The CC ruled on the partial general action of unconstitutionality filed against the section called “detail of local suppliers (tax credit) of table 5 and 6” contained in the form SAT-2237 “General VAT – Value Added Tax. General Regime. Taxpayers performing local, export and/or transfer operations. Affidavit and monthly payment” of the Superintendence of Tax Administration, file 2503-2021.
Important news of 2021 was the provisional suspension of the “10 suppliers” section that had been placed in the Value Added Tax (VAT) declaration form. What had been seen as very good news was reversed when the judgment of unconstitutionality was issued. The judgment declared without place the unconstitutionality action raised.
Violation of Article 135 literal d) of the Political Constitution of the Republic 2.
It was challenged from several perspectives. One was the violation of Article 135 d) of the Constitution, which contains the duty to contribute. For this, among others, it was argued that:
(a) “it is constitutionally unacceptable that the Tax Administration denaturalizes the Value Added Tax declaration and payment form, by converting it into an “information requirement”, and that the failure to deliver it brings as a consequence that the taxpayer does not declare and pay the referred tax”.
b) “The collecting authority requires in the declaration and payment of the aforementioned tax, information that is not essential, therefore, it hinders in an unjustified and arbitrary manner the exercise of the civic right to contribute to the public expenses, constituting a serious violation of the duty and right of all Guatemalan citizens to pay taxes”.
The central point of this argument was based on the fact that the information requested is not indispensable for the determination of the tax obligation, therefore requesting it in the payment declaration form was an obstacle to said duty to contribute, without there being any norm that empowers the Tax Administration to demand additional requirements to the elements that the law contains for said determination.
a. Arguments of the Court of Constitutionality
The Constitutional Court dismissed the arguments that founded the action of unconstitutionality, indicating that SAT “…. does not limit the duty to contribute to public expenses as a civic duty and right of Guatemalans, nor does it condition the payment of the Value Added Tax, because it does not prevent the responsible and liable party from complying with such duty of contribution, but only exercises a control for the purification of their tax duties, clarifying that as it is observed in the mentioned articles, the Tax Administration may require the taxpayers of the Value Added Tax, to provide elements – data and details – that constitute the taxable base for the correct determination of the tax obligation in the presentation of the form of merit, which does not contravene its power to require information from individuals or legal entities when it is in the exercise of its auditing power, regulated in articles 30, 30 “A”, 30 “B” and 30 “C” of the Tax Code, which is a matter that arises during its work of inspection and audit. “
We comment on said argument:
The Constitutional Court commits some conceptual errors in its statements, moving away from the legal institutions proper to Tax Law. The first point is that the tax obligation arises with the occurrence of the generating event and is determined, according to our legislation, based on the elements that the law establishes for it. In VAT, the process of determination of the tax liability implies -see article 103 of the Tax Code for the legal concept of determination- the addition of the total sales and subtraction of the total purchases.
In other words, the detail of who the suppliers are is not part of the tax liability determination procedure. Taking all the suppliers, adding up all the purchases made from them, for each one, and then ordering them and determining which are the top ten, is not part of that determination procedure.
Let us see that in Chapter IX of the VAT law, called “OF THE DETERMINATION OF THE TAX OBLIGATION”, article 19 states: “ARTICLE 19. Of the tax to be paid. The net amount that the taxpayer must pay to the Treasury in each tax period is the difference between the total debits and the total tax credits generated”. (Emphasis added).
The norm is clear as to what elements are necessary for the determination of the obligation. The Constitutional Court, therefore, issues its decision without analyzing the procedure for the determination of the tax obligation. Moreover, it then confuses the determination procedure with the examination procedure, disregarding the fact that Article 103 of the Tax Code clearly defines three procedures “according to law” for such determinations:
i. By the taxpayer or self-determination;
ii. By the Tax Administration, ex officio determination;
iii. By both in coordination.
VAT is a tax in which the law defines a self-determination procedure. This implies that, by law, the Tax Administration is not allowed to participate in such determination. Its functions are of verification.
The verification procedure is an “a posteriori” procedure, that is to say, a procedure that is initiated after the filing of the tax returns, as defined in Article 146 of the Tax Code: “ARTICLE 146. The Tax Administration shall verify the tax returns, determinations and tax payment documents; if applicable, it shall formulate the corresponding adjustments, shall specify the factual and legal grounds, and shall notify the taxpayer or the responsible party.
