On March 11, 2016, the Puerto Rico Department of the Treasury ("PR Treasury") issued Administrative Determination No. 16-05 ("AD 16-05"), eliminating the requirement to file PR Treasury Form 480.70(OE) for retirement plans whose tax year begins after December 31, 2014. AD 16-05 specifically provides that, for plan years beginning on January 1, 2015, PR Treasury Form 480.70(OE) will not have to be submitted to comply with the PR Code filing requirements. Instead, AD 16-05 provides: (i) a new way to comply with this reporting requirement; and (ii) establishes two different deadlines to file with the PR Treasury, depending on whether or not the sponsor or participating employer has to file a Puerto Rico income tax return.
Section 1061.10(a) of the Puerto Rico Internal Revenue Code of 2011, as amended ("PR Code") requires that all employees' trusts claiming exemption from the payment of income tax under Sections 1081.01(a) or 1101.01(a)(4)(D) of the PR Code, file an annual return. Pursuant to Section 1061.10(b) of the PR Code, the filing deadline is July 31 following the close of the plan year (for calendar year plans) or the last day of the seventh month following the close of the plan year (for fiscal year plans). An automatic extension until the 15th day of the third month following the filing deadline is available.
Until AD 16-05, the PR Treasury required that Form 480.70(OE) be filed by the deadline imposed by Section 1061.10(b) of the PR Code. In the alternative, employees' trusts forming part of a plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") were able to submit a copy of IRS form 5500 in lieu of the PR Treasury form.
The new requirements are as follows:
For Retirement Plans Established or Sponsored by Employers Who Are Required to File a Puerto Rico Corporation Income Tax Return:
- Employers must complete PR Treasury Form SC 6042 ("Deduction for Contributions to Qualified Retirement Plans and Tax on Certain Contributions") and file it together with the company's Puerto Rico corporation income tax return.
- For calendar year filers, the deadline to file Form SC 6042 is the same as for the employer's income tax return, i.e., April 15. For fiscal year filers, the deadline is the 15th day of the fourth month following the end of the taxable year.
- Note that these new deadlines – applicable to plan sponsors or participating employers who are required to file a Puerto Rico income tax return to comply with the filing requirement under Section 1062.10(a) – is inconsistent with the deadlines provided under PR Code Section 1061.10(b). Further guidance from PR Treasury is needed to resolve these inconsistencies.
For Retirement Plans Established or Sponsored by Employers Who Are Not Required to File a Puerto Rico Business Income Tax Return:
- Employers must complete only the general heading and Part V ("General Information Regarding the Plan") of the PR Treasury Form SC 6042 and file it with the PR Treasury.
- The Pension Section at the PR Treasury has unofficially advised us that such form should be filed on paper (not electronically).
- Employers must file Form 6042 no later than the last day of the seventh month following the end of the plan year, as provided in PR Code Section 1061.10(b). PR Code Section 1061.10(b)(2) provides for an automatic extension until the 15th day of the third month following this deadline (i.e., October 15 for calendar year plans). It is not clear whether the application for an automatic extension must be filed electronically or in paper.
- Note that the deadline to satisfy the requirement imposed under PR Code Section 1061.10(a) remains the same for employers who are not required to file a Puerto Rico corporation income tax return.
In addition to the above, AD 16-05 provides that the retirement plans that have generated commercial net income (or loss) not related to their exempt activity, must complete PR Treasury Form 480.2 "Corporation Income Tax Return" to report such net income (or loss), and pay the corresponding income taxes, if any.
As a result of these new filing requirements, sponsors or participating employers of Puerto Rico qualified plans must determine when and how Form 6042 should be filed. As discussed above, the answer to this question will depend on whether the employer is required to file a Puerto Rico corporation income tax return.
Further guidance from the PR Treasury is needed to comply with the new filing requirements under the PR Treasury's AD 16-05. Employers are advised to seek legal assistance to come under full compliance with the new filing requirements. Littler will keep you posted on any developments related to this matter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.