The Legal Theft of Tax Credit in Guatemala

I know the title sounds strong; however, it is true. Amendments to the law in Guatemala have caused the legislative branch to steal our tax credit, resulting in obvious violations of the principle of neutrality, which we have previously discussed.

This is how the law originally stated, in Article 22:

Article 22. Tax Credit Refund.

The taxpayer with a remaining tax credit at the end of two consecutive tax periods may:

    • Request, with prior authorization from the Tax Administration, that the accumulated remainder for those periods is offset against any type of tax owed, including tax withholdings, interest, fines, and surcharges, collected by the Tax Administration.
    • Request the Tax Administration to refund the remainder, provided that on that date, they do not owe any sums for the deferred taxes, interest, fines, and surcharges.
    • Request the issuance of one or more tax vouchers applicable to the payment of any taxes or customs duties, provided that on that date, the taxpayer does not owe any sums for the deferred taxes, interest, fines, and surcharges. These tax vouchers will be issued by the Tax Administration to the bearer and will be negotiable.

Undoubtedly, completely consistent with the principle of neutrality, the wording of the norm allowed for the refund of the current tax credit.

In 1994, two years later, the article was amended as follows:

“Article 22. – Tax Credit Balance. The taxpayer’s tax credit balance resulting monthly from the declaration submitted to the Tax Administration must be carried over to the following tax period until exhausted through the offsetting of tax debts, and therefore, tax credit refunds will not be applicable. The exceptions are those cases referred to in Article 23 of this law.”

Here, it is established as offsettable ad infinitum, but the refund is eliminated.

In 2006, a new reform was introduced:

“Article 22. Tax Credit Balance. The taxpayer’s tax credit balance resulting monthly from the declaration submitted to the Tax Administration can be carried over to successive tax periods until exhausted through the offsetting of tax debts, and therefore, tax credit refunds will not be applicable. The exceptions are those cases referred to in Article 23 of this law.”

The justification for both reforms is found in the “considerations” of the amending decrees.

The 1994 reform used the following justification: “Considering that to achieve better collection and administration of the Value Added Tax, it is indispensable to avoid erosions to the tax base, caused, among other aspects, by the undue use of the voucher and tax credit. Therefore, it is necessary to introduce amendments to Decree No. 27-92 of the Congress of the Republic, to effectively collect the tax, correctly apply the tax credit, and readjust the regime of exemptions,” and thus, the decree was authorized.

The 2006 one is justified by saying: “Considering that it is imperative to issue legal norms that allow the State of Guatemala to have the necessary tax resources to address the social problems that limit the integral development of the country, reducing poverty rates, incentivizing, for this purpose, the generation of jobs and productive activities.”

While the justifications are for fiscal interests, we must remember that constitutional limits -constitutional principles regarding tax matters- exist to guarantee a legal framework so that the State cannot exceed those limits to the detriment of the citizen.

With the mentioned reforms, the Guatemalan government exceeds constitutional limits since it violates the principle of neutrality, a manifestation of tax capacity and justice.

In a subsequent article, we will discuss the reforms to the tax credit refund regime, along the same lines.