www. salawpr. com
Employee
Benefits
SCHUSTER AGUIL0 LLP
221 PONCE DE LEON AVENUE, 15 Floor
th
HATO REY, PUERTO RICO 00917-1815
TEL. (787) 765-4646/FAX (787) 765-4611
* These attorneys are also Certified Public Accountants
Employee Benefits Notes are published as a service to
1
our clients and friends. Information contained in the
Notes should not be viewed as legal advice and is not
a substitute for legal counsel. You should not act on
information contained herein without further, specific, legal
consultation.
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Notes1
January 18, 2008
Series 1
Schuster Aguil贸 LLP's (SA) Employee Benefits
Notes is intended as a tool to keep employers
abreast of the latest developments in the Employee
Benefits area, and to provide tips and useful
information for employers to maintain compliance
with this ever-changing area of employment law. It
is sponsored by SA's ERISA Litigation and
Employee Benefits Practice Group ("ELEBPG") .
The ELEBPG is engaged in design, revision and
qualification of employee benefits plans, as well as
in the litigation of ERISA claims before Puerto Rico
and federal courts. The ELEBPG applies its ERISA
litigation experience to benefit plan design, in order
to achieve, not only the required qualification
before the appropriate government agencies, but
also plan documents that will satisfy judicial
scrutiny when faced with court claims by
participants and beneficiaries. The ELEBPG also
provides consulting services as well as seminars on
selected employee benefits matters, such as ERISA
employee benefits plans, COBRA and HIPAA
issues.
PRACTICE GROUP MEMBERS :
Carlos J. Villafa帽e Real*
Chairperson,
Employment Benefits Practice Group
cvillafane@salawpr. com
Lour des C. Hern谩ndez-Venegas
Chairperson,
ERISA Litigation Practice Group
lhernandez@salawpr. com
Rafael E. Aguil贸-V茅lez
raguil贸@salawpr. com
Mariela Rexach-Rexach
mrexach@salawpr. com
Shiara L. Dilon茅-Fern谩ndez*
sdilone@salawpr. com
Bill on New Capital Gain
Rate Applicable to Plan
Distributions under the PR
Code is Finally Approved
A
s anticipated in our previous
newsletter, the Puerto Rico
Governor has signed into law
Act No. 181 of December 10, 2007
("Act 181") , which amends Section
1165 of the Puerto Rico Internal
Revenue Code of 1994, as amended
(the "PR Code") to reduce to 10%
the capital gains rate applicable to
lump sum distributions, if certain
requirements are satisfied. Although
the Act is effective July 1, 2007, the
new capital gains rates are applicable
retroactively to distributions made
after January 30, 2006. It is expected
that the PR Treasury will issue further
guidance on this retroactive effect
controversy.
In general, as a result of Act 181,
and as highlighted in our prior
newsletter, the applicable tax and
withholdings on lump sum
distributions are as follows:
00rom January 30, 2006 until
December 31, 2007, a 10% income
tax and withholding rate will apply
to lump sum distributions from a
plan funded through a PR situs
trust or funded through a US
situs trust with a co-trustee in
Puerto Rico acting as a paying
agent. There is no age or
investment requirement to enjoy
this special rate.
00he general 20% income tax and
withholding rate will apply to
lump sum distributions paid out
from a US situs trust with no PR
co-trustee acting as paying
agent.
00ffective January 1, 2008, the
general 20% income tax and
withholding rate will continue to
apply to any lump sum
distribution irrespective of
the location of the trust, unless
such distribution complies with
the PR trustee/ PR co-trustee-
paying agent and certain
investment requirements
discussed below.
00rom January 1, 2008, a 10%
income tax and withholding rate
will solely apply to lump sum
distributions paid from a PR
situs trust or a US situs trust
with a PR co-trustee acting as
paying agent if at least 10% of
January 18, 2008, Series 1
Page 2
Employee Benefits Notes
the plan's assets or participant's
account, as applicable, have been
invested in "Puerto Rico Property"
during the year of the distribution
and the prior 2 years (no age
requirement). The Act does not
define the term Puerto Rico
Property. It is expected that the PR
Treasury will issue further guidance
explaining how to comply with this
investment requirement.
New Informative Return
Applicable to Plan
Distributions
D
uring the month of December,
the PR Treasury issued
Publication 07-04, Informative
Returns Magnetic Media Reporting
Requirements for Tax Year 2007,
which includes the issuance of a new
Form 480.7C, Informative Statement -
Retirement Plans and Annuities. Form
480.7C combines Form 480.6A,
Informative Statement - Income Not
Subject to Withholding, and Form
480.6B, Informative Statement -
Income Subject to Withholding, into
one informative statement. Forms
480.6A and 480.6B were revised and
will no longer apply to report plan
distributions. As its prior counterparts,
Form 480.7C is due on the last day of
February of the year following the year
of distribution. However, for the
reporting of contributions and other
transactions or events related to a plan
or annuity, the due date is August 30
of the year following the year of the
reportable transaction or event. Since
this new form will apply to
distributions and contributions made
in calendar year 2007, trustees or
administrators must make special
arrangements to use the new form for
the upcoming February deadline. Due
to the short notification period and the
difficulties associated with implementing
a new reporting form, we
are aware of special requests made to
the PR Treasury to delay the effective
date of this new form. Copy of
Publication 07-04 may be obtained at
http: //www.hacienda.go bi erno.pr/downloads
/pdf/publicaciones/publicacion/480_2007.pdf.
The PR Treasury Has
Changed its Administrative
Practice and is Imposing
Penalties For the Late Filing
of Form 480.70
T
o the extent a retirement plan is
qualified under the PR Code, an
informative return on PR
Treasury Form 480.70 (OE),
"Informative Return for Income Tax
Exempt Organizations", must be filed
by the 15th day of the 4th month
following the close of the taxable year
of the plan's trust. Since Form 480.70
must be completed using the data from
the financial reports of IRS Form
5500, which is generally due by
October, for many years it has been
the general practice of filing this
form late after having filed its IRS
counterpart. Although the PR
Treasury could impose a $500
penalty for the late filing of Form
480.70, for many years it was the
administrative practice of the PR
Treasury of not imposing this
penalty. Nonetheless, it has come
to our attention that the PR
Treasury has changed this
administrative practice and is
currently imposing this penalty.
Consequently, if Form 480.70
cannot be filed on time, it is highly
advisable to request an extension
from the PR Treasury to complete
such filing. Form 480.70 is
currently being revised by the PR
Treasury and a new form,
especially designed for retirement
plans, is expected to be issued in
the near future.
This message is provided as a service to
our clients and friends. It is not intended
to provide legal or tax advice. SA
If you need assistance in this area, please
contact us.
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