Obligatory nature of the audited EEFF, as well as the delivery of the Quadratic Reconciliation for 2021; and the supports regarding the requirement of the information.
Since November 2021 the Tax Administration has made some communications with taxpayers requiring some specific forms regarding the submission of reconciliations and audited financial statements, when applicable. It is important to start by defining who is obliged to submit audited financial statements to the Tax Administration. Several legal bodies place this obligation.
In Decree 10-2012 of the Congress of the Republic, which contains the Income Tax, we find Article 40, applicable to taxpayers who are in the Profit from Profit from Lucrative Activities Income Regime, which imposes the obligation to submit “duly” audited financial statements, with their respective opinion and report, signed and stamped by the professional who issued it, when such taxpayer has been qualified as a VAT withholding agent or is qualified as a special taxpayer.
This obligation does not apply to taxpayers that have opted for the Optional Simplified regime for Income from Lucrative Activities (art. 49).
In the Profit regime, additionally, the law establishes that those who make quarterly payments on the option of partial accounting closings must “keep the financial statements corresponding to each quarter”. However, quarterly payments may be made by means of “partial accounting closings”, by a preliminary liquidation of its activities at the end of each quarter or on a basis of estimated taxable income. Thus, although there are 2 numbers in article 38, there are 3 ways to make these quarterly payments.
SAT has requested some taxpayers to have these financial statements signed by the legal representative and the accountant. However, the partial accounting closing does not imply the preparation of financial statements, strictly speaking, since the preparation of financial statements is an annual obligation, not monthly or quarterly and, at least from my perspective, it is possible to argue that it is possible to make an accounting closing without making complete financial statements or to choose as a method the partial liquidation, which does not imply the preparation of financial statements either. In any case, the obligation is to sign the financial statement book when the annual balance sheet is filed and must be published.
The accounting obligations are contained in the Commercial Code. Article 368, mainly, establishes how to keep accounts. For purposes of obligations, for example, the same article obliges to have specific books, as a minimum:
b) First entry or journal
c) General ledger or centralizer
d) Financial Statements.
With respect to the financial statements, Article 377 establishes that the financial statement book or record shall contain:
(a) The opening balance sheet and the ordinary and extraordinary balance sheets that may be practiced for any circumstance;
b) The profit and loss statements or those that take their place, corresponding to the balance sheet in question.
c) Any other statement that “in the judgment of the merchant is necessary” to show its financial situation.
Thus, there is no obligation to prepare financial statements other than the opening financial statement; therefore, a partial closing of the accounts does not necessarily imply the preparation of such financial statements. A “financial statement” of “partial liquidation” or “determination of the quarterly obligation” could be made, if in the judgment of the merchant it is necessary.
The requirement to sign, in the legislation applicable to accounting, i.e., the Code of Commerce, Article 374, states: “The merchant must establish, both at the beginning of his operations and at least once a year, the financial situation of his company, through the balance sheet and the profit and loss statement, which must be signed by the merchant and the accountant”, so we do not see any grounds for SAT to require the preparation of quarterly financial statements; much less, that they be signed. The obligation is annual, distinguishing an accounting closing from a financial statement, as well as a partial liquidation -which is entirely a tax term- from a financial statement.
Regarding the ISO, the obligation to file financial statements is limited to the application of an exemption for having incurred for two consecutive years in operating losses. The relevant point is that the law indicates that the financial statements demonstrating such operating loss must be accompanied by an affidavit, duly audited. Relevant is:
a) That they are operating losses, not tax losses.
b) That the accompanying financial statements must be “duly audited”.
Regarding “duly” we understand that they must be audited in accordance with the applicable ISAs. A relevant issue regarding the audits performed based on ISAs is that for operating losses, presenting them on an “income tax basis” will not necessarily comply with disclosing an operating loss, but will be a tax loss. Furthermore, it is in doubt whether the income tax law presents an acceptable accounting basis. These doubts prevail in the environment.
In the VAT
Within the VAT we find a case that seems to be an audit, however, what the law requests is an opinion. Article 24, within the optional tax credit refund system, requires that the application be accompanied by “An opinion on the appropriateness of the tax credit requested, issued by a public accountant and independent auditor…” and complements the rule by saying: “The public accountant and auditor who issues the required opinion shall be liable in cases where falsehood is determined, for which he shall be liable civilly and criminally, as appropriate, as well as the sanctions deemed appropriate to be imposed by the court of honor of the college…”.
The issue of great importance in this VAT refund regime is that the opinion may be the reason for rejection of the application when the same is not issued in accordance with the law – the requirements contained in the VAT law – and the auditing standards, which are those dictated by the respective professional association.
In this regime, unlike other regulations, the rejection comes only from this source. Thus, we consider that SAT has issued rejection resolutions contrary to the law.
