Honduras: Law restricting sales tax refunds and expanding sanctioning powers held unconstitutional (Constitutional Chamber of Supreme Court decision)
Provisions of Decree 113-2011 restricting sales tax refunds and expanding sanctioning powers are unconstitutional.
The Constitutional Chamber of the Supreme Court of Justice held that certain provisions of Decree 113-2011, the "Revenue and Public Expenditure Efficiency Law" (Ley de Eficiencia en los Ingresos y el Gasto Público), are unconstitutional. In particular, the court:
- Held Article 5 unconstitutional, which aimed to prevent the refund and offset of sales tax (ISV) credits upon the cessation of business activities, effectively forfeiting them to the State. The Constitutional Chamber held that this provision was confiscatory and a violation of taxpayers' rights, thereby reaffirming the right to refund or offset ISV credit balances under the current legal framework.
- Held Article 10 unconstitutional, which authorized the Ministry of Finance (Secretaría de Finanzas) to automatically transfer unspent funds to social programs. The Constitutional Chamber held that this invaded the exclusive jurisdiction of the National Congress in budgetary matters and the allocation of public funds.
- Held Article 20 unconstitutional, which expanded the sanctioning powers of the tax administration to order closures, suspensions of activities, or suspensions of tax exemptions. The Constitutional Chamber held that this provision contained formal defects because the constitutional procedure for reforming codes was not followed, thereby limiting the ability to impose such measures without due process and express legal support.
- Maintained the validity of Articles 6 and 13 of Decree 113-2011, holding them to be compatible with the Constitution. Article 6 relates to the publication of taxpayers with outstanding obligations, and Article 13 relates to the advance payment of income tax (ISR) on imports as an advance payment mechanism rather than a penalty.
- Did not issue a decision on the merits of Article 9 because it was a temporary provision that had already expired.
Background
Before this decision, the Tax Code of Honduras (Código Tributario) already contained clear provisions protecting taxpayer tax credits, including the right to carry them forward to subsequent tax years, request their refund, and apply them as an offset against other tax obligations. The court decision confirms that subsequent rules that aim to disregard these rights, such as the confiscation of ISV tax credits upon the cessation of business activities, are unconstitutional.
For more information, contact a KPMG tax professional in Honduras:
Luis Zelaya | lzelaya@kpmg.com