The Political-Administrative Chamber of the Supreme Court of Justice recently issued an important decision regarding tax extenuating circumstances and late payment interest.[1]  The decision rejected the appeal filed by the Republic and, as a consequence, confirmed decision No. 007/2016 of the Seventh Superior Tax Court.  Decision No. 007/2016 admitted the judicial tax appeal filed by Productos Quaker, C.A ("Quaker") against a resolution of the National Integrated Service of Customs and Tax Administration ("Service") that determined deficiency income tax and late payment interests because Quaker lately paid certain income tax withholdings of May 1998.
In summary, Quaker was victim of a fraud when it ordered the payment of the income tax withholdings.  Quaker ordered a cashier´s check payable to the National Treasury to pay the income tax withholdings and sent it to the bank (authorized to collect public funds) with the tax forms.  Quaker received back the tax forms stamped and validated by the bank, but the National Treasury never received the funds.  In a subsequent internal review, Quaker identified the omission, and paid the income tax withholdings in a bank authorized to collect public funds.  It also requested the initiation of a criminal investigation of fraud before a Criminal Court.  Then, the Service issued a tax deficiency assessment to Quaker, determined fines and liquidated late payment interest. In the administrative process, Quaker alleged and demonstrated the fraud as force majeure (excusable error of fact, which is an extenuating circumstance under the Organic Tax Code).  The Service admitted the force majeure argument and revoked the fines, but liquidated late payment interest.  The Service, according to the Organic Tax Code, imputed the payment made by Quaker to a portion of the late payment interest, so the company remained owing a portion of the late payment interest and income tax withholdings.
The decision has two main aspects: 

  1. Force majeure (for example, excusable error of fact or law) is a tax extenuating circumstance that eliminates the culpability of the debtor (e.g., taxpayer or withholding agent).  In that case, the late payment of the income tax withholdings is not subject to late payment interest because the delay requires culpability.  The decision confirmed this position stating that:  "If the force majeure releases the debtor from fines (in this case, for late payment of tax withholdings), it would also exempt it from paying the late payment interest derived from the failure to timely pay, since the sole existence of  said event would prevent the culpability, in the specific case."  The decision concluded that the late payment interest did not apply to Quaker because the fraud caused the delay.
  2. The decision concluded that the payment allocation rules used by the Service did not apply to Quaker.  


[1] Decision No. 0133 of March 20, 2019, Productos Quaker, C.A. v. Republic.


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