DR Tax Question

AndyGriffith · Oct 21, 2010

Sr. Guzman,

I read this in one of your pieces on the DR income tax. I am unclear to what this Article 2 portion means. Can you clarify the intent of this article in the code? Also, is this only for DR registered legal entities or any legal entity worldwide? Thank you.

"The Tax Code includes a general anti-avoidance provision whereby the tax authorities may ignore the existence of legal entities or certain transactions when used to secure a tax advantage (Art. 2)."

Fabio J. Guzman · Oct 24, 2010

It is actually a general principle applied by many countries. In very simple terms, the principle states that what matters are the facts of the transaction, not its legal structure. It is applicable to any entity, foreign or domestic, doing business in the DR.

It was the basis for the ruling against Codetel when Verizon sold the company to Carlos Slim's group some years ago. Codetel argued that it didn't have to pay any capital gains taxes because the transaction was done out of the DR as a sale of stock of a foreign corporation. The Dominican tax authorities argued that all the assets were in the DR, that the intention was to transfer the ownership of those assets, and that therefore, the transaction was taxable in the DR.

AndyGriffith · Oct 24, 2010

Fabio J. Guzman said:
It is actually a general principle applied by many countries. In very simple terms, the principle states that what matters are the facts of the transaction, not its legal structure. It is applicable to any entity, foreign or domestic, doing business in the DR.

It was the basis for the ruling against Codetel when Verizon sold the company to Carlos Slim's group some years ago. Codetel argued that it didn't have to pay any capital gains taxes because the transaction was done out of the DR as a sale of stock of a foreign corporation. The Dominican tax authorities argued that all the assets were in the DR, that the intention was to transfer the ownership of those assets, and that therefore, the transaction was taxable in the DR.

So then if the assets were not in DR, then the DR capital gains tax would not have applied to Codetel on this transfer-sale of stock. I was under the impression that financial assets were taxed on a worldwide basis for both DR corporations and individuals (whom reside in DR over the threshold per annum). Maybe this is not particularly the case.

AndyGriffith · Oct 24, 2010

Tax on Assets

Businesses and corporations must pay a 1% annual tax on assets (Arts. 401 and 404) in two installments due on April 30 and October 30 (Art. 405). For the purposes of this tax, all assets are taken into account, minus depreciation and amortization, except: a) stock holdings in other corporations, b) real estate in rural areas, c) real estate used for agriculture or animal husbandry, d) tax advances and e) provisions for bad debts (Art. 402).

BF1 · Oct 24, 2010

If I remember well, Verizon never accept the transaction was taxable in DR, they instead reach an agreement with DGII to pay about 30% of the capital gain and declared it something like a "contribution" to the country. 175 millions instead of 520 I believe.....

bienamor · Oct 25, 2010

True

BF1 said:
If I remember well, Verizon never accept the transaction was taxable in DR, they instead reach an agreement with DGII to pay about 30% of the capital gain and declared it something like a "contribution" to the country. 175 millions instead of 520 I believe.....

Both they and the mining company in Bonao were carrying tax agreements between the DR and Canada.

The initial ruling against Verizon was due to the error that they were held by a US company, when in reality they were held through Quebec Tel their original owner. The agreement was kept in force even though Quebec Tel was later bought by GTE/Verizon. Incorporation remained in Canada.

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DR Tax Question

AndyGriffith

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Fabio J. Guzman

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AndyGriffith

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AndyGriffith

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BF1

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bienamor

Kansas redneck an proud of it