Distribuidora Salvadorena de Petroleo S.A. DE C.V. (DSP), is active in “the wholesale and retail marketing of oil, derivatives, gas, lubricants, additives and energy in general.
Following an audit the tax authorities issued an assessment regarding sale of oil. According to the authorities the prices determined by DSP for oil sold to a related party – Nejapa Power Company L.L.C. – had not been at arm’s length.
An appeal was filed by the DSP.
Judgment of the Supreme Court
The court set aside the assessment and decided in favour of DSP.
“The method of estimated, indexed or presumptive base is constructed through the use of indications, its application becomes indispensable when the Tax Administration does not have the direct means to provide it with certain data, the failure to file returns or those filed by the taxpayers do not allow the knowledge of the data necessary for the complete estimation of the taxable bases or income, or when the taxpayers themselves offer resistance, excuses or refusals in the face of the audit action ordered against them, or substantially fail to comply with their accounting obligations, or when the background information provided lacks probative value. etc. In the above cases, although not the only ones, the Tax Administration is empowered to proceed to determine the tax on the basis of an estimated or indicative basis known as “presumptive basis”, using for this purpose the verification of indications, otherwise the Treasury would be circumvented by tax evaders.
The important thing is that in the application of this method, the tax office must gather a series of facts or circumstances in which their normal link or connection with those foreseen by the Law as the material budget of the tax, allow it to infer in the investigated case the existence and amount of the obligation. The purpose of the Law is to establish the real value of the transaction, at no time to establish non-existent income, therefore, by attempting to create non-existent income by applying a legal provision referring to market prices, which constitute an element of the index base, it creates an inaccuracy, since it is not in line with reality. Hence, the actions of the Directorate General of Internal Taxes are unlawful, since it unjustifiably applied the method of the estimated, indexed or presumed base for the unofficial tax assessment made on the plaintiff company, which according to the parameters established by the tax legislation was not the corresponding one.”
“In accordance with the foregoing considerations, this Chamber concludes that the actions of the Directorate General of Internal Taxes are illegal, having used both the mixed base and the estimated, indexed or presumed base for the liquidation of the Income Tax of the company”.
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