ISR Desk Audit, for Materiality of Operations |
Tax Defense Success Story.
ISR Desk Audit, for Materiality of Operations |
Tax Defense Success Story.
Synthesis.
The purpose of the Desk Audit procedure was to verify the due compliance with the tax and customs obligations in charge of our client, with special emphasis on those related to Income Tax.
In this context, the legal defense service provided by our firm ST STRATEGO included the attention and follow-up of the Desk Audit procedure, as well as the intervention in the different instances and procedural stages derived from it, such as the Appeal for Revocation before the tax authority itself, the contentious administrative trial before the Federal Court of Administrative Justice and intervention before Collegiate Circuit Courts on the occasion of the Appeal for Tax Review.
Background.
The Decentralized Administration of Tax Audit, through an official letter addressed to our client, requested various information and documentation related to the fulfillment of its tax obligations corresponding to the fiscal year 2017, thus initiating the Cabinet Review procedure.
In the request for information and documentation referred to, the authority requested, among others, the following:
1
Legible copy of the normal and supplementary annual returns.
2
Legible copy of contracts of any kind made or that were in force during the fiscal year subject to review, made with national or foreign individuals or legal entities.
3
Monthly analytical list of income effectively collected during the period subject to review.
As well as the content of the following:
- Consecutive number of payroll CFDI’s; date, amount, bank account number and institution corresponding to the deposit of the collection made; original bank account statements issued by the banking institution (not internet printouts); monthly analytical assistant of banks and bank reconciliations, working paper of bank transfers, where the date of the same and the number of the account of origin and the account where it is deposited will be indicated.
- As well as the indication of the fractions provided for in Article 94, first paragraph, of the Income Tax Law, in which he located his tax situation to consider certain income as assimilated to salaries and the corresponding documentary support.
In response to the requirement made to our client, the requested information and documentation was presented to the authority, however, the following additional information was again requested:
- To clarify in detail and in detail, providing the corresponding documentary support, the origin of the bank deposits made in the accounts opened in the name of our client in three banking institutions ***, ***, and ***, for the fiscal year subject to review, detailing and specifying the origin of each of the deposits in question.
- The list of deposits in bank account number **, in national currency, of the Bank ***.
- The list of deposits in bank account number **, in US dollars, of the Bank ***.
- The list of deposits in bank account number **, in national currency, of the Bank ***.
In order to meet the additional requirement, all the information and documentation requested was submitted to the tax authority, and once the stages of the Desk Audit procedure had been completed, the tax authority issued the official observations, through which it indicated that during the fiscal year subject to review our client had declared cumulative income for the concept of assimilated to salaries for a total amount of $5,797,118.00, however, the authority determined that, in its consideration, the amount of $4,607,450.00 (four million six hundred seven thousand four hundred fifty pesos 00/100 M.N.), did not correspond to income that could be considered as assimilated to salaries.
The foregoing, under the argument that our client had not accredited the materiality of the operations, since he considered that sufficient documentation had not been provided to demonstrate the effective provision of the services for which our client received the amount of $4,607,450.00.
The authority maintained that our client did not exhibit or provide the contract with his employer, nor documentary evidence that would prove the way in which he demonstrated having the professional and technical knowledge and experience to carry out the services provided, such as diplomas, courses, letters of recommendation, recognitions, success stories, contracts previously entered into for the provision of similar services or work projects carried out during his professional career.
In this sense, considering that the materiality of the operations was not accredited, the tax authority determined to observe as other income the amount of $4,607,450.00, corresponding to the operations declared by our client during the fiscal year subject to review, under the concept of income assimilated to salaries received from three companies ***, ****, and ****. This is based on section III of article 59, first and second paragraphs, of the Federal Tax Code.
As a result of the foregoing and within the established legal period, ST STRATEGO, on behalf of our client, submitted to the tax authority a written statement of Evidence and Pleadings in response to the official notice of observations through which information and documentation were provided with the purpose of disproving the alleged irregularities pointed out by the authority, in particular various documentary supports were exhibited, including contracts and other documentation related to the operations observed, as well as elements tending to prove the materiality of the same and the capacity, experience and knowledge that our client has for the provision of the professional services effectively provided.
