Tax Litigation

Prior to discussing the recent trends and developments related to tax litigation and controversy in the Dominican Republic, it is important to mention the general procedures available to litigate tax in the country, and certain changes.

The General Directorate of Internal Taxes (DGII by its Spanish acronym) is the entity in charge of administering and collecting the country’s internal taxes, while the General Directorate for Customs (DGA by its Spanish acronym) is the entity in charge of collecting custom taxes and responsible for the supervision of imports and exports of goods. Together, the DGII and the DGA are the Tax Administration.

When there are disagreements or conflicts between taxpayers and the Tax Administration, including tax assessments, the taxpayers have the right to appeal the decisions of the Tax Administration though a Reconsideration Appeal. This Reconsideration is reviewed by the same Administration, which usually decides, depending on its workload. Once a Reconsideration Appeal is decided, the decision can also be appealed through a Recurso Contencioso Tributario (Tax Litigation Appeal) before the Superior Administrative Court (TSA by its Spanish Acronym), a court specialising in administrative disputes. In recent years, there has been improvement in the time taken for this stage of appeal, with the TSA deciding the majority of cases in 12–18 months.

The decisions of the TSA can also be appealed before the Supreme Court of Justice (SCJ) (Recurso de Casación). The SCJ will judge on the correct application of the law and, if applicable, annul the decision and send it back to the TSA for second review of the case. The SJC is taking 12–18 months to decide this type of appeal.

The DGII can initiate two procedures for the collection of a tax debt from the taxpayer: (i) a procedure aimed at ensuring that the debtor has sufficient assets to pay the debt, when it becomes enforceable (conservatory measures); and (ii) another aimed at collecting the debt after it becomes enforceable (coercive collection process).

The DGII can request conservatory measures where there is a risk of dissipation of the debtor’s assets for the collection of the alleged credit. If the taxpayer considers that the conditions required by law to order conservatory measures are not met, it can request a judge to lift these measures. Another option is to replace the conservatory measures ordered by the DGII with “sufficient guarantees”.

In principle, the Tax Administration will be entitled to adopt coercive enforcement measures for collection only after the alleged tax debt becomes definite, liquid and enforceable. In a decision of 10 December 2018, the Constitutional Court interpreted that “in cases in which the taxpayer challenges the debt, the administration requires a court decision with res judicata authority, in order to exercise the enforcement powers at the coercive collection phase recognized in legislation”. In other words, there must have been a court decision which cannot be appealed any further, before the DGII can start the coercive collection process.

Nevertheless, it is very important to mention that, until recently, the appeal before the SCJ automatically suspended enforcement and collection of the debt. However, the new Cassation Law No 2-23, enacted in December 2023, eliminated the suspensive effect of the appeal before the SCJ, except in some matters specified by special laws or due to their nature, such as judgments regarding the status and capacity of persons, divorce, separation of property, marriage annulment, mortgage cancellation, or declaration of absence. Therefore, with the cassation appeal before the SCJ, the parties also have to request, in a separate motion, the suspension of enforcement until there is a decision with res judicata; and, to expedite the process, the decision regarding such suspension will be granted by the presiding judge of each room of the court.

Amnesty Programmes for Settlement of Tax Debts and Disputes

In certain cases, taxpayers also prefer out-of-court settlements to avoid the time it takes to go through the different stages and the unpredictability of litigation.

In addition, the Administration has implemented several amnesty programmes since 2020 to renegotiate tax debts, reduce litigation and collect payments. The most recent was established on 10 August 2023, when the President of the Dominican Republic enacted Law No 51-23 to temporarily establish special treatment that allowed the automatic declaration of the statute of limitations and extinction of tax debts that met certain requirements, an expedited audit procedure and different facilities to pay tax debt, while granting amnesty for a limited period until 20 December 2023.

The provisions of Law No 51-23 included the following.

