Taxpayers should continue to follow the progress of the bill. The current version of the bill would delay the effective dates of some of the provisions.

The deputies' chamber of Uruguay's Parliament is analyzing the bill proposed by the Ministry of Economy and Finance to increase taxes, after changes made by the senators' chamber. (For more information regarding the original bill, see Tax Alert 2016-1272.) This Alert discusses the differences between the original bill and the current bill.

Under the original bill, a fiscal inflation adjustment would only apply when the Executive Power establishes that an accounting inflationary adjustment is needed because of a hyperinflationary economy (according to accounting standards). The current bill would apply a fiscal inflation adjustment only when the percentage of variation in the Consumer Price Index accumulated over a 36-month period before the current fiscal year-end exceeds 100%.

To determine notional profits and dividends, the current bill would allow taxpayers subject to the corporate income tax (CIT) to deduct their increase on gross working capital. The increase on gross working capital would be the difference between the last fiscal year end and the first fiscal year in which CIT was assessed, adjusted by the Consumer Price Index. The current bill would limit the increase on gross working capital to 80% of the amount of investments that are allowed to be deducted (e.g., fixed assets, intangible property and purchases of participations in the capital of resident entities). For this purpose, the gross working capital would be the fiscal value of the current credits the taxpayer has due to sales, plus inventory balances, minus the current liabilities.

The original bill would impose the personal income tax (PIT) on withdrawals that owners take from sole proprietorships that are subject to the CIT. The current bill maintains this provision, but would establish that the PIT would not apply to those withdrawals before January 1, 2017.

The current bill also would exclude from the notional profits calculation net income that is obtained by sole proprietorships and does not exceed 4 million indexed units (approximately USD 470,000) in the fiscal year.

Additionally, the current bill would repeal the profit distribution exemption claimed by entities that render independent personal services and have chosen to be included in the CIT. The current bill would tax profit distributions beginning in fiscal years that close after December 31, 2016.

The current bill would modify the special donations regime in the CIT regulations for donations to the following entities:

— Catholic University of Uruguay
— University of Montevideo
— ORT University of Uruguay
— Business University
— CLAEH University Institute
— Research Institute

Under the current bill, taxpayers would receive a credit of 40% of the amount donated (instead of 75% currently) for donations to those entities that could be applied to the CIT or Net Wealth Tax. The current bill also would allow taxpayers to deduct as an expense 60% (instead of 25% currently) of the amount donated.

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