TAX. Jurisprudence in Value Added Tax. Offsetting is not a Payment Method September 14, 2022
On August 12th, 2022, the jurisprudence number PC.XVI.A. J/4 A (11a.) captioned “VALUE ADDED TAX. THE ANALYSIS OF ARTICLES 1o.-B AND 5o., SECTION III, OF THE REFERRED LAW, DOES NOT ALLOW THE INTERPRETATION THAT IN REFUND APPLICATIONS REGARDING FAVORABLE BALANCE, THE OFFSETTING FIGURE APPLICABLE IN CIVIL LAW MAY BE USED AS A PAYMENT METHOD TO CREDIT SUCH TAX (APPLICABLE PROVISIONS IN TAX YEARS 2019 AND 2020)” was published.
The Plenum on Administrative Matters of the Sixteenth Circuit determined that in order to analyze the origin of a refund applications regarding a favorable balance, the offsetting figure applicable in civil law is not a payment method to credit the value added tax (VAT). It justified its criteria by pointing out that the offsetting figure applicable in the civil matters, although it is a form of extinguishing obligations that under a tax perspective can result in establishing when the obligation to pay the VAT arises, it does not confer the possibility to credit the tax because it is necessary that it is effectively paid in the proper month.
We consider that the analysis that provoked the referred jurisprudence is incorrect, since the Circuit Plenum assumed that the only form to extinguish reciprocate obligations between taxpayers and the tax authorities is by offsetting favorable balances in accordance with article 23 of the Federal Tax Code (FTC), that is, when both parties have the aptitudes of debtor and creditor. Nevertheless, the subject case set forth in article 1-B of the VAT Law exclusively refers to those taxpayers that reciprocally have the referred aptitudes and it will be consider that the considerations have been effectively paid when the creditor’s interest is satisfied through any of the forms to extinguish obligations that originated said considerations.
On the other hand, we esteem that based on a deficient interpretation of the referred Circuit Plenum, it concluded that the article 2192, section VIII of the Federal Civil Code sets forth that the offsetting figure does not proceed when the debts are related to tax obligations and, in the current case the applicable tax provisions do not authorize it expressly. However, the Circuit Plenum overlooked that the article 1-B of the VAT Law does not refer to those debts that the taxpayers owe to the tax authorities but rather to those debts that a taxpayer has upon another taxpayer, additionally resulting that article 5, section III of the VAT Law does not precise that the transferred tax has to be effectively paid in cash, in goods or services.
It should be noted that the jurisprudence only compels those Courts located in the Sixteenth Circuit (i.e. state of Guanajuato) but may eventually be used in order to deny the credit of VAT credit and reject the refund of favorable balances when considered that the considerations were effectively paid through offsetting.
A review and analysis of those cases in which the due considerations were extinguished through the offsetting figure, including VAT, is required in order to identify risks or contingencies that may result from the jurisprudence’s text.
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Mexico City, September 14, 2022