Notwithstanding the foregoing, without duly valuing the information and documentation exhibited, the tax authority illegally determined, at the expense of our client, a tax credit in the amount of $4,726,983.64 (Four million seven hundred twenty-six thousand nine hundred and eighty-three pesos 64/100 M.N.), for omitted contributions, updates, surcharges and fines.
Synthesis.
The purpose of the Desk Audit procedure was to verify the due compliance with the tax and customs obligations in charge of our client, with special emphasis on those related to Income Tax.
In this context, the legal defense service provided by our firm ST STRATEGO included the attention and follow-up of the Desk Audit procedure, as well as the intervention in the different instances and procedural stages derived from it, such as the Appeal for Revocation before the tax authority itself, the contentious administrative trial before the Federal Court of Administrative Justice and intervention before Collegiate Circuit Courts on the occasion of the Appeal for Tax Review.
Background.
The Decentralized Administration of Tax Audit, through an official letter addressed to our client, requested various information and documentation related to the fulfillment of its tax obligations corresponding to the fiscal year 2017, thus initiating the Cabinet Review procedure.
In the request for information and documentation referred to, the authority requested, among others, the following:
1
Legible copy of the normal and supplementary annual returns.
2
Legible copy of contracts of any kind made or that were in force during the fiscal year subject to review, made with national or foreign individuals or legal entities.
3
Monthly analytical list of income effectively collected during the period subject to review.
As well as the content of the following:
- Consecutive number of payroll CFDI’s; date, amount, bank account number and institution corresponding to the deposit of the collection made; original bank account statements issued by the banking institution (not internet printouts); monthly analytical assistant of banks and bank reconciliations, working paper of bank transfers, where the date of the same and the number of the account of origin and the account where it is deposited will be indicated.
- As well as the indication of the fractions provided for in Article 94, first paragraph, of the Income Tax Law, in which he located his tax situation to consider certain income as assimilated to salaries and the corresponding documentary support.
In response to the requirement made to our client, the requested information and documentation was presented to the authority, however, the following additional information was again requested:
- To clarify in detail and in detail, providing the corresponding documentary support, the origin of the bank deposits made in the accounts opened in the name of our client in three banking institutions ***, ***, and ***, for the fiscal year subject to review, detailing and specifying the origin of each of the deposits in question.
- The list of deposits in bank account number **, in national currency, of the Bank ***.
- The list of deposits in bank account number **, in US dollars, of the Bank ***.
- The list of deposits in bank account number **, in national currency, of the Bank ***.
In order to meet the additional requirement, all the information and documentation requested was submitted to the tax authority, and once the stages of the Desk Audit procedure had been completed, the tax authority issued the official observations, through which it indicated that during the fiscal year subject to review our client had declared cumulative income for the concept of assimilated to salaries for a total amount of $5,797,118.00, however, the authority determined that, in its consideration, the amount of $4,607,450.00 (four million six hundred seven thousand four hundred fifty pesos 00/100 M.N.), did not correspond to income that could be considered as assimilated to salaries.
The foregoing, under the argument that our client had not accredited the materiality of the operations, since he considered that sufficient documentation had not been provided to demonstrate the effective provision of the services for which our client received the amount of $4,607,450.00.
The authority maintained that our client did not exhibit or provide the contract with his employer, nor documentary evidence that would prove the way in which he demonstrated having the professional and technical knowledge and experience to carry out the services provided, such as diplomas, courses, letters of recommendation, recognitions, success stories, contracts previously entered into for the provision of similar services or work projects carried out during his professional career.
In this sense, considering that the materiality of the operations was not accredited, the tax authority determined to observe as other income the amount of $4,607,450.00, corresponding to the operations declared by our client during the fiscal year subject to review, under the concept of income assimilated to salaries received from three companies ***, ****, and ****. This is based on section III of article 59, first and second paragraphs, of the Federal Tax Code.
As a result of the foregoing and within the established legal period, ST STRATEGO, on behalf of our client, submitted to the tax authority a written statement of Evidence and Pleadings in response to the official notice of observations through which information and documentation were provided with the purpose of disproving the alleged irregularities pointed out by the authority, in particular various documentary supports were exhibited, including contracts and other documentation related to the operations observed, as well as elements tending to prove the materiality of the same and the capacity, experience and knowledge that our client has for the provision of the professional services effectively provided.
