employer to intentionally treat individual employees differently because of their sex, which has always been prohibited by Title VII.

The Court rejected the employers’ argument that they could discriminate against homosexual and transgender persons without ever learning their sex, indicating that “[b]y discriminating against homosexuals, the employer intentionally penalizes men for being attracted to men and women for being attracted to women. By discriminating against transgender persons, the employer unavoidably discriminates against persons with one sex identified at birth and another today. Any way you slice it, the employer intentionally refuses to hire applicants in part because of the affected individuals’ sex, even if it never learns any applicant’s sex.” Bostock, at p.18-19.

The Court also rejected the employers’ contention that discrimination against homosexual and transgender persons was not prohibited because it was not specifically addressed in Title VII. The Court wisely noted that “[a]s enacted, Title VII prohibits all forms of discrimination because of sex, however they may manifest themselves or whatever other labels might attach to them.” Bostock, at p. 19-20. Similarly, the Court declined to resort to Title VII’s legislative history, stating that the employer’s argument in this regard intended to displace the plain meaning of the law in favor of something lying beyond it.

Finally, the Court declined to take up the employers’ arguments regarding the “unintended consequences” of applying the clear language of the law on this issue, noting that when it comes to statutory interpretation, its role is limited to applying the law’s demands as faithfully as it can in the cases that come before it. In so doing, the Court recognized that other issues, such as sex-segregated bathrooms and locker rooms, and dress codes, may become unsustainable after this decision, but are not properly before the Court today.

The Court pointed out that while certain employers may worry that complying with Title VII’s requirements may cause them to violate their religious convictions, concerns that Title VII will intersect with religious liberties are not new. The Court referenced the 1993 Religious Freedom Restoration Act, which prohibits the federal government from substantially burdening a person’s exercise of religion unless it demonstrates that doing so both furthers a compelling governmental interest and represents the least restrictive means of furthering that interest, as a “super statute” that sometimes “displaces” the normal operation of anti-discrimination statues. As such, it may provide defenses to employers who object, on religious grounds, to hiring homosexual and transgender individuals. That being said, the Court recognized that no religious liberty argument was properly before it, and that the issue was a matter for future cases.

In conclusion, the Court held that “[i]n Title VII, Congress adopted broad language making it illegal for an employer to rely on an employee’s sex when deciding to fire that employee. We do not hesitate to recognize today a necessary consequence of that legislative choice: An employer who fires an individual merely for being gay or transgender defies the law.” Bostock, at p. 33.

This case provides much-needed clarification as to the federal protections afforded to LGBTQ+ employees in the workplace. However, as noted by the Supreme Court in its Opinion, this case in no way resolves the array of other, related issues confronted by employers and employees in the workplace, and additional litigation is anticipated as this issue continues to develop and workplaces continue to evolve.

For further information or, if you should have any questions or comments, you can consult the Labor and Employment law team at AMG.

LABOR DEPARTMENT
Edwin J. Seda-Fernández, Esqseda@amgprlaw.com787.756.9000 ext. 2080 or 787.281.1822
Mariel Y. Haack, Esq.mhaack@amgprlaw.com787.756.9000 ext. 2025 or 787.281.1951
Luis Pérez-Giusti, Esq.lpg@amgprlaw.com787.756.9000 ext. 2079 or 787.281.1809
Liana M. Gutiérrez, Esq.lgutierrez@amgprlaw.com787.756.9000 ext. 2019 or 787.281.1950
Verónica Torres-Torres, Esq.vtorres@amgprlaw.com787.756.9000 ext. 2015 or 787.281.1965