TAX LAW: On the irrational purification of the tax credit.

Dealing with the Tax Administration on a day-to-day basis is usually a very exhausting activity for all entrepreneurs, especially when they are faced with an audit. It is during this entire process that taxpayers are obliged to provide all the evidence they consider relevant to assert their rights, as is the case of the appropriation of the tax credit.

Regarding the tax credit, the National Tax Service carries out a rigorous analysis on whether there was a due or improper appropriation of the Tax Credit, based on the application of the following requirements:

1. Presentation of the Original Invoice or equivalent document.

2. Link with the taxed activity.

3. Concrete verification of the effective completion of the transaction.

4. Exhibition of reliable means of payment.
   

These requirements are mandatory for the taxpayer who intends to appropriate the Tax Credit, but compliance with these conditions is subordinated to the evidence generated by the taxpayer, an aspect in which they usually fail.

Under this context, one of the most frequent observations that the Tax Administration usually uses to purify the Tax Credit is that of “Transaction Not Made”, often based on unreasonable criteria that deviate from the current legal regulations, such as the nonexistence of the supplier's address or failure to comply with formal duties on their part, such as non-payment of the tax, omission in dosing the invoice, evading the declaration of the invoice, etc.

Given an observation based on the criteria described above, it is worth asking: Is the observation based on these criteria valid? No, since the jurisprudence established, in a series of resolutions, that the non-existence of the domicile or the failure to comply with formal duties by the supplier do not constitute a fact attributable to the taxable person, so it is appropriate to annul the purification. of the Tax Credit, however, such a situation may constitute an indication that the transaction never existed.

Despite the technical and legal deficiencies that exist in the Tax Administration's argument, Taxpayers should not adopt a passive position trusting in the unreasonableness of the observations. On the contrary, it is crucial to undertake an active defense by providing documentary, accounting and administrative evidence that demonstrates the material truth of the facts, that is, proving the existence of the transaction in order to ensure the correct appropriation of the Tax Credit.

Finally, taxpayers are recommended, when facing an audit process, to seek legal and/or accounting advice to have an adequate technical defense to protect their rights and interests. Likewise, to the extent possible, it is preferable that, prior to facing inspection processes with the Tax Administration, entrepreneurs have tax advice that allows them to minimize fiscal risks.

Víctor Manuel Vásquez Alfaro
Litigation and Corporate Lawyer