Tax compliance requires compliance with both formal obligations (filings, requirements, documentation, etc.) and substantive obligations (payment of the tax).

In the field of tax proceedings, the forms are necessary for the timely and proper presentation of appeals against acts of the administration, in which the taxpayer states that an alleged prejudice to its rights or interests has been committed.

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IMPACT ON TAXPAYERS

The requirement on occasions of excessive and unnecessary formal requirements, or their manifestly rigorous application, without considering the objective truth, has affected in practice the guarantees and rights of the taxpayers.

In order to resolve these situations, validating the challenged acts of the taxpayers, two legal concepts have been developed in the legislation field, according to their purpose, namely:

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MANIFEST RITUAL EXCESS:

This applies when taxpayers are denied the right to file appeals based on the lack of compliance with certain unnecessary forms, affecting the guarantee of due process.

LAC countries have an ample experience in this area, applicable to procedural law in general and therefore also to tax procedural law. In Argentina, the courts have already applied this legal concept in the case of “Colalillo Domingo vs. Company de Seguros España y Río de la Plata” (18/09/1957)[i].

The concept of “useless ritualism”[ii] was also regulated in administrative law in Law No. 19,549 on Administrative Procedures (2000 and 2024)[iii]. In its administrative law, Bolivia has also applied this criterion.[iv]

For its part, the Constitutional Court of Colombia has also generated extensive jurisprudence on the issue of ritual excess, starting with Ruling  T-1306 de 2001. More recently, the First Chamber of the SCJN (1a./J. 58/2019 (10a.), which expressly invoked the figure of manifest ritual excess, is worth mentioning.

Meanwhile in Mexico, the ruling  la Primera Sala de la SCJN (1a./J. 42/2007), condemned norms that impose “impeditive or obstructive requirements”, insofar as they oppose the right to judicial protection, when they are unnecessary, excessive and lacking in reasonableness or proportionality with respect to the ends pursued.

According to CARDENAS (2021)[i] in LA, this principle was extended not only through jurisprudence but also in some countries in the form of regulations and in some cases even reaching constitutional rank.

Thus, in Colombia, Article 228 of the Constitution is in force insofar as it determines that in the administration of justice, substantive law prevails, emphasizing that this provision recognizes that the purpose of the process is not the externalization of its forms, but the respect of the rights pursued, through the solution of the substantive conflict.

In the case of Ecuador, Article 169 of its Constitution states that “justice shall not be sacrificed by the mere omission of formalities”. In the same sense, the Constitution of Panama chooses to enshrine the principles of simplification of procedures, procedural economy and absence of formalism.

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He also highlights that in Mexico as of 2017, Article 17 of the Constitution is in force, which provides: “Provided that equality between the parties, due process or other rights are not affected in trials or proceedings followed in the form of a trial, the authorities shall give priority to the solution of the conflict over procedural formalisms.”

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EXCESSIVE FORMAL RIGORISM:

This concept is applied when a substantial right has been denied or a penalty has been applied to a taxpayer, based on the non-compliance with excessive and unnecessary forms, the tax authority in these cases ignoring the material or objective truth of the facts (the substance).

This deviation has been observed on some occasions in the rejection of the granting of tax benefits (tax amnesties, refunds, reduction of the tax burden, special regimes, installments, etc.), in the determination of the tax and in the application of penalties.

This remedy, which validates the challenged acts, has had a jurisprudential creation, and as an example of the evolution of this concept in LAC, we can highlight the following decisions in Argentina: Lanmedsa v. National State – Afip-Dgi (Resol 33/21) s/ inc. as precautionary measure, CNCAF ruling, Chamber III (2022)[i] and “Arcos Dordos Argentina S.A. s/infringement law 11.683” National Court of Appeals for Economic Criminal Matters, Chamber “A” (2012)[ii].

In the same sense, in Brazil, we can cite the pronouncements of the Court of Justice of São Paulo in the ruling “Sespo Indústria e Comércio Ltda”. (26/9/2924)[iii] and of the Administrative Council of Fiscal Resources (CARF) in the “Wipro do Brazil Industrial Lda” case. (13/03/2023)[iv]

CONCLUSION

First, it is clear that these concepts require the existence of arbitrariness for their application, and in no way promote the disregard of the value of the forms in the processes or in the fulfillment of tax obligations, but only have the purpose of avoiding that, through an abusive use of them, the guarantees and rights of taxpayers are disregarded.

Their application is essential for both tax agencies and taxpayers, based on the guiding principles of efficiency, reasonableness and tax justice.

The guarantees or rights of taxpayers have been affected, based on the excessive application of form over substance, both in individual control actions and in the management processes of standardized computer systems.

The lack of capacity of the acting officers to correct such deviations is due in many cases to the lack of regulatory support and, therefore, to the possible consequences of departing from the “mere formality” or the “formal inconsistency of the system” to resolve the case under their jurisdiction.

Therefore, in the face of taxpayers’ grievances, these conflicts end up being settled through administrative or judicial jurisdictional channels, overloading the courts with thousands of unnecessary cases, which in turn slow down the most important tax-related processes.

In order to solve this problem and avoid unnecessary tax controversies, safeguarding the guarantees and rights of taxpayers as well as the actions of tax officials, it would be appropriate to incorporate both concepts in the Tax Codes or Tax Procedures Laws, determining the specific process and the competent authorities for their resolution.

[i] The Supreme Court of Justice of Argentina compiled its pronouncements in the supplement  “Exceso ritual manifiesto: Panorama sobre sus principios generales”,  Secretaría de Jurisprudencia, Buenos Aires (2024).

[ii] Originally by Law No.. 25.344 (2000) and currently by Law No.. 27.742 (2024)

[iii] Currently art. 32, inc. c) Ley No. 19.549 (Administrative Procedures Law). Holds that it is not necessary to file a prior administrative complaint when:  ”… c) If there is a clear conduct of the State that leads to presume the ineffectiveness of the procedure, transforming the prior claim into a useless ritualism.”.

[iv] Section d) of article 4º in Law No. 2.341, states that “The Public Administration will investigate the material truth as opposed to the formal truth that governs the civil procedure.”.

[v] Lev CARDENAS (2021) “El exceso ritual manifiesto en el recurso de revocación fiscal”, Revista IUS Universidad Anahuac, México.

[vi] The judgment recognizes the excessive formal rigor that characterizes the Tax Authorities, when rejecting the presentation of a new declaration due to the occurrence of an error in the liquidation

[vii] It canceled the application of the penalties of fine and closure for issuing invoices without the fiscal controller, although they had been registered

[viii] Held that there was excessive formalism in the denial to the taxpayer of his request for payment of VAT debts in installments, due to the denial of the deduction of the amount of the fines based on the use of a different form

[ix] Regarding a controversy on the legal and effective basis for the suspension of the PIS and COFINS, it was held that the substantial right can be determined based on the evidentiary elements even if there is a formal error in the preparation of the tax notes, so the public administration must analyze the claims avoiding excessive formalism and considering the good faith in the relations between the public administration and the taxpayer

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