• The statute of limitations and extinction of tax debts applied to debts of Income Tax, Tax on the Transfer of Industrialized Goods and Services (ITBIS by its Spanish acronym), Assets Tax, Real Estate Assets Tax, Free Zones Taxes and lottery taxes, for periods up to 2015.
• Payment facilities for tax assessments depending on whether the tax debts arise from tax returns or tax adjustments.
• A reduced tax audit process that applied to taxpayers that were subject to an internal audit of the taxes indicated in Law No 51-23 and a Reduced Process Rate to determine the amount payable, subject to the parameters of the Effective Tax Rate indicated in said Law.
• A tax amnesty for government institutions that applied to tax debts up until 1 August 2020, derived from ITBIS withholdings and Income Tax Withholdings made by government entities to individuals or legal entities but not paid to the Tax Administration.

With this programme and facilities, taxpayers were able to obtain discounts on their taxes, including the tax payable, interest and penalties. Additionally, this allowed the Administration to close a large number of cases that were currently before the courts.

Causes of Tax Controversies

In the Dominican Republic, most tax controversies are based on disagreements regarding tax assessments from income taxes, capital gain taxes, asset taxes and ITBIS. Likewise, as seen in other jurisdictions, there is an increment in cases related to transfer pricing, which have given rise to a significant number of disputes.

The Dominican transfer pricing regime is included in Article 281 and 281 bis of the Dominican Tax Code and the Transfer Pricing Rules Applicable to Transactions Between Related Parties No 78-14, all based on international guidelines. The regulation establishes that all companies resident in the country are obligated to report their commercial or financial intercompany operations if they involve transactions with: (i) an associated/related party, as defined by Article 281 of the Dominican Tax Code; or (ii) individuals or entities incorporated or located in Special Fiscal Regimes included in a list prepared by the Tax Administration.

The Administration tends to scrutinise multinationals and challenge the price transfer analysis provided by the taxpayers and their selection of the methods to analyse the transactions between related parties. Therefore, a way to avoid disputes has been executing advance pricing agreements (APAs) with the Tax Administration, which is a possibility included in the Tax Code.

Latest Trends: Anti-avoidance Rules and Electronic Invoice System

The country has established several general anti-avoidance rules. Considering that Dominican taxes are based on a territorial system, the Tax Code includes several obligations to ensure the payment of ISR and the ITBIS, such as the regulation of the concept of tax resident and a number of obligations to withhold taxes locally.

In addition, with Resolution No 201-114 of 1 December 2021, the Tax Administration introduced modifications to Resolution No 201-4502, establishing the obligation to use the Electronic Invoice System and deadlines for non-active users to adopt the new plan. This resolution includes obligations for taxpayers to establish electronic invoice systems before 2026.

Tax Reforms and Reforms of Regulations for Administrative Procedures

The Dominican Tax Code has undergone at least 15 amendments or fiscal reforms over the last 40 years. Since the year 2000, there have been approximately eight amendments to the Dominican Tax Code, and new laws regarding tax reforms have been enacted, the last two during consecutive years, 2011 and 2012.

Currently, there are some discussions regarding a potential tax reform following the country’s next general election (to be held on May 2024), to address the nation’s fiscal deficit and increasing debt.

There is also a project to modify the First Title of the Tax Code, which regulates the principles applicable to Dominican tax law, the main rights and obligations of taxpayers, and all the procedural rules relating to actions of the Administration, with plans to modernise the Code and adapt it to current times.

Likewise, there is a law project for the Contentious-Administrative Jurisdiction, with the purpose of regulating the effective judicial protection of the rights of people in their relations with the Public Administration, ensuring compliance with the legal system of the state in relation to all conduct, actions or omissions of the public administration, and regulating the organisation and functioning of the competent judicial bodies in the field of the contentious-administrative process enshrined in the Constitution of the Republic.

Finally, the Tax Administration has been discussing the creation of a new regulation that will establish a tax for digital services. However, it has not yet been approved and the circulated draft for the project did not meet the standards required to create these types of taxes and for their correct application.