I. Background
It is the practice of the Puerto Rico Treasury Department (“Department”) to answer inquiries of taxpayers and other interested parties, whenever appropriate in the interest of sound tax administration, as to the tax effects of their acts or transactions. Circular Letter 99-01 of March 3, 1999 (“CL 99-01”) and Internal Revenue Circular Letter No. 05-07 issued on May 11, 2005 (“CL 05-07”) established the general procedure to be followed and the scope for the issuance of formal responses to those inquiries.
The purpose of this Circular Letter is to: 1) establish the new procedure to be follow for the issuance of formal responses known as Private Rulings and Administrative Determination Letters; 2) provide sample formats as Appendix that will assist in submitting the inquiries correctly, and 3) repeal CL 99-01 and CL 05-07.
II. Discussion
A. Administrative Determination Letters, Private Rulings and Public Rulings
Administrative Determination letters are official communications to the public of the Department’s position on certain transactions based on the interpretation of the Puerto Rico Internal Revenue Code of 2011, as amended (“PR Code”) and its Regulations.
Private Rulings are official interpretations made by the Department as to the application of the PR Code, or any other Puerto Rico tax law, to the acts or transactions represented by the taxpayer. A Private Ruling is a written determination issued to a taxpayer by the Department in response to the taxpayer or the taxpayer’s authorized representative’s written inquiry, about its status for tax purposes or the tax effects of its acts or transactions. A Private Ruling interprets the tax laws and applies them to the specific set of facts provided by the taxpayer. Therefore, a Private Ruling will be issued to a taxpayer or his/her authorized representative interpreting and applying the PR Code, or any other Puerto Rico tax law, to a specific set of facts. A Private Ruling also includes the Department’s written permission or denial to a request for a change in a taxpayer’s accounting method. Once issued, a Private Ruling may be revoked or modified for any number of reasons, as explained in Section III-X of this Circular Letter.
If the issue covered by the Private Ruling is understood by the Department to be of general interest, the ruling will also be issued as an administrative letter for public release (“Public Ruling”). For more details of this matter, please refer to Circular Letter of Tax Policy No. 16-06 (“CL TP 16-06”) for the procedure that must be followed by the Department to release a Private Ruling to the public in the form of a Public Ruling. CL TP 16-06 makes reference to CL 99-01. However, this Circular Letter amends CL TP 16-06 to change the reference made to CL 99-01 to this Circular Letter.
Private Rulings and Administrative Determinations are issued by the Secretary of the Treasury (“Secretary”) or his/her authorized representative.
B. Matters Subject to Private Rulings
1. In general
The Department issues Private Rulings on matters arising under the PR Code and related statutes and regulations that involve:
(i) the time, place, manner, and procedures for reporting and paying taxes;
(ii) the assessment and collection of taxes (including interests and penalties);
(iii) the abatement, credit, or refund of an over assessment or overpayment of tax;
(iv) the filing of information returns, and composite returns, among others; or
(v) the requirement of a ruling request in accordance to the PR Code or its regulations, any other tax law or administrative document issued by the Department, including but not limited to, request for exemptions, deductions or tax credits, change in accounting methods and election to be treated as a pass- through entity.
If the ruling request presents an issue for which the answer seems clear by applying the statute to the facts or for which the answer seems reasonably certain but not entirely free from doubt, a Private Ruling will be issued.
Private Rulings will be issued only on prospective transactions and on completed transactions if the ruling request is submitted before the due date for filing the return on which the transaction is required to be reported, unless a different due date for filing the ruling is established by the PR Code or any other tax law. The Department will not ordinarily issue a Private Ruling on a completed transaction if the ruling request is submitted after the return for the year in which the transaction is completed was already filed, or when the ruling is submitted after the due date established by the PR Code, if different than the general rule of the tax return’s due date. For these purposes, the term “not ordinarily” means that unique and compelling reasons must be demonstrated to justify the issuance of a ruling request submitted after the aforementioned dates.
If a return involving an issue for a particular year is filed while a ruling request on that issue is pending, the Department will issue the Private Ruling unless it is notified by the taxpayer or otherwise becomes aware that an examination of that issue or an examination of an identical issue on an earlier year’s return has been started. Nevertheless, even if an examination has begun, the Department ordinarily will issue the Private Ruling if the Assistant Secretary for Tax Policy Area agrees, by memorandum, to the issuance of the ruling.