Notwithstanding the foregoing, without duly valuing the information and documentation exhibited, the tax authority illegally determined, at the expense of our client, a tax credit in the amount of $4,726,983.64 (Four million seven hundred twenty-six thousand nine hundred and eighty-three pesos 64/100 M.N.), for omitted contributions, updates, surcharges and fines.
Our Approach
Dissatisfied with the above, ST STRATEGO implemented various legal defense strategies, aimed at demonstrating the illegality of the determining resolution, consisting of the following:
APPEAL FOR REVOCATION.
An Appeal for Revocation was filed with the tax authority itself, through which various grievances were asserted aimed at demonstrating the illegality of the determining resolution and obtaining its total revocation.
Among the main arguments raised, it was argued that the tax authority had improperly determined the presumption of income provided for in Article 59, section III, of the Federal Tax Code, under the argument that our client had not proven to have the necessary professional knowledge to provide the services to the three companies indicated by the authority, in this regard it was argued that such conclusion was illegal, since the documentation provided during the audit procedure was sufficient to accredit the knowledge and professional experience of our client, which were suitable and sufficient for the provision of the professional services contracted by the companies involved.
Likewise, the illegality of the resolution was asserted, under the argument that the tax authority had lost sight of the nature and regime of the income subject to review, since the Cabinet Review was aimed at verifying the income obtained by our client under the regime of assimilated to salaries, so it was not obliged to safeguard the accounting of the operations carried out for salaries and wages, since said regime is exempt from keeping accounts, therefore, the presumption of income in terms of article 59 section III of the Federal Tax Code was not applicable.
In addition, it was asserted that our client was within the exception case provided for in the fourth paragraph of section III of article 59 of the Federal Tax Code, since, prior to the beginning of the verification powers, the bank deposits subject to observation had been duly reported to the Tax Administration Service through the corresponding annual return.
Notwithstanding the foregoing, the tax authority issued its resolution in the appeal for revocation, by which it confirmed the legality of the tax credit determined to be payable by our client, in the amount of $4,726,983.64 (Four million seven hundred twenty-six thousand nine hundred and eighty-three pesos 64/100 M.N.), for omitted contributions, updates, surcharges and fines.
CONTENTIOUS ADMINISTRATIVE TRIAL (NULLITY TRIAL)
Dissatisfied with the result obtained in the appeal for revocation, a Contentious Administrative Trial was filed before the Federal Court of Administrative Justice, through which both the determining resolution of the tax credit and the resolution obtained in the appeal for revocation were challenged, through which the authority improperly confirmed the tax credit and additionally sought to perfect and improve the grounds and motivation of the determining resolution.
Following the corresponding procedural stages, the Chamber of the Federal Court of Administrative Justice issued a judgment in which it declared the concepts of challenge raised to be well-founded, and resolved that the documents provided by our client, if they sufficiently accredited his professional capacity, knowledge and experience to carry out the provision of the services contracted by the companies indicated by the tax authority, and recognized that said amounts derived from income taxed under the regime of assimilated to salaries, so that the presumption provided for in Article 59, section III, of the Federal Tax Code, which had been used by the authority to determine the tax credit, was not updated.
As a result of the foregoing, the Federal Court of Administrative Justice declared the nullity of the contested resolution and of which it was its subject, and ordered the defendant authority to return the amount of $4,726,983.64 (Four million seven hundred and twenty-six thousand nine hundred and eighty-three pesos 64/100 M.N.) paid by our client, together with the respective updates and interest, in terms of articles 17-A and 22-A of the Tax Code.
“…
…
…
…”
APPEAL FOR TAX REVIEW.
As a result of the favorable result obtained by ST STRATEGO for the benefit of our client in the Contentious Administrative Trial, the responsible authority filed an Appeal for Tax Review before Collegiate Circuit Courts, which is why our firm continued with the legal representation of our client in that instance, with the aim of safeguarding the favorable judgment obtained, so within the corresponding legal period, an Appeal for Adhesive Review was filed, through which the necessary arguments were formulated to sustain the legality of the favorable judgment and to dispute the approaches formulated by the defendant authority.
