Monday, September 24, 2018

Puerto Rico Treasury investigation hinders audit of sin taxes

By on September 7, 2018

Editor’s note: A version of the following report originally appeared in the Sept. 6, 2018, issue of Caribbean Business.

At a time when the Puerto Rico government’s ability to improve tax revenue and move toward the financial responsibility outlined in the fiscal plan is questioned, 12 employees inside the Treasury Department’s Consumption Tax Bureau were escorted out of their offices and suspended from work, which has affected operations at the division attached to the Auxiliary Office of Internal Revenue.

In a brief statement, Treasury Secretary Teresita Fuentes confirmed to Caribbean Business that an internal investigation is underway. However, she did not share specifics regarding the investigation, nor the reason employees were removed without their belongings.

“The Department of the Treasury is conducting an internal investigation that involves 12 employees of the Consumption Tax Bureau. A provisional suspension measure was determined while the investigation process continues,” Fuentes said on Aug. 27.

Efforts to learn specific details from Treasury about the scope of the investigation, such as the names of those implicated, positions they held or whether fraud is involved, have been unsuccessful. Bureau Director David Coons has yet to answer requests for information first submitted more than a week ago. However, Fuentes’s office sent a brief statement Tuesday, saying the department will not issue comments for the time being tosafeguard the investigation and the employees involved.

The Consumption Tax Bureau, “as the name suggests, is the one that administers all taxes on consumption. This includes the sales & use tax [IVU by its Spanish acronym] and the different excise taxes. I would say it is the most relevant bureau because the IVU is of great importance in terms of revenue,” said the former assistant secretary of Internal Revenue, Víctor Pizarro Núñez.

The former official, who served under the term of former Gov. Alejandro García Padilla, also indicated that audits and internal investigations are routinely conducted in the bureau. However, he acknowledged that given the number of employees suspended, the investigation could be into potential fraud.

Several Caribbean Business sources, who spoke on condition of anonymity, said the suspended employees have industry-specific expertise in auditing. In addition, they said that since the abrupt removals occurred, the operations of some offices have been severely affected because the suspended employees have not been replaced.

“As I understand it, they were escorted to the exit and it wasn’t pretty…. I know they are from different areas of the Consumption Tax Bureau and that several of them deal with licenses such as alcoholic beverages, cigarettes, gaming machines and promotion licenses. Something was happening over there…,” said one events-industry source.

The source indicated that the one person responsible for the renewal of promoter licenses for shows was one of the suspended employees and that the person’s duties were assigned to those in charge of approving entry tickets, employees who do not have the necessary experience or access to the system that reflects how much IVU a promoter withheld and remitted.

“Of the 12 people who were taken away is the one who renews the promoter’s licenses. All promoters renew their licenses annually, but they are worked on as a group monthly, based on the last number of the employer’s social security. With this person gone, she was the only one who did license renewals, and all those cases she has been working have been left up in the air. We are the only industry that gets its IVU payments audited annually as part of the renewal of that license,” the source said.

The process to renew a promoter’s license may take more than two hours while approvals take about 15 minutes. “If one day, two people arrive to renew their license and they are sent to the cubicle of those who [do the] endorse[ment], they can paralyze the entertainment [division] office because they are renewing licenses and it will take a long time. There have already been people who have [left] at 2 p.m. and…left without an endorsement,” the source added.

The promoter of any event held in Puerto Rico that requires an admission fee or ticket needs to complete the endorsement process, which means the promoter must inform Treasury about the type of event, location, date, number of ticket offices and different pricing for the department to issue an authorization to withhold the sales & use tax.

A delay in that division could cause the sale of tickets to stop at a number of events already programmed at the island’s various venues of the island.

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