2. Circumstances under which a Private Ruling is not ordinarily issued
The Department will not ordinarily issue a Private Ruling if, at the time the letter ruling is requested, the identical issue is involved in the taxpayer’s return for an earlier period and that issue:
(i) is being examined by the Fiscal Audit Bureau;
(ii) is being considered by the Assistant Secretary for Appeals;
(iii) is pending in litigation in a case involving the taxpayer or a Related Person. For purposes of this Circular Letter, the term “Related Person” means a member of a controlled group of corporations or group of related entities, which the taxpayer is also a member within the meaning of Sections 1010.04 or 1010.05 of the PR Code, including partnerships, special partnerships and corporations of individuals. Also, the term “Related Person” will include an individual who is a shareholder, member or partner of the taxpayer or any related entity, within the meaning of Section 1010.05 of the PR Code.; or
(iv) has been examined by the Fiscal Audit Bureau or considered by the Assistant Secretary for Appeals and a closing agreement covering the issue or liability has not been entered into by the Department.
Other circumstances in which the Department will not issue a Private Ruling are:
a) to businesses, trade or industrial associations or to similar groups concerning the application of Puerto Rico tax laws to members of said group. Notwithstanding, the Department may issue a Private Rulings to said entities on their own tax status or liability if the request meets the requirements of this Circular Letter;
b) on a matter involving the Puerto Rico consequences of any proposed federal, Puerto Rico, state, local, municipal, or foreign legislation. However, the Department may provide general information in response to an inquiry;
c) in response to oral requests from taxpayers. Oral guidance is advisory only, and the Department is not bound by it. Please refer to Section III-W of this Circular Letter. For these purposes, informal responses in the form of an email or similar electronic communications will be considered oral guidance;
d) in general, on an issue that it cannot readily resolve before the promulgation of a regulation or other published guidance;
e) on questions involving the validity or constitutionality of the taxes imposed by the PR Code, its regulations, or any other tax law, questions on the authority or jurisdiction of the Department to enforce the PR Code or such laws and regulations, or to collect information or similar matters. This includes, but is not limited to, the determination of whether a taxpayer is engaged in trade or business in Puerto Rico;
f) on frivolous issues. A frivolous issue is one without basis in fact or law or one that asserts a position that a court have held frivolous or groundless;
g) with respect to the replacement of involuntarily converted property, whether or not the property has been replaced, in those cases when the taxpayer has already filed the return for the taxable year in which the property was converted;
h) on alternative plans of proposed transactions or on hypothetical situations;
i) regarding tax consequences of a transaction for taxpayers who are not directly involved in the request if the ruling request does not address the tax status, liability, or reporting obligations of the petitioner;
j) on only a part of an integrated transaction. If, however, a part of a transaction falls under a no-rule area, a ruling on other parts of the transaction may be issued. Before preparing the ruling request, a taxpayer should submit a written request for a conference with the Assistant Secretary of Tax Policy or its representative to discuss whether the Department will issue a ruling on part of the transaction;
k) if the ruling request presents an issue for which the response does not seem reasonably certain prior to the issuance of regulations. A Private Ruling will not be issued unless it is established that a business emergency requires a ruling or that unusual hardship will result from failure to obtain a ruling, and the Department determines that the issuance of the ruling is in the best interest of tax administration.
In any case in which the taxpayer believes that a business emergency exists or that a unusual hardship will result from failure to obtain a ruling in a specific period of time, he or she should submit a separate letter with the ruling request setting forth the facts necessary for the Department to make a determination with respect to this regards. However, this additional request will not guarantee that the Department will respond within the period suggested by the taxpayer. Additional filing fees may be imposed by the Department for ruling requests with a “business emergency”.
The Department will not consider a “business emergency” to exist if it results from circumstances within the control of the taxpayer, such as scheduling within an inordinately short period of time the closing date for a transaction or a meeting of the board of directors or the shareholders of a corporation, of the members of a limited liability company, or of the partners of a partnership. The Department will have sole discretion to determine when a business emergency exists.
In addition to the circumstances mentioned above, the Department will not issue a Private Ruling if the taxpayer or any Related Person to the taxpayer has outstanding debts with the Department. For purposes of this Circular Letter, an outstanding debt means a debt for which no evidence has been submitted to prove that the debt assessed is not applicable or a debt under a payment plan that has not been paid in accordance to the terms.
However, a certification that the taxpayer is in compliance with the payment plan or an administrative revision letter issued by the Department, or a judicial revision letter will constitute sufficient evidence to prove that the debt assessed is not applicable.
