TAX COMPLIANCE. Tax Risks, its impact and approach April 6, 2021
Ever since the second semester of 2020 the tax authorities have considerably increased the carry out of tax audits in order to verify the fulfillment of the tax obligations that the legal entities are compelled to, as well as to verify the origin of the tax refund applications regarding favorable balances, especially those concerning to the value added tax, situation that frequently reveals the “Tax Risks” that arise from the daily operations and activities of the taxpayers.
The Tax Risks consist in the possibility that a tax contingencies may be produced, or the loss to the tax authorities’ interest, which include among others, the following: (i) the self-determination of contributions with errors, either differences or anomalies; (ii) the incorrect observance and application of the tax provisions; (iii) the submission of notices, informative returns, monthly returns, provisional payments and/or annual returns that contain inconsistencies; (iv) the total or partial lack of information and documentation of the operations and activities, or information and documentation that is irrelevant; (v) the lack of link or not cross-matching of the information and documentation with the accounting records; and, (vi) the fulfillment after the deadline of the tax obligations or the omission of complying with such obligations resulting from a lack of knowledge, scarce comprehension or expertise.
The most common types of Tax Risks are: (i) Procedure Risks, which are those that may be generated resulting from the improper management and control of the tax obligations; and (ii) Interpretation Risks, which are those that derive from the interpretation of a law, regulations provision, etc., that may not be consistent with the interpretation of the tax authorities, the Federal Courts or even the Taxpayer Ombudsman.
Consequently, in the event that a Tax Risk is produced its consequences will occur, such as, the commission of one or several infractions, the determination of tax assessments and even the commission of the crimes set forth in the Federal Tax Code.
The omissions, inconsistencies, errors and/or irregularities that provoke the non-compliance of the tax obligations are highly sensitive, therefore, it is essential that the legal entities impose themselves upon the Tax Risks and address them by implementing a Compliance Program in Tax matters (Tax Compliance) that identify, evaluate, manage, control and mitigate them, situation that would result in the adequate understanding of the companies’ environment and would nurture their decision making.
Furthermore, when the tax authorities continue to carry out tax audits on a large scale, sometimes sharply, denoting a clear purpose of coercing taxpayers for merely collection purposes.
It is essential that every legal entity implements within its organization an adequate and effective Tax Compliance Program that seeks and manages to mitigate the different Tax Risks to which it is exposed daily, which, in addition, would add value, enrich its corporate governance, and would enhance its reputation.
If you have any questions regarding the foregoing, please do not hesitate to contact us.
Mexico City, April 6, 2021