Violation of the principle of advertising in the Tax Law on Legal Corporations

The Constitutional Court of Costa Rica, through vote number 2015-1241, declared the unconstitutionality of the Tax Law on Legal Corporations, due to the infraction committed by the Congress to the basic principle of Advertising, during the processing of the bill.

The breach happened when the bill was initially published, but then it was replaced with another text containing variations in basic data relating to the obligated1, the rates2 and new sanctions3, these modifications to the bill wherenever published.

In addition, the Constitutional Court stated that the principle of advertising rules with particular intensity, in the case of tax matters; because the citizens are imposed with obligations or economic burdens. 4

Edgardo Campos, author of the unconstitutionality complaint processed under file number 12-016277-0007-CO, says his decision was motivated because of the procedural defects in the legislative process of the aforesaid Law, particularly by an excess on the amendment rights of the congressman.

Law articles declared unconstitutional

The articles marked as unconstitutional are the 1st, 3rd and 5th; however, the unconstitutionality risen over the articles 2, 3 partially; 4, 6, 7 and 8 was rejected, as noted in the vote number 2015-1241.

Additionally, magistrates Armijo Sancho, Jinesta Lobo and Salazar Alvarado, said that the tax violates the principle of capacity, because of the imposition of a single fee for all Legal Corporations, regardless of their differences.

However, it is important to mention that there are some doubts about that interpretation. These are the main doubts:

• The non-compliance of the right legislative process is claimed, however, only three articles of the entire law are declared unconstitutional.

Edgardo Campos says that, when these vices were demonstrated, the integrity of the law was affected. In his presentation, Campos called ‘obscure’ the interpretation of the application of sanctions and the payment of taxes due for the current fiscal period, whose justification would lie in mere fiscal voracity and with clear complacent intention.

In this sense, Mr. José María Oreamuno, who specializes in tax matters, regarding the court ruling, states the following: If a rule is declared null because it violates the Constitution, that nullity is so radical that is to say that it never existed, that it was never mandatory, that it did not produce any legal effect. Therefore, if someone didn’t pay the tax in previous years or has not paid it yet in 2015, no authority can demand it or impose any sanction.

Oreamuno also noted that the Constitutional Chamber has the power to issue the necessary rules to prevent “serious dislocations on the security, justice or social peace“; for the case in question, the interpretation would lead to prevent the return of the amounts already canceled but it would not allow its collection to default taxpayers.

Additional considerations:

The analyzed vote indicates that its effects will apply for the 2016 fiscal period. Those implications are:

• Hacienda doesn’t have the dutyto repay the taxes that have already been
• The tax corresponding to the fiscal year 2015 as well as the unpaid periods should be paid.
• In an official statement from the Registro Nacional (National Register) dated January 29, 2015 it says that the entity will continue with the collection of the tax, referring to the periods 2012-2015, which reads as follows:

“(…) the administration will assess to request the Constitutional Chamber the clarification or addition of the mentioned vote if deemed necessary.

• According to the current state of things the Registro Nacional (National Register) will continue with the collection of the tax referred to Law 9024, corresponding to the periods 2012, 2013, 2014 and 2015.

For a major interpretative clarity, ERP Lawyers & Associates is waiting the full text of the Constitutional Chamber resolution.

1 The text all branch office of a foreign company or its representatives was added to the text.
2 The rate indicated in the published text was $300, performing the change to half a medium base salary for active societies and a fourth of a salary for inactive societies.
3 The sanctions that integrated were: the not issuing of legal status certificates and the cancellation of the inscription of documents for those who were not up with the tax.
4 Constitutional Chamber, Supreme Court. Press release “Constitutional Chamber declares unconstitutional the tax on Legal Corporations after the Asamblea Legislativa violated the principle of Advertising. San José, January 28, 2015.
5 Its literal transcription says the effects of this statement are explained to initiate from the fiscal period corresponding to the year 2016.