Notwithstanding the foregoing, there may be certain areas where, due to the inherently factual nature of the problems involved or for other reasons, the Department will not issue advanced Private Rulings. The Department may advise taxpayers from time to time the areas within the scope of this exception.
III. Filing a Request for a Private Ruling
A. Filing Fees
Pursuant to the provisions of Act No. 15 of July 20, 1990 and Regulation No. 8693 of January 26, 2016, as amended (“Regulation 8693”), each filing request for ruling must be accompanied with the corresponding payment of the fees imposed under said Act and Article 6 of Regulation 8693. The ruling request will not be considered filed until the filing fees are received by the Department.
Each ruling request must be submitted to the Tax Policy Area. Those requests that do not contain all the required information for the issuance of the opinion shall be subject to an additional fee of $150 pursuant to Regulation 8693, which must be satisfied at the time of filing the additional information.
According to Regulation 8693, a separate fee will be applied with respect to each non-related transaction, when a request covers several non-related transactions, or when there is a change in the original request to add a non-related transaction not appearing in the original request. Nevertheless, the addition of a new aspect related to the same transaction shall not carry the imposition of additional fees, except if this new aspect makes the transaction to be classified in a category or subcategory that imposes a higher fee.
Any request for amendment, clarification or new aspect with respect to a request under consideration that have the effect of changing or modifying the substance or structure of the requested ruling shall be subject to an additional fee. Once the Secretary has issued his ruling, any request for reconsideration, supplementary ruling or amendment shall be subject to a similar fee to the one paid with the original request.
The above-mentioned fees must be paid by certified check or money order payable to the Secretary of the Treasury.
For specific information and details regarding the applicable fees, please refer to Regulation 8693, and any other regulation which in the future substitutes or amends said Regulation.
B. Form and Content
The request for a ruling must be submitted in duplicate. If submitted in English, the Department may require a Spanish translation of the ruling request. The Department will not receive nor consider drafts of a ruling request.
Each request for a ruling must contain a complete statement of all relevant facts relating to the transaction. Such facts must include:
(i) the names, addresses and taxpayer identification numbers of all interested parties and all their Related Persons. For these purposes, the term “interested parties” does not mean all shareholders of a widely-held corporation relating to a reorganization, all partners of a partnership or members of a limited liability company, unless they are residents of Puerto Rico, or all employees where a large number may be involved;
(ii) the annual accounting period, and the overall accounting method for maintaining the accounting books and filing income tax returns of all interested parties;
(iii) in the case of corporations, limited liability companies and partnerships, place of incorporation or organization, and whether they are engaged in trade or business in Puerto Rico;
(iv) a description of the taxpayer’s business operation;
(v) a full and precise statement of the business reasons for the transaction; and
(vi) a carefully detailed description of the transaction.
In addition, true and complete copies of all signed contracts, wills, deeds, agreements, instruments and other documents pertinent to the transaction must be submitted. All relevant facts reflected in the documents submitted must be included in the taxpayer’s statements and not merely incorporated by reference, and must be supported by an analysis of their bearing on the issue or issues covered by the ruling request.
The taxpayer must submit with the ruling request an accurate and certified translation of the relevant parts of all contracts, wills, deeds, agreements, instruments, trust documents, and other documents pertinent to the transaction that are in a language other than English or Spanish. If the taxpayer chooses to submit certified English or Spanish translations of foreign laws, those translations must be based on an official publication of the foreign government, or another widely available and generally accepted publication. In either case, the translation must be of a qualified translator and must be attested by the translator. The attestation must contain: (i) a statement that the translation submitted is a true and accurate translation of the foreign language document or law; (ii) a statement as to the attestant’s qualifications as a translator and as to the attestant’s qualifications and knowledge regarding tax matters or foreign law, if the law is not a tax law; and (iii) the attestant’s name and address.
As established on this of this Circular Letter, the Department will not ordinarily issue a Private Ruling of only part of an integrated transaction. However, the Department may issue a ruling of only part of a larger integrated transaction, if the facts, circumstances and all the pertinent information is submitted with respect to the complete transaction. If the ruling request covers corporate or partnership distributions, reorganizations, liquidations of corporations or partnerships, or a similar transaction, the request must be accompanied with the most recent audited financial statements of the parties to the transaction.
