P.R. Laws tit. 7, § 3030
The taxation of stockholders or investors of a fund shall be governed by the following norms:
(a) Distributions attributable to the investment of unrestricted use capital in risk-free businesses. — The distribution of profits or dividends (that are not a distribution upon liquidation subject to § 3031 of this title) that are attributed to the unrestricted use capital investment in activities not comprised in subsections (a), (b) and (c) of § 3022 of this title, shall be subject to the tax imposed by §§ 8401 et seq. of Title 13.
(b) Recovery of the investment in proprietary interests of the fund. — Distributions made by a fund that are not governed by subsection (a) of this section shall be governed by the following provisions:
(1) A distribution (that is not a distribution in liquidation, subject to § 3031 of this title) made by a fund to the investors in said fund, shall not be subject to the tax imposed by §§ 8401 et seq. of Title 13 and the amount of said distribution shall reduce the investor’s adjusted base in the investment in proprietary interests of the fund as of the date of the distribution. This adjusted base shall never be reduced to less than zero.
Notwithstanding the above, the distribution made by the fund shall be subject to the withholding provided in subsection (e) of this section in the measure provided therein.
(2) The amount of the tax withheld on that part of the distribution made by the fund that corresponds to a recovery of investments in proprietary interests in said fund, shall be taken as a credit against the tax imposed by §§ 8401 et seq. of Title 13.
(3) In the event that the fund makes an exempted distribution to an investor who is an exempted person, the adjusted base of the investor in his/her proprietary interests in the fund shall be reduced by the amount of the distribution after deducting his/her corresponding portion of the tax withheld by the exempted business provided this tax cannot be claimed as a credit or reimbursement by the exempted investor during the year in which the withholding occurred or subsequent years.
(c) Imposition of tax. —
(1) In the case of an investor other than an exempted person, a tax of ten percent (10%) shall be imposed, collected and paid in lieu of any other taxes imposed by law, on the total or partial amount from any distribution of a capital investment fund, except for a distribution in liquidation, which exceeds the adjusted base an investor has in the investment of proprietary interests of the fund in question.
Notwithstanding the above, that part of a distribution of a fund consisting of an exempted distribution as said term is defined in § 3021 of this title, shall not be subject to the tax imposed by this clause.
(2) An investor who is an exempted person shall not be subject to the tax imposed by clause (1) of this subsection; provided that the distribution of the fund constitutes an unrelated business income for said investor under §§ 8006 et seq. of Title 13.
(d) Credit for taxes withheld from the fund. — Every resident or non resident individual of Puerto Rico, who is a stockholder or investor of a fund shall be entitled to a credit against his/her tax liability determined for the year that said fund received an industrial development income distribution. Said credit shall be equivalent to the share belonging to each stockholder in the credit provided by §§ 10042(a)(5) and/or 10102(b) of Title 13.
(e) Obligation to deduct and withhold at source and to pay or deposit the tax imposed by this section. —
(1) Every person, regardless of the capacity in which he/she acts, who has the control, receipt, custody, disposition or payment of any distribution of a fund (including distributions in liquidation), shall deduct and withhold a sum equal to ten percent (10%) of the amount of each distribution of the fund in excess of the internal base of the proprietary interest in the fund with regard to which the distribution is made. That part of any distribution that is deemed to be an exempt distribution shall be exempted from withholding at source, notwithstanding that the same may be in excess of the internal base of the proprietary interest of the fund with regard to which the distribution is made.
(2) The fund shall be waived from the obligation of deducting and withholding at source of the payment of the corresponding distribution to the investors who hold a waiver of such withholding from the Secretary. When the investor is a local or federal government entity, the waiver required herein shall be automatic and its presentation shall not be necessary.
(3) Any person bound to deduct and withhold any tax pursuant to the provisions of this chapter, shall pay the amount of the tax thus deducted and withheld in the Department of the Treasury Internal Revenue Collection Office, or deposit it in any of the banking institutions designated as depositories of public funds that have been authorized by the Secretary to receive said tax. The tax shall be paid or deposited on or before the fifteenth (15 t /fh) day of the month following that in which the distribution was made.