Following the procedures of the law, the Collegiate Circuit Court decided to dismiss the Appeal for Tax Review promoted by the authority, it should be noted:
“…
…”
Subsequently, the Federal Court of Administrative Justice informed our client of the dismissal of said appeal and reported that the judgment issued by that jurisdictional body had become FINAL, so it ordered the responsible authority to comply with the judgment on the merits, with a warning of the law.
Our Approach
Dissatisfied with the above, ST STRATEGO implemented various legal defense strategies, aimed at demonstrating the illegality of the determining resolution, consisting of the following:
APPEAL FOR REVOCATION.
An Appeal for Revocation was filed with the tax authority itself, through which various grievances were asserted aimed at demonstrating the illegality of the determining resolution and obtaining its total revocation.
Among the main arguments raised, it was argued that the tax authority had improperly determined the presumption of income provided for in Article 59, section III, of the Federal Tax Code, under the argument that our client had not proven to have the necessary professional knowledge to provide the services to the three companies indicated by the authority, in this regard it was argued that such conclusion was illegal, since the documentation provided during the audit procedure was sufficient to accredit the knowledge and professional experience of our client, which were suitable and sufficient for the provision of the professional services contracted by the companies involved.
Likewise, the illegality of the resolution was asserted, under the argument that the tax authority had lost sight of the nature and regime of the income subject to review, since the Cabinet Review was aimed at verifying the income obtained by our client under the regime of assimilated to salaries, so it was not obliged to safeguard the accounting of the operations carried out for salaries and wages, since said regime is exempt from keeping accounts, therefore, the presumption of income in terms of article 59 section III of the Federal Tax Code was not applicable.
In addition, it was asserted that our client was within the exception case provided for in the fourth paragraph of section III of article 59 of the Federal Tax Code, since, prior to the beginning of the verification powers, the bank deposits subject to observation had been duly reported to the Tax Administration Service through the corresponding annual return.
Notwithstanding the foregoing, the tax authority issued its resolution in the appeal for revocation, by which it confirmed the legality of the tax credit determined to be payable by our client, in the amount of $4,726,983.64 (Four million seven hundred twenty-six thousand nine hundred and eighty-three pesos 64/100 M.N.), for omitted contributions, updates, surcharges and fines.
CONTENTIOUS ADMINISTRATIVE TRIAL (NULLITY TRIAL)
Dissatisfied with the result obtained in the appeal for revocation, a Contentious Administrative Trial was filed before the Federal Court of Administrative Justice, through which both the determining resolution of the tax credit and the resolution obtained in the appeal for revocation were challenged, through which the authority improperly confirmed the tax credit and additionally sought to perfect and improve the grounds and motivation of the determining resolution.
Following the corresponding procedural stages, the Chamber of the Federal Court of Administrative Justice issued a judgment in which it declared the concepts of challenge raised to be well-founded, and resolved that the documents provided by our client, if they sufficiently accredited his professional capacity, knowledge and experience to carry out the provision of the services contracted by the companies indicated by the tax authority, and recognized that said amounts derived from income taxed under the regime of assimilated to salaries, so that the presumption provided for in Article 59, section III, of the Federal Tax Code, which had been used by the authority to determine the tax credit, was not updated.
As a result of the foregoing, the Federal Court of Administrative Justice declared the nullity of the contested resolution and of which it was its subject, and ordered the defendant authority to return the amount of $4,726,983.64 (Four million seven hundred and twenty-six thousand nine hundred and eighty-three pesos 64/100 M.N.) paid by our client, together with the respective updates and interest, in terms of articles 17-A and 22-A of the Tax Code.
“…
…
…
…”
APPEAL FOR TAX REVIEW.
As a result of the favorable result obtained by ST STRATEGO for the benefit of our client in the Contentious Administrative Trial, the responsible authority filed an Appeal for Tax Review before Collegiate Circuit Courts, which is why our firm continued with the legal representation of our client in that instance, with the aim of safeguarding the favorable judgment obtained, so within the corresponding legal period, an Appeal for Adhesive Review was filed, through which the necessary arguments were formulated to sustain the legality of the favorable judgment and to dispute the approaches formulated by the defendant authority.