In case of controlled groups, the ruling request shall also set forth:
(i) the names and taxpayer identification numbers of all Related Persons;
(ii) whether such members or related entities are engaged in trade or business in Puerto Rico or there is a reasonable expectation that they will be and whether such members or related entities receive income from sources within Puerto Rico or there is a reasonable expectation that they will receive it; and
(iii) any and all ruling, closing agreement, request, recommendation, approval, endorsement, letter or similar determination currently pending with the Department in connection with the taxpayer or members of a controlled group or group of related entities of which the taxpayer is also a member within the meaning of Section 1010.04 or Section 1010.05 of the PR Code.
The foregoing information shall be submitted regardless of whether members of a controlled group of corporation or group of related entities of which the taxpayer is also a member are interested parties in the transaction with respect to which the ruling is requested.
The ruling request must contain a concise statement of the ruling requested by the taxpayer.
The taxpayer must also submit, in CD, DVD, USB, or other external device of digital memory, a draft of the response letter containing the ruling requested and a draft of the Public Ruling. The document must be submitted in a .doc format or Word document. At the request of the Department, the draft of the response letter can be also emailed to the address provided by the Department’s officer evaluating the ruling request.
The omission of facts, information or documents required by this section shall be considered an omission of material facts for purposes of this Circular Letter. Accordingly, a Private Ruling issued under such conditions may be revoked retroactively.
C. Assertions
If the taxpayer advocates a particular conclusion, an explanation of the grounds for the assertion must be furnished, together with a statement of relevant authorities in support of the taxpayer’s conclusions.
Even if not advocating a particular tax treatment of a proposed transaction, the taxpayer must still furnish views on the tax results of the proposed transaction and a statement of relevant authorities to support those views.
In all events, the request must include a statement of whether the law in connection with the request is uncertain and whether the issue is adequately addressed by relevant authorities.
Additionally, the taxpayer must inform the Department and discuss the implication of any legislation, tax treaties, court decisions, regulations, revenue rulings and administrative letters, pending approval or in effect, that the taxpayer determines to be contrary to the position advanced. If the taxpayer determines, after a diligent search, that there are no contrary authorities, a statement to this effect must be included in the ruling request. Identification and discussion of contrary authorities will generally enable this Department to expedite a full understanding of the issues and the relevant authorities. On the other hand, failure to disclose and distinguish significant contrary authorities may result in requests for additional memoranda that will delay action in the ruling request. Request for additional information due to the lack of providing the significant contrary authorities may be cause for the denial of the ruling or the payment of additional fees.
D. Same issue in an earlier return
The request must state whether, to the best knowledge of both the taxpayer and the taxpayer’s representative, the same issue is in an earlier return of the taxpayer (or in a Related Person’s return for any year).
If the statement is affirmative, it must specify whether the issue:
(i) is being examined;
(ii) has been examined, but the statutory period of limitations has not expired for either assessing tax or filing a claim for refund or credit of tax;
(iii) has been examined, but a closing agreement covering the issue or liability has not been entered into by the Department;
(iv) is being considered by the Assistant Secretary for Appeals in connection with a return for an earlier period;
(v) has been considered by the appeal office in connection with a return from an earlier period, but the statutory period of limitations has not expired for either assessing tax or filing a claim for refund or credit of tax;
(vi) has been considered by the appeal office in connection with a return from an earlier period, but a closing agreement covering the issue or liability has not been entered into by the Department;
(vii) is pending in litigation in a case involving the taxpayer or a related taxpayer.
E. Statement regarding whether the same or a similar issue was previously ruled on or requested, or is currently pending
The request must also state whether, to the best knowledge of both the taxpayer and the taxpayer’s representative:
(i) the Department previously ruled on the same or a similar issue for the taxpayer (or a Related Person);
(ii) the taxpayer, a Related Person, a predecessor, or any representative previously submitted a request (including an application for change in accounting method) involving the same or a similar issue to the Department but withdrew the request before a Private Ruling was issued;
(iii) the taxpayer, a Related Person, or a predecessor previously submitted a request (including an application for change in accounting method) involving the same or a similar issue that is currently pending with the Department; or
(iv) at the same time as this request, the taxpayer or a Related Person is presently submitting another request (including an application for change in accounting method) or closing agreement to the Department involving the same or a similar issue.
If the statement is affirmative for (i), (ii), (iii), or (iv), the statement must give the date the request was submitted, the date the request was withdrew or ruled on, if applicable, and other details of the Department’s consideration of the issue.
F. Statement identifying pending legislation
At the time of filing the request, the taxpayer must identify any pending legislation that may affect the proposed transaction. In addition, if legislation is introduced after the request is filed but before a letter ruling or administrative determination is issued, the taxpayer must notify the Department and, if necessary, amend the ruling request accordingly.