When notifying the taxpayer or the responsible party, if adjustments are made, he/she shall be given a hearing for thirty (30) non-extendable working days, so that he/she may present his/her arguments and offer the means of proof to justify his/her opposition and defense. If at the time of the hearing a request is made for the opening of evidence, the provisions of article 143 of this Code shall apply. The probation period shall be deemed to be granted, without any further procedure, resolution or notification other than the request, and the thirty (30) non-extendable days shall run from the sixth (6th) working day following the day of the expiration of the term conferred to evacuate the hearing. …”
It is clear that the determination happens through the filing of the return, which is nothing more than the filling out and filing of the tax payment form. The powers of verification “arise” after the filing of the tax return, so it cannot be argued that these powers can be exercised simultaneously. Although, therefore, the Tax Administration has audit powers, they are not powers that are activated in the act of determination when the taxpayer is required by law to do so. Once the tax is determined by the taxpayer and the tax returns have been filed, then these powers of examination are activated. Let us remember that to audit is:
tr. to carry out the tax office.
tr. to criticize and bring to trial the actions or works of someone.
It is evident, therefore, that one must first have the acts – the actions – in order to be able to criticize or judge them. It is correct what the Constitutional Court states that “… in articles 30, 30 “A”, 30 “B” and 30 “C” of the Tax Code, that it is a matter that arises during its control and audit work”, so it is clear that they cannot be exercised while the determination has not occurred. And since the law has defined in an exclusive manner that the determination is made by the taxpayer and not by the Tax Administration, it is forbidden for the latter to interfere in such act.
Articles 30, 30 “A”, 30 “B” and 30 “C” are, precisely, the rules that together with Article 100[i] of the Tax Code allow the Tax Administration to gather information to carry out its auditing and verification tasks. It is clear that the audit and verification occur after the determination of the obligation, never simultaneously or, indeed, prior to it.
Violation of Article 152 of the Political Constitution of the Republic.
This constitutional norm establishes the principle of legality in the exercise of the public function, that is, the principle that allows officials to do only what is expressly permitted by law.
The argument of the action focused on the following points, among others:
(a) “…the request for information from the taxpayer must be made through the means exclusively intended for that purpose, and must be specific, autonomous, distinct and independent from the tax return and payment form.”
b) “…the act of inspection is distorted by including it in a tax return and payment form”.
c) “the challenged provision does not facilitate compliance with the obligation of declaring and paying the Value Added Tax…”.
d) “article 98, paragraphs 2 and 3, of the Tax Code, regulates the requirement of declaration and payment, as a distinct, independent and autonomous administrative tax act, independent and autonomous from the other acts of control carried out by the Tax Administration”.
e) “according to article 3, paragraphs h) and u), of the Organic Law of the Superintendence of Tax Administration, such authority must establish and operate mechanisms and technological instruments, means, procedures and systems to facilitate compliance with tax obligations, which is not complied with by the challenged provision, since it unjustifiably hinders by requiring the mandatory delivery of information on the details of the local suppliers of the taxpayers”.
a. Arguments of the Court of Constitutionality
The Constitutional Court dismissed the arguments that founded the unconstitutionality action, stating that “… the Superintendence of Tax Administration is the entity that exercises the administration of the tax system through the application of the tax legislation, the collection, control and inspection of taxes. Among such powers are those of establishing the procedures for the payment of taxes, which are mandatory, since they serve to sustain the State so that it may comply with its purposes.
Therefore… to require in the reproached section the “detail of local suppliers (tax credit) of Table 5 and 6″, does not violate the principle of legality in the exercise of public power, since this was authorized by the tax authority in accordance with the powers that the Tax Code, the Organic Law of the Superintendence of Tax Administration and its Regulations regulate.”
They further cite that “…although, there are other methods to gather information regarding third parties or financial information held by third parties, these are applicable when the referred Superintendency acts in its control and auditing work, which is different from its initial work of purging amounts and details on the tax obligations of the taxpayers, which it carries out through the authorization, analysis and filing of the corresponding forms.”
