I am very pleased to open this new space agreed upon with The Observer where week after week this servant and other professionals of the firm ICS Consultores, founded in 1993 and specialized in taxes and wealth structuring of family groups, will write about current issues in legal, tax, audit and risk, finance and accounting matters.
Today we begin with the treatment of an issue that has been going on in our country for several months: the request made by the Tax Administration to individuals regarding the origin of the funds in their foreign accounts.
It seems to be a kind of audit but it is not, it is rather a veiled threat that if the answers given by the persons notified -whether they are taxpayers or not- are not satisfactory for the tax authorities, an audit action could be initiated.
This is an extremely difficult issue to sustain for the following reasons.
And that has to do with the fact that our tax system only taxes income produced by capital invested in Costa Rica for goods located here or for services rendered from our territory.
Treasury's access to information
This happens because the Ministry of Finance has access to the banking information, the balances of the accounts in which Costa Ricans or residents of Costa Rica appear as beneficiaries in the following types of accounts: checking, investment, custody and insurance.
Taxation inquires, asks Costa Rican beneficiaries with accounts abroad more or less the following: explain to us the origin of those funds and explain in detail if they have any relation with activities carried out in Costa Rica.
They seek, it seems to me, to give the taxpayer the task of explaining that those funds were generated completely outside of Costa Rica. But it also asks for proof that they were declared in another country.
In view of this, the respondent should: a) demonstrate that such income has no relation with Costa Rica and b) that it was or should not have been taxed in the country where it originated.
Treasury: what it cannot do is “assume”.”
The question should be easily settled thanks to the sort of authentic interpretation that our legislators made in 2023 to article one of the Income Tax Law.
This confirms the criterion of income taxation in Costa Rica: by source, i.e. territorial.
Then the inspection bodies of the Ministry of Finance would have to prove that the funds come from Costa Rican sources and that they, subject to taxation, were “hidden” in foreign accounts.
What they cannot do is “assume” that monies in accounts of nationals or residents in foreign banks are per se, subjects in Costa Rica.
It is not only an unfounded presumption but also a way to reduce legal certainty to those who invest from here in other countries, in a transparent way and using the tax advantages of our country.
What the DGT could do is to initiate an ex officio determination process. Only after having found an indication of wealth (a bank account) and having carried out the pertinent investigation, it is determined that the foreign funds are income produced in Costa Rica and not declared here.
Therefore, I believe that the path chosen by the Treasury does not seem to be the most appropriate.
What should taxpayers do about this? I would suggest reviewing and documenting correctly the investments and bank accounts abroad, their origin and ask the bank for a history of the deposits to verify our backups.
Then, to organize correctly not only for tax purposes but also for succession and control purposes, the ownership of those financial assets abroad.
Tidy up the house, in case we get two visitors we don't want, but can't avoid: taxes and death. Dead and taxes.