G. Signature on the request
The request for a ruling must be signed and dated by the taxpayer or the taxpayer’s authorized representative. A stamped signature or faxed signature is not permitted. If the request is signed by a representative of the taxpayer, the ruling request must be accompanied by Form AS 2745-A, Power and Declaration of Representation. A stamped signature on the power of attorney is not permitted. However, a photocopy or fax copy of the duly completed and signed Form AS 2745-A is acceptable as long as its authenticity is not reasonably disputed. The requirement to submit a duly executed power of attorney is not applicable either to an individual representing his full-time employer or to a bona fide officer, administrator, managing partner, trustee, etc., representing a corporation, limited liability company, partnership, trust, estate, association, or other organized group. In this case, such individual must set forth the capacity in which he signed the oath.
H. Penalties of perjury statement
The following oath must be presented by the taxpayer or his authorized representative at the close of the ruling request:
“Under penalties of perjury, I declare that I have examined this request, including the accompanying documents, if any, and to the best of my knowledge and belief, this request contains all relevant facts relating to such request, the facts presented in support of the requested ruling are true, correct and complete, and the issue(s) contained therein (a) are not being considered by the Puerto Rico Treasury Department in connection with an active examination or audit of a tax return of the interested parties or by the Assistant Secretary for Appeals; and (b) are not pending litigation in a case involving the undersigned or a Related Person”.
The oath must be signed and dated by the taxpayer, and not by the taxpayer’s representative. A stamped signature is not permitted.
The person who signs for a corporate taxpayer must be an officer of the corporate taxpayer who has personal knowledge of the facts and whose duties are not limited to obtaining a Private Ruling from the Department. If the corporate taxpayer is a member of an affiliated group filing consolidated returns (for federal tax purposes), a penalty of perjury statement must also be signed and submitted by an officer of the common parent of the group.
The person signing for a trust, a Puerto Rico or state law partnership, or a limited liability company must be, respectively, a trustee, general partner, or member-manager who has personal knowledge of the facts.
I. Sample format for a letter ruling request and Private Ruling response
To assist a taxpayer or the taxpayer’s representative in preparing a ruling request, a sample format for a ruling request is provided in Appendix A. This format is required to be used by the taxpayer or the taxpayer’s representative when preparing a ruling request. If the ruling request is not similar to the format in Appendix A, the different format will defer consideration of the ruling request.
In addition, a sample of the Private Ruling response is provided in Appendix B. This format shall be used to prepare the draft of the Private Ruling to be included with the ruling request. This draft of Private Ruling as well as the draft of the Public Ruling shall be submitted electronically as a Word document or .doc format document.
J. Checklist for letter ruling requests
The Department will be able to respond more quickly to a taxpayer’s letter ruling request if the request is carefully prepared and complete. The checklist in Appendix C of this Circular Letter is designed to assist taxpayers in preparing a request by reminding them of the essential information and documents to be furnished with the request. The checklist in Appendix C must be completed to the extent required by the instructions in the checklist, signed and dated by the taxpayer or the taxpayer’s representative, and placed on top of the letter ruling request. If the checklist in Appendix C is not received, a representative of the Department will ask the taxpayer or the taxpayer’s representative to submit the checklist, and the ruling request will not be deemed filed until the checklist is received.
For ruling requests on certain matters, the Department may adopt specific checklists to supplement the checklist in Appendix C. Those checklists must also be completed and placed on top of the letter ruling request along with the checklist in Appendix C.
Copies of the checklist in Appendix C can be obtained at the Department’s webpage www.hacienda.pr.gov. A photocopy of the checklist may be used.
K. To request separate rulings for multiple issues in a single situation
If more than one issue is presented in a ruling request, the Department generally will issue a single letter covering all the issues. However, if the taxpayer requests separate Private Rulings on any of the issues (because, for example, one ruling is needed sooner than another), the Department will usually comply with the request unless it is not feasible or not in the best interests of the Department to do so. A taxpayer who wants separate rulings on multiple issues should make this clear in the request and a separate draft of the each of the Private Rulings must be included with the ruling request in electronic format as requested in this Circular Letter.
In issuing each Private Ruling, the Department will state that it has issued separate rulings or that requests for other rulings are pending.
For those instances in which a separate fee must be paid, see paragraph A of this Section and Regulation 8693.