It adds that “…taxpayers are obliged pursuant to articles 112 and 112 “A” of the Tax Code, -among other responsibilities- to provide the Tax Administration with information it may require regarding acts, contracts or other facts or business relations with third parties and to review the computer records containing information related to the realization of tax generating facts or to the recording of their accounting or tax operations.”
With which it concludes by saying: “…it can be established that the information required, what is intended is to have elements of the taxpayers to determine the taxable base for the correct determination of the tax obligation, an aspect that constitutes an attribution of the tax entity, regulated in article 98 of the Tax Code, so that limiting such requirement, would constitute restricting the powers granted by law to the Tax Administration and the obligations of the taxpayers and responsible parties.”
Once again, the grounds are based on confusion of concepts. We analyze some of the statements in detail in order to establish the confusions committed by the Constitutional Court in its reasoning.
First of all, the statement “the “detail of local suppliers (tax credit) in Table 5 and 6″, does not violate the principle of legality in the exercise of public power, since it was authorized by the tax authority in accordance with the powers that the Tax Code, the Organic Law of the Superintendence of Tax Administration and its Regulations regulate” is partially false.
The Tax Administration is authorized to prepare the forms for the declaration and payment of taxes, however, these forms cannot contain obligations different from those that the respective law establishes as elements of the determination of the tax obligation, subject that we dealt with in the previous section.
For the admission of the action of unconstitutionality against the VAT declaration and payment form, the Constitutional Court expressed in previous amparo rulings, that it was a general provision, therefore it could not be attacked by means of amparo. Therefore, it gives it the character of a legal norm, although Article 239 of the Political Constitution inhibits the norms of lower hierarchy than the law to modify the collection bases and create tax obligations outside the law. Furthermore, Article 2 of the Tax Code clearly indicates that the sources of tax law are, in hierarchical order, the Constitution, the laws and governmental agreements, and the provisions issued by the Tax Administration, much less the payment forms, cannot be considered as a source of law. Thus, the ruling lacks a correct basis for this assessment.
When stating that “…although there are other methods to gather information regarding third parties or financial information in possession of third parties, these are applicable when the referred Superintendence acts in its control and audit work, which is different from its initial work of purging amounts and details of the tax obligations of the taxpayers, which it carries out through the authorization, analysis and presentation of the corresponding forms”, we see, once again, that the Constitutional Court confuses the role of the Tax Administration in the determination of the tax obligations.
When the law, as explained above, indicates that the determination is an act that, in accordance with the law, is made by the taxpayer or the Tax Administration, it implies, by legal definition, that, being a tax determined by the taxpayer, the scope of the Tax Administration is reserved to the verification that the compliance has been correct, not to intervene in the determination itself. It would be different if, according to article 30 of the Tax Code, the Tax Administration had established that VAT taxpayers must inform, within the month following the filing of their monthly return, which are the 10 main suppliers of the declared month, since this power is expressly established.
The reference to articles 112 and 112 “A” should be analyzed by transcribing the respective paragraphs:
a) From 112, paragraph 7: “7. To provide the Tax Administration with the information it may require regarding acts, contracts or other facts or commercial relations with third parties, generating taxes, provided that the guarantee of confidentiality established in the Political Constitution of the Republic and special laws, professional secrecy, and the provisions of this Code are not violated”.
b) From 112 “A”, numeral 5: “5. Allow the Tax Administration to review the computer records containing information related to the realization of tax generating events or to the registration of its accounting and tax operations, either online, or at a certain period of time established by the Tax Administration, exclusively for purposes related to the due tax control; for such purpose, the Tax Administration shall formulate the pertinent requirement.”
112 numeral 7 is the counterpart of the procedure contained in article 30 and following. It is difficult to imagine that this obligation is intended to be outside a procedural framework, so we could not or should not read it in isolation and then apply it at different times to the exercise of verification and audit powers.
Paragraph 5 of 112 “A”, in turn, is also a rule directed to the verification and audit powers, expressly, when it says “for exclusive purposes related to the due tax audit”, so it is practically undeniable the lack of coherence in the argument when transposing an audit power to the moment of the determination of the obligation.
