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“Consequences of simulated business or tax-related actions: practical exercise”
[/vc_column_text][us_separator][vc_column_text] The simulation of businesses or acts in tax matters is regulated in article 23, numeral 1) of the Tax Code, which states that “Facts with tax or customs relevance must be determined with the same criteria, formal or material, used by the Law when defining or delimiting them; and”, has as a consequence that if the Tax Administration determines that in cases of simulated acts or businesses, the tax must be applied based on the acts or businesses actually carried out. Therefore, what would happen if, in an audit process, the Tax Administration refutes an invoice as false? How would the deducted expenses result? The Taxpayer must present as evidence to his invoiced services a precise and direct link according to the rules of human judgment between such facts, since otherwise the Treasury could verify that between the taxpayer and company X, there was an agreement to simulate the provision of services in order to deduct their amount and thus reduce the taxpayer's tax burden. In the verification process, commercial operations cannot be considered proven with simple personal statements, but must be accredited with the contribution of evidentiary means that coincidentally and without contradiction demonstrate the existence of legal transactions. Since without in the hypothetical case the taxpayer presents an invoice where his payment was made in cash, (which is not usual in the commercial industry especially when large amounts of money are involved), this will not allow knowing the final destination of the money (which is a practice used to return the money to its origin totally or partially or even to a third party that is not part of the invoiced operation), in addition; If the Treasury, in a verification process, determines, due to a request to third parties, that the money did not enter any account of company X, the Tax Authority may decide that the services invoiced by company Y to X have not been provided; therefore, the disputed invoice could be claimed as false as it reflects a non-existent transaction and, therefore, the expense would not be deductible, since there is no precise and direct link according to the rules of human judgment between such facts, which could lead to a simulation and the tax rate incurred would be applied. For comprehensive advice on the subject, you can contact the following email address: nfugon@lexincorp.com. *Legal Notice: The general information contained in this document is provided for informational purposes only, and should not be construed as legal advice on any of the topics discussed. You should not act or refrain from acting on the basis of any content included in this document without seeking legal or professional advice. We disclaim any liability for any actions you take or fail to take based on any content in this communication. [/vc_column_text][us_separator][vc_column_text]Written by: Lic. Nicole Fugon[/vc_column_text][/vc_column][/vc_row]