L. To designate recipient of original or copy of letter ruling or determination letter
Unless the Power and Declaration of Representation (Form AS 2745-A) provides otherwise, the Department will send the original of the Private Ruling to the taxpayer’s representative. In this case, the Private Ruling will be addressed to the taxpayer’s representative. If the taxpayer wants to receive a copy of the Private Ruling directly from the Department, the ruling request must indicate so. Form AS 2745-A must be used to provide the taxpayer’s authorization. In these cases, copies of the Private Ruling can be mailed electronically at the email address provided in the ruling request, at the discretion of the Assistant Secretary of Tax Policy of the Department.
M. To have original and copies sent to multiple representatives
When a taxpayer has more than one representative, the Department will send the original of the Private Ruling to the first representative named on Form AS 2745-A. If the taxpayer wants an additional copy of the Private Ruling sent to the second representative listed on Form 2745-A, the taxpayer must state so therein. Copies of the Private Ruling, however, will be sent to no more than two representatives. In these cases, copies of the Private Ruling can be mailed electronically at the email address provided in the ruling request, at the discretion of the Assistant Secretary of Tax Policy of the Department.
If the taxpayer wants to receive the original of the Private Ruling, the taxpayer must state on Form 2745-A that the original of the Private Ruling should not be sent to the taxpayer’s representative.
N. To receive a letter ruling by fax or electronic media (email)
The original of the Private Ruling is not ordinarily sent by fax or email. However, at the taxpayer’s request, a copy of a Private Ruling may be faxed or emailed to the taxpayer or the taxpayer’s authorized representative. The Private Ruling, however, is not considered issued until the ruling is mailed, or delivered by hand and the taxpayer or taxpayer’s authorized representative acknowledges its receipt.
A request to fax or email a copy of the Private Ruling to the taxpayer or the taxpayer’s authorized representative must be made in writing, either as part of the original ruling request or prior to the approval of the ruling. The request must contain the fax number or email address of the taxpayer or the taxpayer’s authorized representative to whom the Private Ruling is to be sent.
In addition, because of the nature of a fax transmission, a statement containing a waiver of any disclosure violations resulting from the fax transmission must accompany the request. Nevertheless, the Department will take certain precautions to protect confidential information. For example, the Department will use a cover sheet that identifies the intended recipient of the fax, the number of pages transmitted and a statement prohibiting unauthorized disclosure of the Private Ruling if a recipient of the faxed document is not the intended recipient of the fax.
In case that the copy of the Private Ruling is sent by email, it will be sent in a PDF format and it will only be sent to the email address included in the ruling request.
O. Circumstances under which the taxpayer must notify the Tax Policy Area
The taxpayer must notify the Tax Policy Area if, after the ruling request is filed but before a Private Ruling is issued, the taxpayer knows that:
(i) an examination of the issue or the identical issue on an earlier year’s return has been started by the Fiscal Audit Bureau;
(ii) legislation that may affect the transaction has been introduced; or
(iii) another ruling request (including an application for change in accounting method) has been submitted by the taxpayer (or a Related Person) involving the same or similar issue that is currently pending with the Department.
P. Taxpayer must notify the Department if a return is filed before receiving the ruling
If the taxpayer files a return before a Private Ruling is received from the Department concerning the issue, the taxpayer must notify the Tax Policy Area that the return has been filed.
Q. Withdrawals and denials to issue a ruling
A taxpayer may request to withdraw a request for a Private Ruling at any time before the document is signed by the Department. The Department has sole discretion to accept or deny the withdrawal request. If the withdrawal is accepted by the Department, correspondence and exhibits related to the ruling request that is withdrawn or related to a ruling request for which the Tax Policy Area declines to issue a letter ruling will not be returned to the taxpayer. In appropriate cases, the Department may publish its conclusions in an administrative determination.
R. Notification to Fiscal Audit Bureau
The Tax Policy Area will notify the Fiscal Audit Bureau when withdrawals of ruling requests occur in the following circumstance:
(i) Request to change an accounting method: If a taxpayer withdraws or the Tax Policy Area declines to grant (for any reason) a request to change from or to adopt an improper method of accounting, the Department may consider such withdrawal or denial in any later examination of the return.
(ii) All other ruling requests: If a taxpayer withdraws a letter ruling request (other than a request to change from or to adopt an improper method of accounting) or if the Department declines to issue a letter ruling (other than a letter ruling pertaining to a request to change from or to adopt an improper method of accounting), the Department may consider such withdrawal or denial in any later examination of the return. Generally, this does not apply if the taxpayer withdraws the letter ruling request and submits a written statement that the transaction has been, or is being, abandoned and if the Tax Policy Area has not formed an adverse opinion.
