Impact due to the Elimination of the Universal Compensation
As part of the fiscal changes applicable for the year 2019 in accordance with the Federal Income Law, there is the ELIMINATION TO UNIVERSAL COMPENSATION, where it is established that you can only choose to balance out the amounts that you have in your favor, against those you are compelled to pay due to self debts, as long as both derive from the same tax, including their related charges.
To illustrate the above, let’s think of a taxpayer who obtains a balance in favor of the Value Added Tax (VAT) and who in the same period has a payable balance in the Income Tax. Instead of requesting the return of the VAT balance in favor and pay the Income Tax, it files the VAT declaration reflecting the balance in favor and later compensates that balance against the charge Income Tax, which avoids unnecessary flows of cash, and allows to allocate said resources for the taxpayer’s own expenses for the development of its activity, such as payments to his suppliers, the purchase of goods or services, the payment of salaries, among others.
As a second example, there is this taxpayer who generated balances in favor in the Income Tax, for having made in the previous financial year, additional provisional payments to the year’s Income Tax, so it could choose to offset those balances in favor in the Income Tax, against the provisional Income Tax payments of the current year, offset against VAT payments or withholding of Income Tax by salaries.
In both examples, the taxpayers for the mechanics of taxation of the Income Tax and VAT generated these balances in favor, which before the amendment of the Federal Income Law could be applied the legal concept of universal compensation. However, with these modifications it is foreseen that taxpayers who are compelled to pay by a tax declaration, will only be able to choose to balance out the amounts they have in their favor against those they are compelled to pay due to self-debt, provided that both derive from the same tax, filing the corresponding compensation notices. However, in accordance with rule 2.3.19 that indicates that the amounts in its favor generated as of December 31, 2018, may choose to compensate them against those who are compelled to pay due to their own debt, as long as they steam from federal taxes different from those caused by import; are managed by the authority and have no specific destination, including its related charges.
Bellow, it is explained graphically how the universal compensation for balances in favor generated in 2019 and until December 31, 2018 will apply.
| COMPENSATION OF AMOUNTS IN FAVOUR MADE AS OF 2019 | |||||||
| 2019 POSITIVE BALANCE | ISR PROPIO | IVA PROPIO | SELF-“IEPS” | INCOME TAX RETENCIÓN | VAT RETENTION | “IEPS” RETENTION | |
| SELF-“ISR” | YES | NO | NO | NO | NO | NO | |
| SELF-“VAT” | NO | NO | NO | NO | NO | NO | |
| SELF-“IEPS” | NO | NO | SI | NO | NO | NO | |
| COMPENSATION OF AMOUNTS IN FAVOR MADE AS OF DECEMBER 31, 2018 | |||||||
| 2018 POSITIVE BALANCE | SELF-INCOME TAX | SELF-VAT | SELF-“IEPS” | INCOME TAX RETENTION | VAT RETENTION | “IEPS“ RETENTION | |
| SELF-“ISR” | YES | YES | YES | NO | NO | NO | |
| SELF-VAT | YES | NO | YES | NO | NO | NO | |
| SELF-IEPS | NO | NO | YES | NO | NO | NO | |
ISR: Income Tax
IEPS: Special Tax on Production and Services
In the VAT case, when the payment statement turns out in a favorable balance, the taxpayer may only credit it against the tax payable to it in the following months until it is exhausted or request its return.
We also consider that there will be sectors, which will be severely affected, such as the food industry, export manufacturing, the pharmaceutical industry, the publishing industry and in general the export of goods and services, which usually generate balances in favor mainly because, their acts or activities are taxed at the 0% rate, so when generating creditable VAT caused by the performance of their acts or activities they obtain balances in favor, which they will no longer be able to balance out.
So now they will be unable to recover VAT immediately because they will not be able to balance out them against balances charged to the same tax and their financial position, working capital and investment projects of taxpayers will be affected because both the Income Tax or VAT charged to the month, must be paid in the immediately following month, as well as his other formal obligations that have for the daily operation of his business.