Notices of delivery of audited EEFF that SAT is just resending:
In the month of February notices such as the one transcribed below were shared by some taxpayers:
The Superintendence of Tax Administration has held technical tables to reach agreements with different actors that allow: compliance with the Law, the preparation of opinions in accordance with the International Auditing Standards and the presentation of Financial Statements under the Financial Reporting Standards or other regulatory framework, to reach consensus that allows the correct tax compliance and a responsible professional exercise.
As a result of the foregoing, the following is reported:
a) Financial Statement Opinions must be issued based on International Standards on Auditing -NIA-. Any opinion that does not comply with the above will be rejected, a provision applicable to non-prescribed periods.
b) Financial Statements issued under ISA 800 must be presented on a comparative basis as of the fiscal year ended December 31, 2022, with a maturity date of 2023.
c) Financial Statements audited under ISA 700 and prepared under International Financial Reporting Standards – IFRS or International Financial Reporting Standards for Small and Medium-Sized Enterprises – IFRS for SMEs – as required by both accounting bases, must be presented on a comparative basis.
d) The Notes to the Financial Statements must include a reconciliation between the Profit in the Financial Statements and the Profit shown in the Annual Income Tax Return, when different. The Superintendence of Tax Administration will require this reconciliation, for the periods not prescribed and will reject the report of the Audited Financial Statements corresponding to the fiscal period ended December 31, 2021, that does not contain it. ***This cannot be requested by SAT either, since it lacks such legal functions. Much less can it request it retroactively, nor can it reject its presentation.
e) The Financial Statements included in the Auditor’s Opinion, must be signed by the Taxpayer or its Legal Representative, as applicable and certified by the registered Accountant, as of the periods ending December 31, 2021. If the Financial Statements included in the opinion are not signed, an exact copy of the same must be submitted, together with the affidavit through the virtual agency or other means that the Tax Administration Superintendency makes available to the taxpayers. If deemed necessary, the Tax Administration will require the taxpayers to sign the Financial Statements presented equal to those of the opinion, for non-prescribed periods. ***Again, this exceeds its legal powers, since it has no legal basis to require signatures, much less affidavits.
Legal Basis: Article 3 of Decree Number 1-98, Organic Law of the Superintendence of Tax Administration, of the Congress of the Republic of Guatemala; Articles 46 and 48 of Board of Directors Agreement Number 007-2007; Article 40 of the Tax Update Law, Decree Number 10-2012, of the Congress of the Republic of Guatemala and Article 28 of the Regulations of Book I of the Tax Update Law, Decree Number 10-2012, Governmental Agreement Number 213-2013, of the Presidency of the Republic of Guatemala, articles 21 “B”, 98, 112 and 112 “A” of Decree Number 6-91, Tax Code, of the Congress of the Republic of Guatemala.
Technical Basis: International Standards on Auditing -ISA-, especially 700, 800 paragraphs A1, A4, A5, A8 and A9 of ISA 210; International Financial Reporting Standards -IFRS- and International Financial Reporting Standards for SMEs, among others.
From this notice, it is necessary to make some comments, since we consider that SAT exceeds its legal powers and attributions, invading spaces that are, constitutionally and legally, competence of other institutions.
Paragraph a) above is, for ISR purposes, totally illegal. Although the law speaks of “duly” the problem is not of the taxpayer, but of the CPA who did not do it correctly. So it is not a reason for rejection, but for other sanctions. The Tax Administration is not a body that controls the quality of the professional practice of public accountants and auditors; it is only the Tax Administration. Contrary to the VAT refund regime that we have already commented, the law does not allow penalizing the taxpayer for the fact that, according to SAT, the audit does not comply with any technical element. This must be reported to the College of Public Accountants and Auditors or to the criminal authorities, if applicable. Additionally, the taxpayer’s obligation is to submit them and cannot “refuse to receive” the reports that are submitted.
For literal b) it is impossible for the Tax Administration to impose technical content to the practice of any profession, including, and even more so, to the profession of Public Accountant and Auditor. What the Tax Administration intends is to dictate how the scope of a special purpose audit should be defined to include the comparative, which is not necessary within the regulation of an audit under this standard. It is, therefore, usurping functions that govern the profession, in addition to the threat of rejecting them, which also has no legal basis.
The Tax Administration, in a waste of creativity, communicated, during the months of November and December, to some taxpayers, that for purposes of what the law requires to be done as “bank reconciliation”, a format that the Tax Administration called “quadratic bank reconciliation” must be done.
Any keen accountant will know that a bank reconciliation is a very simple procedure to determine the differences between the accounting account and the bank account, while a quadratic reconciliation is an audit procedure far removed from the legal obligation (Code of Commerce) to reconcile the bank account and the accounting balance of the “Banks” accounts.
Thus, in a display of astuteness, SAT intends to impose an unfounded obligation, pretending to distort the term “bank reconciliation” to make room for requiring the taxpayer to perform a procedure that should be performed by the person performing the audit at the time of a verification.
It leads me to conclude that SAT only intends to impose the sanction of resistance to the auditing action, which is the sanction imposed for not having a current bank reconciliation. In legal language, it is a fraud to the law.