In the context of the jurisprudence that eliminated the crediting of VAT paid through civil compensation, new precedents have been raised that could also restrict the crediting of VAT when a “payment in kind” is presented. Payment in kind is the fulfillment of an obligation through the delivery of goods or services.
Recently, the Tenth Collegiate Court on Administrative Matters of the First Circuit issued a thesis in which it established that the VAT covered by a payment in kind cannot be considered as effectively paid, which implies denying the origin of the credit and the return of the balance in favor of the tax.
In this case, the principal obligation that generated the VAT was paid through a debt capitalization. Although the principal debt was settled through the issuance of shares, the Court determined that the VAT related to the transaction was not creditable, since it could not be considered “effectively paid” since it was not covered in cash, but through the issuance of shares.
The Court's analysis was based on the recent case law that established that VAT is not considered to be effectively paid unless it is transferred in cash. This criterion was used to eliminate the crediting of VAT in cases of compensation. However, as can be seen, this recent case law is having implications in new cases, such as the present one. These new precedents could imply that many daily transactions that generate VAT must be analyzed and restructured.
Please feel free to contact us if you need a review of how these new precedents may impact your business model. We are available to provide advice and guidance specific to your situation.