(4) If the amount of any tax to be deducted and withheld pursuant to this subsection, or any part thereof, is not paid on or before the date fixed for its payment, the total amount of the unpaid tax shall be taxed, collected and paid in the same way as any other tax imposed by § 8412 of Title 13 and the provisions of said section regarding interest, surcharges and penalties, which would apply in the case of failure to pay the tax imposed by § 8412 of Title 13.
(5) Any person who is bound to deduct and withhold any tax pursuant to the provisions of this chapter shall only be liable for the payment of said tax before the Secretary.
(6) Any person who is bound to deduct and withhold any tax pursuant to the provisions of this chapter, shall file a return with regard to the same on or before the fifteenth (15 t /fh) day of April of the year following the one to which the tax corresponds. Said return shall be filed before the Secretary and shall contain that information and shall be done as said official establishes by regulations.
(7) If the withholding agent fails to make the withholding required in clause (1) of this subsection, the amount that should have been deducted and withheld shall be collected from the collection agent, following the same procedure that would be used under the Internal Revenue Code if it were a tax imposed by § 8412 of Title 13. This collection shall not proceed if the recipient of the distribution pays the tax.
(8) In the event that any person fails to deposit the taxes deducted and withheld within the term established by this chapter, a progressive surcharge of two percent (2%) of the amount of the insufficiency shall be imposed on said person, if the omission is for thirty (30) days or less; an additional two percent (2%) for each additional period or fraction of the additional period of thirty (30) days or less, and an additional two percent (2%) for each period or fraction of the additional period of thirty (30) days while the omission persists, without the total surcharge imposed exceeding twenty-four percent (24%) per annum of the amount of the insufficiency. For the purposes of this clause, the term “insufficiency” shall mean the excess of the amount of the tax that should have been deposited on the amount thereof, if any, that was deposited on or before the date established therefor. The omission shall not be deemed to continue after the date on which the tax is paid.
(f) Tax not deductible from net income. — The tax deducted, withheld and paid pursuant to this section shall not be admitted as a deduction, neither for the withholding agent nor for who received the distribution from the fund, when net income is computed for the purpose of any income tax imposed by §§ 8401 et seq. of Title 13.
(g) Responsibility of withholding agent. —
(1) Any person, regardless of the capacity in which he/she acts, who has the control, receipt, custody, disposition or payment of the distribution of a fund, shall be responsible for the tax provided in subsection (e)(1) of this section with regard to any distribution to be deducted and withheld at source and paid to the Secretary within the term established by law.
(2) If, with regard to any distribution of a fund, the tax provided in subsection (e)(1) of this section, or any part thereof is not withheld and deposited with the Secretary within the term established by this chapter, said distribution shall not be deemed to be a distribution subject to the payment of the special tax imposed by subsection (c) of this section, and shall be subject to the income tax imposed by §§ 8401 et seq. of Title 13. If it is shown to the satisfaction of the Secretary that the failure to pay is due to a reasonable cause and not a voluntary neglect, the investor shall have the right to pay the tax on the distribution on the basis of the special tax.
(3) The fact that a distribution is deemed not to be subject to the payment of the tax imposed by subsection (c) of this section because of the provisions of this subsection, it shall not have the effect, in any way, of releasing or exempting the withholding agent from the obligations and responsibilities provided herein.
(i) Option with regard to the taxation of distributions. — The provisions regarding the special tax imposed by this section shall apply to all distributions referred to in subsection (b) of this section, except when the investor in the fund opts for them not to apply. Once the choice is made, it shall be final and binding.
The choice shall be exercised pursuant to the regulations promulgated by the Secretary, who shall allow the taxpayer to include said distribution as regular income and to receive a credit for the tax withheld under this section, as provided by regulations. When the taxpayer chooses that the provisions regarding the special tax imposed by this section shall not apply to him/her, this shall not, in any way, have the effect of releasing or exempting the withholding agent from his/her obligation to make the corresponding withholding under the provisions of subsection (g) of this section.
History —Jan. 28, 2000, No. 46, § 11.