The last argument expressed by the Constitutional Court, expressed as follows: “… it can be established that the information required, what is intended is to have elements of the taxpayers to determine the taxable base for the correct determination of the tax obligation, an aspect that constitutes an attribution of the tax entity, regulated in article 98 of the Tax Code, therefore limiting such requirement, This would constitute a restriction of the powers granted by law to the Tax Administration and the obligations of the taxpayers and responsible parties”, not indicating which paragraphs of said article express it, we cite those that refer to inspection powers, which lead us to establish that none of these powers allow requesting information during the act of determination:
“The Tax Administration is obliged to verify the correct compliance with the tax laws. For the purposes of this Code, the Tax Administration shall be understood as the Superintendence of Tax Administration or any other agency or entity of the State to which by law are assigned the functions of administration, collection, control and inspection of taxes. In the exercise of its functions the Tax Administration shall act in accordance with the rules of this Code, those of its Organic Law, and the specific laws of each tax and those of their respective regulations, with respect to the application, examination, collection and control of taxes.
For such purposes it may:
1. require a report from any individual or legal person, whether or not registered as a taxpayer or responsible party, and if applicable, declare the taxes that according to the laws correspond to it. It will demand that they liquidate and pay the taxes, interest, surcharges and fines that may apply.
It shall also require the responsible taxpayers to provide the elements that constitute the taxable base for the correct determination of the tax obligation.
2. To require payment and collect from taxpayers and responsible parties the tax due, interest and, if applicable, surcharges and fines. The Tax Administration shall authorize the forms, as well as other means other than paper, to be used to facilitate compliance with the obligations.
Verify the content of the returns and information by the legal and technical means and procedures of analysis and investigation it deems convenient, in order to accurately establish the taxable event and the amount of the corresponding tax. For this purpose, it may require from the taxpayer and third parties any complementary information, including through computerized systems, in accordance with the provisions of Articles 30 and 93 of this Code..
13. To review the books, documents and files of taxpayers and withholding or collection agents, which are related to the determination and payment of tax obligations, including the computer system used by the taxpayer to record its accounting and tax operations. For such purposes it may require, in each case, information or documentation related to the computer equipment, including the source programs, design and programs used, as well as that related to the material instruments that allow accessing the information related to the accounting records. Likewise, it may require the production of lists and integrations and the performance of tests.”
From the rule cited in the highlighted passages it can be appreciated that the information requirement does not refer to the determination of tax obligations. The information requirement referred to in numeral 1 applies to registered and non-registered taxpayers and is consistent with the procedure of articles 30 and following. It then indicates that the taxpayer may be required to declare the taxes that correspond to it in accordance with the law. In the VAT law, as we have already indicated, the taxable base is calculated by subtracting from the total debits of the month the total tax credits. At no time is the taxable base subject to submitting a list of suppliers, but is limited to the total debits and credits.
Having said the above, what the Tax Administration must require is that the elements that constitute the taxable base are provided. The list of suppliers is not the taxable base, since it is defined in Article 19 of the VAT Law: total debits and total credits.
In numeral 2, it allows the Tax Administration to authorize the forms to be used “…to facilitate compliance with obligations…”. By adding the controversial boxes, steps are added that the law does not contemplate and that do not facilitate compliance with the obligations. This is logical if, in order to establish the taxable base, the total credits and total debits must be added up, and to obtain the list of the ten largest suppliers of the taxpayer, the list of purchase invoices must be ordered by supplier, added up by supplier and compared. It is evident, therefore, that the procedure does not make it easier to comply with the obligation, quite the contrary.
We find little legal support for the ruling of the Constitutional Court. At the same time, the reasoning put forward in the judgment is flawed with respect to the institutions cited by the Court and the moments in which each of the faculties
[ARTICLE 100. ELEMENTS OF AUDITING.
The Tax Administration shall have the power of inspection and investigation. For this purpose it shall take as a basis, among others:
1. Books, documents and files, or accounting systems of the taxpayer that are related to its economic and financial activities to establish the taxable base of the taxes and to verify the cancellation of the tax obligation. It may review the documentation and files stored on paper or magnetic, optical or other digital storage devices of the taxpayer, and request and obtain from the taxpayer all the necessary information, even by the same means, to establish the taxpayer’s true tax situation.
2. Information regarding volumes or quantities and values of the goods being imported or exported.
3. It has the power to require the taxpayer and the taxpayer is obliged to submit copies, photocopies, electronic copies or by any other means, of the documentation and files stored on paper or magnetic, optical or other digital storage devices.