Member Article

Advance payment can be understood as: “… the payment made before the occurrence of the generating event that constitutes the future and uncertain event on which the legal force of the obligation depends” (Giulani Fonrouge and Susana Navarrine in “Procedimiento Tributario”, Editorial de Palma, page 159).

In such manner, the legislator grants the advance payments of the Income Tax considering that, since the Income Tax is due on an annual basis, it would be inconvenient for the taxpayer to pay to the corresponding authorities the total amount of the tax incurred during the entire fiscal year in a single payment; through the advance payment modality, the taxpayer has the right to incorporate such payment in his tax return for the year and credit them to the substantive obligation resulting from the liquidation made.

In accordance with our tax law, every income taxpayer is subject to two types of advance payments. First, the Withholding at Source System and, second, the Payment or Advance on Account System, both of which modalities are intended to make an advance payment of the Income Tax.

The application of these advance payment modalities to a given income is exclusive and not discretionary; in other words, these payments may not be applied simultaneously to the same income in order to avoid duplication of advance payments. The application of the aforementioned advance collection systems is not left to the preferential choice of the obligor, but will depend on the circumstances of the economic events that lead to the execution of one or the other system. In this context, these systems will be applied as follows:

The Withholding at Source System shall be applied in those cases in which the law expressly provides for it. An example of this modality would be the withholding regulated in Art. 156 of the Tax Code, which prescribes the withholding for services rendered by a natural person who does not have an employment relation, regarding which a 10% of the Income Tax withholding must be made. The operations subject to this modality are regulated in Art. 155 to 160 of the Tax Code and Arts. 64, 72 to 74-A of the Income Tax Law.

The Payment or Advance on Account System is a modality of advance payment of the yearly Income Tax as it is regulated in the first clause of Art. 73 of the Tax Code; but the final self-assessment of the Income Tax, to which the payment on account is referred, is made at the end of the designated tax year, within the term, requirements, basis and form of determination established by the law. In such final liquidation, the corresponding adjustments must be made for payments of more or less payment on account according to the tax that is due at the end of the year. The above is based on the provisions of the second clause of the aforementioned Art. 73; such obligation falls by exclusion on income that is not subject to withholding at source. On the other hand, Art. 151 establishes as excluded subjects from the System of Advance or Payment on Account those who are exclusively engaged in agricultural and livestock activities.

In conclusion, regarding the application of either one of the above described systems, we have to observe the legal parameters set forth in the Tax Code since their application is not discretionary, as it was previously mentioned.