S. Refunds of filing fee
The filing fee will not be returned for a ruling request that is withdrawn or denied. Please refer to Regulation 8693.
T. Conferences
A taxpayer or an authorized representative who would like to have a conference on the issues involved must indicate so in the ruling request. The conference will be granted if the Department, at its discretion, deems that it is necessary for considering the ruling. The discussion of the ruling request at a conference does not imply nor warrants that the Department will issue a favorable opinion or a commitment to do so. No conference will be granted to discuss the possible tax treatments of a transaction, how to structure a transaction or what is the Department’s policy regarding a transaction prior to submitting a ruling request.
Material facts furnished to the Department by telephone or orally at a conference must be promptly confirmed by letter to the Department, since the purpose of this procedure is to expedite the ruling and determination letter process. This confirmation and any additional information requested by the Department must be furnished within 20 calendar days to be considered part of the request. Additional information submitted to the Department must be accompanied by the oath mentioned in Section III-H of this Circular Letter. If the Department is not notified of any difficulty to meet the 20-day period, the request will be processed under the assumption that no further information will be received or, if appropriate, no ruling will be issued.
U. Request for Additional Information
The Department may request additional information as part of the evaluation process of the ruling request. Additional information requests may include the payment of additional fees with the filing of the additional information as established in Regulation 8693.
V. Processing a Ruling Request
It is the practice of the Department to process requests for rulings in the order received and as expeditiously as possible. Compliance with petitions for consideration of a particular matter ahead of its regular order, or by a specified time, tends to delay the disposition of other matters under consideration by this Department. Petitions for processing a ruling request ahead of the regular order, made in writing in a separate letter submitted either with the request or subsequent thereto and showing clear need for such treatment, will be given consideration as the particular circumstances warrant. However, no assurance shall be given that any ruling will be processed by the time requested.
If a less than fully favorable letter ruling is indicated, the Department’s representative may inform the taxpayer whether minor changes in the transaction or adherence to certain positions published in administrative determinations or circular letters would bring about a favorable ruling. The Department’s representative may also communicate the taxpayer the facts that must be furnished in a document to comply with the Department’s requirements. However, the Department’s representative will not suggest precise changes that would materially alter the form of the proposed transaction or materially alter a taxpayer’s proposed accounting method.
Additionally, the Department will not be bound by the informal opinion expressed by the Department’s representative.
W. Oral Advice to Taxpayers
It is not the practice of this Department to issue rulings upon oral requests. Furthermore, officials of this Department ordinarily will not discuss a substantive tax issue with a taxpayer or his authorized representative prior to the receipt of a written request for a ruling. However, a taxpayer or his authorized representative may inquire as to whether the issue involved in a transaction is one in which a ruling will be issued. For this purposes, informal responses in the form of an email or similar electronic communication will be considered an oral advice.
Nevertheless, a taxpayer may seek oral technical assistance from an official of this Department in the preparation of his return, pursuant to other established procedures. Such oral advice is advisory only and the Department is not bound to recognize it in the examination of the taxpayer’s return.
X. Effect of Rulings
A Private Ruling issued by the Department will generally be consider binding with the Department as long as the representations upon which the ruling was based reflect an accurate statement of the material facts with respect thereto, and the transaction was carried out as proposed, and there has been no change in the law and regulations that apply to the period during which the transaction or continuing series of transactions were consummated.
A Private Ruling issued on a particular transaction represents a holding of the Department on that transaction only. It will not apply to a similar transaction in the same year or in any other year.
A taxpayer may not rely on nor cite as precedent a Private Ruling issued to another taxpayer. However a taxpayer may use as reference and may cite as persuasive a Public Ruling if the facts as stated in the Public Ruling are identical or very similar to the transaction included in the ruling request.
