The Tax Reform proposes a series of amendments aimed at granting greater legal certainty and protection to the taxpayers in respect of the powers and attributions of the IRS. This series of amendments that we group together as “Taxpayer Rights” include the following:
“Defender of Taxpayer Rights” (“DEDECON”)
The Tax Reform creates a new entity, called Defender of Taxpayer Rights (“DEDECON”), which reports to the Ministry of Finance. The DEDECON will be in charge of ensuring respect of the taxpayer rights. Although it will not have jurisdictional or judicial representation powers, it will have a relevant role in mediating the conflicts that arise between the IRS and the taxpayers.
Also, the entity may receive complaints from taxpayers, make recommendations, act as a mediation entity, assist in the agreements between the IRS and taxpayers, perform relevant studies in tax matters, propose amendments to tax regulations, develop research work, issue opinions, and have regular meetings with the IRS.
New Catalog of Taxpayer Rights
Likewise, the Reform amends Article 8 bis and 8 ter of the Tax Code as well as other norms that establish the rights of taxpayers. The Tax Reform creates the following additional rights, among others:
- The right to be informed of their tax situation and the status of a procedure;
- The right to be admitted into evidence acts, contracts, etc.;
- The right to not be required to meet unfulfilled requirements in the case of acts celebrated abroad;
- The right to obtain certifications if there are no pending procedures; and
- The right to not be audited for the same items and periods that have already been subject to a previous audit.
Statute of Limitations
The project amends article 21 of the Tax Code, establishing that the IRS may not require supporting evidence for elements of the income tax filings older that the applicable statute of limitations.
The foregoing also applies to the review of the tax equity, tax losses as well as for the remaining VAT credit.
Likewise, the project establishes that the IRS will not be able to ask the taxpayer for formalities not required by law and thus providing greater legal certainty to the taxpayer.
However, exceptions can be admitted to this rule when it is established by means of a founded resolution.
Termination of Activity or Business
The Tax Reform amends article 69 of the Tax Code, reducing to 60 days the term that the IRS has to inspect and collect any tax difference regarding the declarations of termination of activity or business.
In the event that the IRS does not issue a response within the term established, the taxpayer´s declaration will be accepted, and the IRS will be inhibited to carry out further reviews or inspections unless new information is included or the information already accompanied is “maliciously false”.
The project maintains the same structure in the sense that the IRS must necessarily invoke tax avoidance (whether it is abuse of the legal norm or simulation) in order to carry out a tax recharacterization of an operation.
However, the project amends the following:
Firstly, in order to establish the existence of tax avoidance, the IRS must follow the procedure established by law. That is, the respective tax avoidance must be declared by the Tax Court, at the request of the IRS Director.
Secondly, in the event that the IRS initiates an audit process in accordance with a special anti-avoidance norm, it cannot subsequently initiate a GAAR process under the same legal contracts, and vice versa.
Finally, the project amends several meanings of certain concepts established in the Tax Code. For example, it eliminates the word “relevant” within the phrase “as long as the contracts or businesses do not produce relevant legal or economic effects”, adds the phrase “notoriously artificial” as a requirement of the operation in order for there to be abuse, and establishes that both relative and absolute simulation can constitute evasion, among others.
The Tax Reform incorporates a new paragraph in article 10 of the Tax Code that establishes that “positive silence” rules will apply for all presentations, requests, and remedies of any type that result in a final administrative act.
This means that any presentation before the IRS that is not resolved within the legal term, provided that the petitioner communicates to the IRS of the approaching term deadline, will be determined in favor of the petitioner.
Finally, once the petitioner communicates to the IRS the approaching term expiration, the IRS will have 5 days to issue a ruling, and if after said period the ruling has not been issued, the positive silence will take effect (the presentation will be resolved in favor of the petitioner).
VAT Tax Credit
The Tax Reform amends article 27 of the VAT Law and incorporates a new paragraph 6 on the general procedure to request a refund or recovery of the VAT. According to these norms, the term the IRS has to respond is reduced from 60 to 5 days counting from the submission of the request.
If the term of 5 days expires and the IRS has not issued a ruling, the request will be deemed approved and the Treasury will proceed to refund the VAT with the sole merit of the request submitted by the taxpayer.