Cassation of the Supreme Court modifies the treatment of payments on account of Income Tax. What will be the impact on the financial statements of companies?

The Supreme Court issued cassation 27444-2018, which modifies how payments on account of income tax (IR) related to past years are treated.

In short, the appeal indicates that the difference between what was paid as payment on account of the IR and what really should have been paid, determined at a future date, generates late taxes for the entire period in which the full amount owed was not paid, which goes against years of jurisprudence and affects a large number of ongoing processes.

Jorge Lizárraga, leader of tax disputes at KPMG, points out that the appeal would have additional effects that every company must take into account, including the possibility that Sunat claim the return of payments made in favor of taxpayers based on the above criteria.

Sunat can request that what is returned be returned

According to Lizárraga, in the past, when a company requested the return of default interest in cases related to payments on account, Sunat, on some occasions, returned what was required by the taxpayer, applying the old binding precedents of the Judicial Power.

“Now, there would be a risk that they (Sunat) ask them to return it, since it could well indicate that it acted based on an improper precedent and request the restitution of what was returned,” explains the expert.

“There are defense mechanisms, of course, such as arguing that the return was requested under a criterion that was established at the State level, or that they did not act maliciously, but this is a risk that is on the table and that could affect a number of companies in the future”, he pointed out.

Impact on financial statements of companies

Likewise, Lizárraga maintained that the appeal will have an effect on the companies’ year-end financial statements.

When a company appeals a Sunat decision, it must pay a concept for the claimed default interest.

“Previously, with the existing criteria, it was likely that the companies would recover what was paid in order to appeal Sunat’s decision, since the binding criteria tell me that I did not have to pay this interest,” says Lizárraga, who indicates that this was recorded as an asset in the company statements, as an account receivable.

Now, however, said asset would no longer exist, due to the new criteria, so companies must make an adjustment to their statements and record an expense, in most cases.

“The expectation of return is already falling and despite the fact that there are defense mechanisms, it is likely that it will have to be re-evaluated if the expectation of recovering that money is maintained or not,” Lizarraga said.

Source: Management