A Private Ruling found to be in error or not in accord with the current views or policies of the Department may be modified or revoked. Modification or revocation may be effected by a notice to the taxpayer to which the ruling was issued or by publication of an administrative determination, circular letter or other public form of announcement. Except in rare or unusual circumstances, the modification or revocation of a Private Ruling will not be applied retroactively with respect to the taxpayer to whom the ruling was originally issued or to an interested party whose tax liability was directly involved in that ruling, if:
(i) the Private Ruling was originally issued with respect to the transaction undertaken;
(ii) there has been no misstatement or omission of material facts;
(iii) the facts at the time of the transaction are not materially different from the facts on which the Private Ruling was based;
(iv) there has been no change in the applicable law or regulations; and
(v) the taxpayer directly involved in the ruling acted in good faith in relying on the Private Ruling and the retroactive revocation or modification would be to the taxpayer’s detriment. For example, the tax liability of each shareholder is directly involved in a Private Ruling on the reorganization of a corporation. However, the tax liability of a member of an industry is not directly involved in a Private Ruling issued to another member and, therefore, the holding in a revocation or modification of a Private Ruling to one member of an industry may be retroactively applied to other members of the industry. By the same reasoning, a tax practitioner may not extend to one client the non-retroactive application of a revocation or modification of a Private Ruling previously issued to another client.
A taxpayer is not protected against retroactive revocation or modification of a Private Ruling involving a transaction completed before the issuance of the ruling or involving a continuing action or series of actions occurring before the issuance of the ruling because the taxpayer did not enter into the transaction relying on another Private Ruling or Public Ruling.
If a Private Ruling is revoked or modified retroactively, the revocation or modification applies to all the years still open under the statute of limitations. In the event of a change in the applicable law, regulations, or a decision of the Supreme Court of Puerto Rico, or of the 1st Circuit, or of the Supreme Court of the United States, if the above other four conditions are met, the revocation will be applicable from the date that the change takes place.
If a Private Ruling is revoked or modified by letter with retroactive effect, the letter will, except in fraud cases, state the grounds on which the Private Ruling is being revoked or modified and explain the reasons why it is being revoked or modified retroactively.
The Department, without condition or requirement, may also modify or revoke retroactively a Private Ruling if the proposed transaction or a continuing action or series of actions that originated the ruling has not been undertaken as of the date of the modification or revocation.
A request that the Department limit the retroactive effect of a revocation or modification of a Private Ruling must be made in the form of a separate request for ruling when, for example, a Regulation, a Circular Letter, or an Administrative Determination have the effect of modifying or revoking a Private Ruling previously issued to the taxpayer or when the Department notifies the taxpayer of a change in position that will have the effect of revoking or modifying the Private Ruling previously issued. A request to limit the retroactive effect of a revocation or modification of a Private Ruling may be made as part of the ruling request or at any time before the Private Ruling is issued. When a Private Ruling that concerns a continuing transaction is revoked or modified by, for example, a subsequent Circular Letter or Administrative Determination, a request to limit the retroactive effect must be made before any examination of the return that contains the transaction that is the subject of the ruling requested has been started.
Y. Requisite of attaching copy of the Ruling
If, before filing a return, a taxpayer receives a Private Ruling about any transaction that has been consummated and that is relevant to the return being filed, a copy of the ruling must be attached to the return.
Z. Noncompliance with the Provisions of this Circular Letter
If a request for a ruling does not comply with all the provisions of this Circular Letter, the same will be acknowledged and the requirements that have not been met will be pointed out. If a request for a ruling lacks essential information, which may include additional information needed to satisfy the procedural requirement of this Circular Letter, as well as substantive changes to the transaction or documents needed from the taxpayer, the taxpayer will be notified that if the information is not received within 30 calendar days, the request will be closed and a notice as such effect will be sent to the taxpayer or his/her representative by mail, fax or email. No extension of the 30-day period will be granted, except if justified in writing and approved by the Department. A request for extension must be submitted before the end of the 30-day period. If the extension is denied, there is no right to appeal. If the information is received after the request is closed, the same will be treated as a new request as of the date that the essential information is received. Therefore, this new request will be subject to the same payment of the original fees imposed to ruling requests under Act No. 15 and Regulation 8693.
AA. Specific Guidelines
Specific guidelines for requesting rulings under certain provisions of the various tax acts may be issued by this Department. Taxpayers or their authorized representatives must also follow these guidelines when requesting rulings under such tax acts.
IV. Effectiveness
The provisions of this Circular Letter are effective for ruling requests filed on or after December 31, 2016, and substitutes and repeals CL 99-01. Also, this Circular Letter amends CL TP 16-06 to change the reference made to CL 99-01 to this Circular Letter, effective immediately.
For additional information related to the specific aspects of this Circular Letter, please contact the Tax Policy Specialized Consults Division at (787) 721-2020 extension 3614. For all other inquiries not specifically related to the procedure established in this Circular Letter, please contact (787) 622-0123, option 8.
Cordially,
Juan Zaragoza Gomez