Enforcement

Compliance with tax laws

How does the tax administration verify compliance with tax laws and ensure that taxes are paid on time? What is the usual procedure followed by the tax administration to examine a tax return and how long does the examination take?

In general, taxes such as income tax, capital gains tax, value added tax and foreign exchange tax are self-assessed by the taxpayer and filed through the website of the taxpayer. tax administration with the forms available on the website. If the tax is not paid within the deadlines set by law, the delay will be automatically reported in the tax administration system and the taxpayer will be recorded as non-compliant. A certificate of compliance from the tax administration is required for certain activities, such as importing goods or entering into contracts with the government.

There are two typical procedures that the tax administration uses to review a tax return: a notice of difference and a tax procedure.

The notice of difference is an accelerated assessment procedure by which the tax administration notifies the taxpayer of the differences noted in the tax declaration compared to the information available to it and collected from third parties. The taxpayer can either pay the amount established by the tax administration, or provide sufficient evidence to challenge the discrepancies noted by the tax administration within 20 working days. If the tax is not paid or if the tax administration considers that the differences have not been duly justified, it issues a formal notice of difference. This procedure usually takes three to six months.

The tax adjustment procedure is initiated by a formal notice issued by the tax administration by which it requests information from the taxpayer and third parties and issues a tax adjustment project. Likewise, the taxpayer can either pay the amount established by the administration, or provide sufficient evidence to contest the discrepancies noted by the tax administration within 20 working days. If the tax is not paid or if the tax administration considers that the differences have not been duly justified, it will issue a formal tax notice. This procedure usually takes 6 to 12 months.

Types of taxpayers

Are the different types of taxpayers subject to different reporting obligations? Can they be subject to different types of review?

Yes, there are two types of taxpayers: individuals and businesses. In turn, individuals are classified either as individuals who are required to keep books of account or as individuals who are not required to keep books. Individuals are required to keep books of account if their equity (assets minus liabilities) is greater than $ 180,000, or their annual income is greater than $ 300,000, or their annual business expenses are greater than $ 240,000.

All taxpayers are required to file an annual income tax return and a monthly VAT return. However, if the taxpayer is classified as a small business, the reporting requirements and the calculation of applicable income tax change.

Business entities and individuals required to keep accounting books are subject to additional reporting requirements, such as filing monthly withholding tax returns and corresponding schedules detailing their monthly transactions.

In addition, business entities are subject to different reporting obligations depending on their nature or activity. For example, all entities are required to file an annex relating to shareholders disclosing their beneficial owners and financial institutions are required to file an annex to the Common Reporting Standard to comply with this standard.

Usually, business entities and individuals required to keep accounting books are subject to tax examinations; however, taxpayers who have transactions with related parties or with third parties located in tax havens will be subject to more detailed tax reviews.

Request information

What types of information can the tax administration request from taxpayers? Can the tax administration question the taxpayer or his employees? If so, are there any restrictions?

The tax administration may require all the information that the taxpayer has on himself or on third parties. This information includes business books, accounting records, financial information, transfer pricing reports, transaction documents such as invoices, withholding tax certificates, tax residency certificates, contracts and any information. that it may deem necessary to carry out a tax assessment.

Legally, the tax administration can question the taxpayer and his accountant; however, this is not common in tax assessment procedures. The tax administration generally requires the taxpayer to provide a written explanation of certain accounting practices or expenses.

The tax administration and tax jurisdictions have ruled that it is up to the taxpayer to keep all the information necessary to prove the amount of his income and the validity of his expenses. Therefore, taxpayers are recommended to implement checklists or standards for maintaining information related to tax matters.

In addition, the taxpayer has the obligation to obtain, update and retain information relating to its customers, suppliers, related parties, shareholders, beneficial owners, employees, officers, members of the board of directors, accountants and representatives.

Agency action available

What actions can agencies take if the taxpayer does not provide the required information?

Usually, the tax administration will issue a written notice requiring the taxpayer to provide the required information. If the taxpayer does not comply, the tax administration usually issues a second opinion warning the taxpayer that the authority may impose a penalty or temporarily close the business.

If the taxpayer does not provide the required information or if the tax administration considers that the information provided by the taxpayer is incomplete or inaccurate, it will initiate tax proceedings. In addition, if the taxpayer does not provide information as part of the tax procedure, the tax administration is able to issue a presumptive tax.

Collection of overdue payments

How can the tax administration collect overdue tax payments as a result of a tax audit?

The tax administration can recover tax arrears through a prosecution procedure. The tax administration will issue a collection notice obliging the taxpayer to pay the overdue taxes within three days. If the taxpayer does not comply, the tax administration can order liens on property, foreclosures of assets, deduction of payments receivable from private parties or government entities, among others.

The taxpayer can oppose the prosecution procedure; however, such objections can only be filed on the basis of specific grounds permitted by law, such as procedural invalidity.

Penalties

Under what circumstances can the tax administration impose penalties?

Sanctions may be imposed in the event of tax evasion and tax evasion. The tax administration will impose penalties if the taxpayer does not meet their legal tax obligations, such as filing their tax returns on time or failing to provide information required by the tax administration. In addition, the tax administration may impose surcharges in the context of tax procedures.

How are the penalties calculated?

The amount of the penalty will depend on the nature of the offense. Fines for breach of procedural obligations can be as high as $ 1,500. However, certain breaches are subject to higher penalties: for example, failure to comply with the filing of transfer pricing reports can be penalized with a penalty of up to $ 15,000.

A delay in filing a tax return is penalized with a penalty equal to 3% of the amount of tax for each month of delay. The amount of the penalty cannot exceed the amount of the tax. However, a delay in filing certain tax returns is sanctioned by a higher penalty. For example, failure to comply with the tax return on capital gains on the sale of shares is punished with a penalty of 5% of the amount of the transaction.

As part of a tax proceeding, the tax authority may impose a surcharge of 20 percent on the amount of tax that has been assessed by the authority.

What defenses are available if sanctions are imposed?

If penalties are imposed, the taxpayer can lodge an administrative complaint with the tax authorities or a legal complaint with the tax court. In the context of these procedures, the taxpayer will have to argue that the infringement or violation did not take place. The use of a lawyer or an accountant will not be used as a justification for the offender.

Criminal consequences

Are there any criminal consequences that can result from a tax review? Are they different for different types of taxpayers?

If a tax audit results in an enforceable decision or judgment in the matter of tax evasion, criminal consequences may result. Depending on the type of offense, the penalty can range from one to 10 years imprisonment.

If the taxpayer is an entity, it will be subject to a penalty ranging from 50 to 100 base salaries (for 2021, the base salary is equal to 400 USD) and the entity will be declared extinct. In addition, the prison sentence described above will be applied to the legal representative (president or general manager) and to the accountant who filed the tax return. Other people, such as shareholders or employees, may be liable if they have knowingly participated in tax evasion.

Execution file

What is the recent record of law enforcement authorities?

No official figures are published concerning the authorities’ execution files.

Declaration date of the law

Correct on

Indicate the date on which the above information is correct.

July 7, 2020