Settlement regarding tax matters

The Law for Economic Development and Fiscal Sustainability After the Pandemic COVID-19, enacted in the Official Gazette 587, Third Supplement, on November 29, 2021, amended the Tax Code and, among others, the Internal Tax Regime Law.

 
On December 29, the President of the Republic issued the corresponding regulations. CorralRosales will summarize the most important changes introduced by the indicated regulations in several bulletins. The following analyzes the main elements of the SETTLEMENT in tax matters introduced by the law and regulations mentioned above.

1. What can be settled?

It is possible to mediate and settle: (i) the assessment of the tax liability (including the assessment of disputed factual aspects), its interest, surcharges, and fines; (ii) the term for paying the tax liability, and (iii) the precautionary measures issued against the taxpayer within a coercive collection process.

2. What cannot be settled?

It is not possible to settle: (i) the general scope of undetermined legal concepts in dispute; (ii) the annulment of regulations, ordinances, resolutions, and circulars of a general nature issued by the Tax Administration, and (iii) tax obligations which have not been declared by the taxpayer prior to the assessment process.

3. Who may settle?

The transaction must be entered into between the highest authority of the Tax Authority, or its delegate, and the taxpayer. 
If two or more taxpayers enter into the settlement, all of them will be jointly and severally liable for the obligation contained in the settlement agreement.

4. Is the settlement subject to challenge?

The settlement entered into by the taxpayer and the competent authority is final, binding and cannot be challenged in administrative or judicial proceedings. It can only be declared void if the transaction was made with respect to issues that cannot be settled.

5. When does the transaction proceed?

A settlement may be reached: (i) during the assessment process; (ii) during an administrative claim; (iii) during an extraordinary administrative appeal; (iv) during the execution of the coercive collection process, and (v) during a judicial process.
 
In the case of final or enforceable assessment procedures, which have not been challenged or over which an extraordinary administrative appeal is pending, it will only be possible to negotiate with respect to payment facilities and deadlines, as well as the application of precautionary measures.

6. What is the process to reach a settlement?

The taxpayer must submit its request to any mediation center or to any qualified mediator. The center or mediator must notify the Tax Authority, which will have a term of 30 business days to accept or reject the mediation process. 
If the Tax Authority accepts to initiate the settlement procedure, it shall perform a technical cost-benefit analysis prior to the execution of the agreement.

Once the Tax Authority has been notified with the request for mediation, the statute of limitation for assessing and collecting the tax obligation, and for issuing a resolution within administrative claims procedures, will be suspended. If no settlement is reached or the mediation process is not accepted, the statute of limitations period will be resumed.

In the case of assessments for which the term to challenge them in administrative or judicial proceedings has not expired, the notification of the request for mediation will suspend such terms. If no settlement is reached or the mediation process is not accepted, the term to challenge will be resumed.

The costs derived from the mediation process and its execution shall be borne by the applicant.

7. What is the process to reach a settlement within a judicial procedure?

The settlement will take place during the preliminary or single hearing, as applicable. For this purpose, the judge may order that the dispute be referred to a mediation center. 
If the parties settle the total amount of the obligation, the judicial process will be concluded. If the settlement is partial, the judge will continue the judicial process on the matter in respect of which the dispute remains. 
If the judicial proceeding has already concluded and the judgement is being enforced, the parties may only settle on how to comply with the tax obligation, payment facilities and precautionary measures.

8. Transitory Regime

Taxpayers who are being subject to assessment procedures or who have initiated judicial or administrative claims against the assessment may benefit from the settlement process subject to the following rules. Those who file the request for mediation:

1. Until January 29, will be entitled to a reduction of 100% of the interest and surcharges applicable to the tax that the taxpayer agrees to pay in the settlement.
2. Until February 29, will be entitled to a reduction of 75% of the interest and surcharges applicable to the tax that the taxpayer agrees to pay in the settlement.
3. Until May 29, will be entitled to a reduction of 50% of the interest and surcharges applicable to the tax that the taxpayer agrees to pay in the settlement.

The reduction will only apply if the taxpayer agrees to pay immediately at least 25% of the principal. This payment must be made prior to the execution of the settlement.