Tax Rules: Interpretation, Application, and Conflict
Interpretation of Tax Rules
In the interpretation of tax rules, attention is drawn to Article 12 of the GTL (General Tax Law), which provides that tax rules are interpreted in accordance with the provisions of Article 3 of the Civil Code. This article sets out the grammatical, logical, and systematic criteria, and the obligation to interpret in accordance with social reality and the meaning and purpose of the rule.
Article 12 adds that, while not defined by tax law, the terms used in its rules shall be construed in accordance with their legal, technical, or usual sense, as appropriate.
The following article refers to the interpretative provisions issued by the Administration. In relation to this issue, it notes that, within the scope of the powers of the state, the power to issue interpretative or clarifying provisions of tax laws and other regulations rests exclusively with the Minister of Finance. These interpretative or clarifying provisions will be binding on all organs of the Tax Administration and published in the relevant official gazette.
Conflict in the Application of Tax Rules
Article 15 of the LGT regulates conflict in the application of tax regulations and provides that there is a conflict when the commission of the taxable event is totally or partially prevented, or the tax base or debt is reduced, through acts or business transactions in which the following circumstances occur:
- a) They are, individually or collectively, considered manifestly contrived or unfit for achieving the intended outcome.
- b) Their use does not constitute relevant legal or business purposes other than tax savings, and the effects obtained are the same as those of the usual or proper acts or business transactions.
The existence of conflict must be assessed by a National Advisory Committee.
Application of Tax Rules
Temporary Scope of Tax Regulations: Retroactivity
This question relates to Article 10 of the LGT, whereby tax rules come into force 20 days after their complete publication in the relevant Official Gazette, unless they require otherwise. They apply indefinitely unless a defined period of validity is specified.
Unless otherwise specified, tax rules will have no retroactive effect and shall apply to taxes without a tax period accruing from their entry into force and to other taxes whose tax year starts thereafter. Thus, tax rules *may* have retroactive effect, but this must be explicitly stated.
Notwithstanding the foregoing, certain rules have retroactive effect in respect of acts which are not binding when their application is more favorable to the taxpayer. These are the rules governing the system of violations and penalties on tax and user fees.
Application of Tax Rules According to Residence and Territoriality
Article 11 of the LGT establishes that taxes will be applied according to the criteria of residence or territoriality established by law in each case. It adds that, in the absence of express provision, personal taxes are required under the criterion of residence of the taxpayer, and other taxes according to the criterion of territoriality which is best suited to the nature of the taxed object. The residence criterion addresses the permanence of the taxpayer in one place for a specified period; territoriality refers to the location of an event, act, or transaction, or the location of an asset.
If the processing of claims reveals the existence of a conflict, the result of the tax settlement, if deemed appropriate, shall follow the usual or proper act or transaction, and will result in payment, but *not* in the imposition of penalties.