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Gastón Lapaz

Guyer & Regules, Montevideo

glapaz@guyer.com.uy

 

Even if there are very few judgments in 2020 in Uruguay due to the impact of Covid-19, the outcome of last year’s tax case law is worth remembering, both in the ordinary judicial sphere as well as under the framework of the sole Administrative Litigation Court (hereafter, ‘the Court’) operating in the Uruguayan system, in cases where contributors litigate against the Uruguayan tax authority (‘the Tax Authority’).

We will review five milestone cases, covering transfer prices to tax fraud crime (in Uruguay, a precedent for money-laundering crime). Each case relates to income tax – business, personal and non-resident; namely, Business Activities Income Tax, Individual Income Tax and Non-Residents Income Tax.

Transfer prices scheme scope

In the case of Philips Uruguay S.A. v the State Tax Authority,[1] the transfer prices system in Uruguayan law is analysed for the first time, with important precedents. The Court studied applicable methods and considered that those enforced by the Tax Authority were inappropriate, and, as a result, this part of the Tax authority decision was annulled.

However, the Tax Authority’s criteria that an operation between a company contributing Business Activities Income Tax and a business unit (and, therefore, further contributing such tax) shall be governed under transfer prices regulations was shared.

Individual’s tax residence; construction of the expression ‘occasional absences’

The Martin Gual[2]case was the first case whereby one of the tax residence criteria, ‘by days’, was explored. The Court validated the construction of the Tax Authority’s occasional absences provision. Indeed, absences must be ‘less than effective’ presences in order to use the 30-day counting scheme, for the purposes of reaching the 183 total days required by the regulations.

In this case, a Spanish citizen accrued 273 days, but fewer than 100 effective presences, with a greater amount of 30-day occasional absences. The request for tax residence was first denied by the Tax Authority and subsequently confirmed by the Court.

Income nature of land transport services intermediation

The Court annulled Decree No 47/2017 (for the period of effectiveness thereof, as it was later repealed) with regards to the challenge filed by Uber,[3]setting forth a taxable amount for Non-Residents Income Tax within the framework of activity carried out in the country by non-resident entities intervening, directly or not, in the supply or demand of passengers’ land transport services in a domestic territory, by any means, under the Non-Residents Income Tax legal provisions existing at the time. The Court found it difficult to accept that there was Uruguayan-source income, as both capital and labour were located in the Netherlands. However, even upon recognising that such income was of Uruguayan source, the Executive Branch could not determine the amount of the tax as it had effectively been done under such provision.

Tax fraud: shell companies and the sale of apocryphal invoices

The prosecution of Roberto Melgarejo and others[4]was the first judgment under which imprisonment was imposed under tax fraud crimes on individuals in charge of or incorporating shell companies and selling apocryphal invoices, in what was considered the greatest tax authority fraud ever. Almost two thousand companies were found liable and the product of resettlements and fraud fines deemed to amount to approximately $200m. This judgment is very interesting from an evidentiary point of view, identifying as it does:

• the names of non-existent companies;
• that corporation incorporation procedure was never completed; 
• the repetition of founders’ names;
• invoices not issued in chronologically consequential order; and
• invoices of several companies printed with the same corporate name. The owners of professional firms, intermediaries in invoice selling and managers were respectively condemned as authors, co-authors and accomplices.

Tax Authority’s liability for loss of supervised businesses

The State is condemned to pay almost $500,000 by reason of lost opportunities and consequential damages for the Tax Authority’s unlawful acts, as determined by the Court in the case of Carlos Capoano and others v the State Tax Authority.[5] By means of inspections, injunctions and the like (subsequently declared inappropriate under the law) the fact that the Tax Authority had an impact on the plaintiff’s loss of business was evidenced.

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