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The consultation under Article 119 of the Procedural Tax Code currently a "double-edged sword for the taxpayer"

Contributed by Ara Law Abogados
25 August, 2015

The Procedural Tax Code regulates in its article 119 the legal institute of consultation, entitles taxpayers to make consultations to Tax Administration regarding the application and interpretation of the Law, consultations under article 119 may be done using a writing and electronically method, in both cases taxpayers must have to use a specific procedure. As a requirement is mandatory in order to make a consultation under article 119 to have a real taxpayer, a factual and specific situation to be consulted and the objective of the consultation must have to be concrete, actual and the taxpayer must have a personal and direct interest in the factual situation.

The Tax Administration has 45 working days to answer consultations under article 119 submitted by the taxpayers, in case Tax Administration has not answered within that time and the taxpayer has been exposed his criteria in the consultation, he will be benefit from positive silence will be understood as valid the criteria that has been expressed by the taxpayer in consultation, when positive silence applies in favor of the taxpayer, the effects of the consultation return back to the moment in which it was presented, without having to pay the taxpayer any amount of money.

All consultation submitted prior to the deadline for submission of the affidavit or, within the term for payment of the tax, relieve the consultant for penalties, fines, but not of interest, except in cases where positive silence applies in benefit of the taxpayer.

A consultation under article 119 of the Procedural Tax Code may become a "double-edged sword for the taxpayer", because in order to submit a consultation must have to take into consideration the following issues:

  • Never submit a consultation under article 119 of the Procedural Tax Code if the deadline for submission of the affidavit or the term for payment of the tax has expired.
  • When a company submits a consultation under article 119 they must have to disclose fully information and the facts relates to the consultation, it is feasible then to submit a consultation under article 119 if you have a high degree of probability that the answer of the Tax Administration will be consistent with the tax treatment that the Company has been giving to the situation which constitutes the subject of the consultation, or if the Company is going to start a negotiation and have already taken some steps towards it and the Company use the institute of the consultation in order to measure risks and consult previously the Tax Administration the application and interpretation which they consider should be given to the facts and the specific and current situation they submitted for its consideration, if the aforementioned is not took into consideration it could be a "double-edged sword for the taxpayer" that has given a specific tax treatment to the specific facts and current situation which is part of their line of business, however the Tax Administration considers as non-compliant with the law, which may eventually awaken all alerts of the Tax Administration and trigger a subsequent starting of an Tax Audit Process which clearly the Tax Administration will have a precedent that should investigate and audit since the beginning (the consultation under article 119 which was submitted) and which could become and get a be an Tax Audit Process and an adjustment to the tax, it is very important to indicate that the consultation under article 119 can be analyzed, evaluated and took into consideration within the Tax Audit Process, nevertheless it is not possible to make an tax adjustment in the Tax Audit Process taking only as a basis the answer to the consultation under article 119.
  • Consultation under article 119 was always an instrument used by the taxpayer as a security and legal certainty mechanism that allow the taxpayer to have a "know what to expect", bearing in mind that the answer the taxpayer would get might be challenged by an revocation request against the same Tax Authority, appeal to the Tax Administrative Court and could even be the subject of Administrative Court or get in the last way before the First Chamber of the Supreme Court. However, the reform of the Procedural Tax Code on September 2012 by Law 9069, declared that the response from the Tax Administration to a consultation under article 119 has not any appeal, which makes formulating a consultation under article 119 that does not have any appeal become a "double-edged sword for the taxpayer" if the answer to it is contrary to their interests.

Finally, the current wording of the article that regulates the consultation in the article 119 of the Procedural Tax Code, taxpayers should take care on it and have a proper tax advice if the decide to submit a consultation under article 119, if the taxpayer has already made a consultation under article 119 and the answer of the Tax Authority was contrary to the interests of the Company there is a possibility for the taxpayer to submit an Administrative Court process of fulfilled Law, for which Ara Law Attorneys can advise.

Tags: audit | business | interest | Tax | penalties | law | tax


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