Following the procedures of the law, the Collegiate Circuit Court decided to dismiss the Appeal for Tax Review promoted by the authority, it should be noted:
“…
…”
Subsequently, the Federal Court of Administrative Justice informed our client of the dismissal of said appeal and reported that the judgment issued by that jurisdictional body had become FINAL, so it ordered the responsible authority to comply with the judgment on the merits, with a warning of the law.
Conclusion
1.
As a result of all the actions and efforts implemented by ST STRATEGO on behalf of our client, it was possible to obtain a final favorable resolution and as a consequence, that the authority made the refund of the amount of $4,726,983.64 (Four Million Seven Hundred Twenty-Six Thousand Nine Hundred Eighty-Three Pesos 64/100 M.N.), previously informed by our client due to the tax credit that had been determined.
Likewise, the refund was made with the corresponding updates and interest, in accordance with the provisions of Articles 17-A and 22-A of the Federal Tax Code, with which the restitution of the amounts unduly paid by our client was obtained.
Conclusion
1
As a result of all the actions and efforts implemented by ST STRATEGO on behalf of our client, it was possible to obtain a final favorable resolution and as a consequence, that the authority made the refund of the amount of $4,726,983.64 (Four Million Seven Hundred Twenty-Six Thousand Nine Hundred Eighty-Three Pesos 64/100 M.N.), previously informed by our client due to the tax credit that had been determined.
Likewise, the refund was made with the corresponding updates and interest, in accordance with the provisions of Articles 17-A and 22-A of the Federal Tax Code, with which the restitution of the amounts unduly paid by our client was obtained.
ST STRATEGO | Tax and Customs Legal Defense
ST STRATEGO provides specialized Legal Defense services in Tax, Customs and Foreign Trade matters, providing legal support from the beginning of the authorities’ powers of verification to the different administrative and jurisdictional instances necessary for the protection of the interests of its clients.
The firm’s practice includes the attention of Cabinet Reviews, Home Visits, Electronic Reviews and other audit procedures, as well as the defense against tax credits through administrative appeals, contentious administrative trials, amparo trials and other appropriate means of defense, through strategies designed according to the particularities of each matter.
With more than 20 years of experience in tax, customs and foreign trade matters, ST STRATEGO integrates professionals with experience in both the public and private sectors, which allows each procedure to be approached from a legal, technical and strategic perspective.
Likewise, the firm operates under processes certified in accordance with ISO 9001, strengthening the standards of quality, control, monitoring and continuous improvement applied in the provision of its services.
The present case demonstrates the relevance of a comprehensive and sustained defense strategy during all stages of the procedure. The intervention of ST STRATEGO made it possible to dispute a tax credit, obtain the outright nullity of the resolution, preserve the favorable result before the instance promoted by the authority and, finally, achieve the return of the amount paid, including the corresponding updates and interest.
ST STRATEGO develops defense strategies aimed at providing legal certainty and protecting the assets and operations of its clients against acts of the tax and customs authorities.
ST STRATEGO | Tax and Customs Legal Defense
ST STRATEGO provides specialized Legal Defense services in Tax, Customs and Foreign Trade matters, providing legal support from the beginning of the authorities’ powers of verification to the different administrative and jurisdictional instances necessary for the protection of the interests of its clients.
The firm’s practice includes the attention of Cabinet Reviews, Home Visits, Electronic Reviews and other audit procedures, as well as the defense against tax credits through administrative appeals, contentious administrative trials, amparo trials and other appropriate means of defense, through strategies designed according to the particularities of each matter.
With more than 20 years of experience in tax, customs and foreign trade matters, ST STRATEGO integrates professionals with experience in both the public and private sectors, which allows each procedure to be approached from a legal, technical and strategic perspective.
Likewise, the firm operates under processes certified in accordance with ISO 9001, strengthening the standards of quality, control, monitoring and continuous improvement applied in the provision of its services.
The present case demonstrates the relevance of a comprehensive and sustained defense strategy during all stages of the procedure. The intervention of ST STRATEGO made it possible to dispute a tax credit, obtain the outright nullity of the resolution, preserve the favorable result before the instance promoted by the authority and, finally, achieve the return of the amount paid, including the corresponding updates and interest.
ST STRATEGO develops defense strategies aimed at providing legal certainty and protecting the assets and operations of its clients against acts of the tax and customs authorities.