The tax year is normally a company's own financial year as prescribed by commercial law or the incorporation documents. A return of estimated income must be filed in the sixth month of the tax year, but taxpayers with an income not exceeding 1,500 tax units in the previous year are exempt from this obligation. A final return must be filed within the three months following the end of the tax year, although the authorities may grant an extension. Extensions are rare.

The tax system is basically one of self-assessment, but the tax authorities may raise assessments when the taxpayer fails to furnish information or furnishes unsatisfactory information, the taxpayer files an incorrect return, the taxpayer fails to keep proper accounting records, or the tax authorities themselves carry out an audit.

Provisional tax is payable in four installments. Any balance due is payable when the final return is filed. Interest on underpaid tax is levied at a rate set out by the central bank, increased by 3% of that rate. Furthermore, a compensatory interest of 12% and monetary corrections (inflation adjustments) must be paid when assessments made by the National Tax Administration Service (Servicio Nacional de Administracion Tributaria) or the tax courts are confirmed or decided against the taxpayer. Fines and penalties imposed on withholding agents that do not comply with their obligations may range from one-tenth to three times the unremitted taxes.

Fines are levied for other misdemeanors in amounts varying between 10 tax units and 200 tax units.

The tax authorities have four years in which to examine and challenge a taxpayer's return. They have six years in which to assess liabilities when a return has not been filed. Audits are more likely to be carried out in the case of concerns with substantial profits or substantial claims to deductions.

When the tax authorities seek to assess additional tax as a result of an audit, appeals may be made first at administrative level and then at judicial level. The administrative procedure involves the authorities making a preliminary assessment, to which the taxpayer may respond with a disclaimer. A taxpayer that disagrees with the final assessment that ensues may make an actual appeal to the tax authorities. The taxpayer may instigate judicial proceedings if the appeal fails. There are four successive levels of courts, and taxpayers must be represented by attorneys.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Deirdre Silberstein, Washington, on +1 202 955 4000 or enter a text search "Deloitte & Touche" and "Business Monitor".