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TO MAKE SUCCESSIVE SALES OF MERCHANDISE THAT ARE NOT NATIONALIZED, DOES NOT MEET THE REQUIREMENTS OF EXPORTS.

MH-DGT-OF-119-0070-2023 — San José, August 23, 2023

Subject: Attention to consultation protected by article 119 of the CNPT

I. FACTUAL FRAMEWORK

The consultant indicates that […] Anonymous Society is an international pharmaceutical company with headquarters in Spain dedicated to the commercialization of pharmaceutical products from Costa Rica.

[…] is currently registered with the Tax Situation Consultation system as an ordinary taxpayer under activity code: 513601 “Wholesale sale of medical equipment, medical accessories, medicines, pharmaceutical products exempt from sales”.

It adds that its represented company acquires pharmaceutical products from its headquarters, which are transported from Spain to Costa Rica and deposited in a fiscal warehouse. Subsequently, a portion of the products (on average about 15%) is sold to Costa Rican wholesale distributors who proceed with their importation and distribution in the local market, adding that another portion of the products (on average about 85%) is sold to distributors in other markets outside of Costa Rica. Such products are generally sold without having been previously imported into Costa Rica. The consultant points out that both transactions are considered successive sales.

II. SPECIFIC CONSULTATIONS

The consultant raises the following:

  1. Does the VAT paid by my Representative in the acquisition of services used in its activity of selling medicines (among others, advertising services, marketing, logistics, office rentals, public services, and per diems) generate a right to credit for such amounts in accordance with article 21 of the VAT Law?
  2. Could my Representative request that VAT on the acquisition of services used in its distribution activity be exempted under article 8 of the VAT Law?

III. CONSULTANT’S CRITERIA

Regarding Query No. 1

The consultant cites article 16 of the VAT Law, which establishes that this tax to be paid to the Treasury is determined by the difference between the debit and the fiscal credit. Additionally, he cites article 21 of the VAT Law, which concerns operations that give rise to fiscal credit.

The consultant adds that article 30 of the VAT Law Regulation (hereinafter RLIVA) indicates that VAT incurred in the acquisition of goods and services used in the performance of taxable and non-exempt transactions entitles to fiscal credit. Additionally, the second paragraph of this article indicates as an exception that the tax incurred in the acquisition of goods and services used in the performance of exports and operations related to these entitles to full credit, understood as the sale of goods and provision of services to exporters who are duly registered in the Exporters Registry referred to in article 66 of that Regulation, as well as the services mentioned in subparagraph c) of numeral 1) of article 11 of that Regulation.

The consultant states that the activity of selling medicines is carried out both for importation into Costa Rica and for export to other markets. He adds that his represented company is registered as an exporter under article 66 of the RLIVA and Resolution No. DGTDGH-R-60-2019 and is registered as an exporter with PROCOMER, also generating export DUAS, so he considers that the VAT paid to various service providers (including advertising, marketing, logistics, office rentals, public services, and per diems) should indeed generate a right to credit.

Regarding Query No. 2

The consultant cites article 8 of the VAT Law and highlights that exports of goods are exempt from tax, as well as operations related to these; the introduction of goods into customs warehouses, as well as the purchase of goods and the provision of services intended to be used for the production of goods and services intended for export.

He adds that article 11 of the RLIVA establishes a non-exhaustive list of operations related to exports and re-exports that may be covered by this exemption, and that subparagraph d. of this article includes in a general way the purchase of goods and services by taxpayers registered as exporters as provided in article 66 of this Regulation.

The consultant mentions that article 1, subparagraphs 20 and 42 of the RLIVA define the concepts of export and re-export.

The consultant reiterates that the sale of medicines is a small part for importation into Costa Rica and mostly for export to other markets, and considering that it is registered as an exporter under article 66 of the RLIVA and Resolution No. DGTDGH-R-60-2019 and registered as an exporter with PROCOMER, also generating export DUAS, his represented company is empowered to exempt VAT on the acquisition of services used in its sale of medicines, in accordance with article 8 of the VAT Law.

He believes that the requirements of Resolution DGT-R-060-2019 show that the Exporters Registry and the associated exemptions are a mechanism to avoid the accumulation of credits by exporters, in line with the principle of neutrality in international trade cited above.

The consultant considers that, of the requirements listed in article 2 of the aforementioned resolution, his represented company meets the requirement that more than 75% of its operations are destined for export and that the tax incurred in the acquisition of taxed goods and services for all its operations exceeds the fiscal debit every month. Consequently, the exemption mechanism is effective in avoiding the accumulation of credits by its represented company.

GENERAL DIRECTORATE’S CRITERIA

After examining the facts stated in the consultation letter and analyzing the information provided, this General Directorate indicates that the services provided by your represented company, considered successive sales and not involving the importation of products brought from its headquarters located in Spain, do not have the nature of exportation when distributed to other countries. Therefore, it cannot enjoy the benefits intended for taxpayers who are exporters. This criterion is based on the following explanation.

Economic transactions that fall within the provisions of articles 1 and 2 of the VAT Law will be subject to VAT and taxed at the general rate of 13%, as provided in article 10 of the VAT Law, unless they fall under one of the exempt cases, are not subject, or are subject to a reduced rate.

Article 8 of the VAT Law and article 11 of its Regulation list the exemptions from this tax. Additionally, articles 9 of the VAT Law and 12 of its Regulation detail the operations not subject to VAT.

In addition to the above, and for the specific case, article 8 of the VAT Law establishes exemptions from this tax; it indicates:

“Article 8. Exemptions. The following are exempt from this tax:

  1. Exports of goods, as well as operations related to these; the introduction of goods into customs warehouses or their placement under customs regimes and the re-importation of national goods that occur within three years following their exportation. Also exempt are the purchase of goods and the provision of services intended to be used for the production of goods and services intended for export.Likewise, services provided by taxpayers of this tax, when used outside the territorial scope of the tax, are exempt. (…)”

Regarding the concept of exportation itself, it is clear to this Directorate that it encompasses the export or exit of goods (national or nationalized), as well as the provision of services for consideration that is carried out from national territory to abroad, as long as the recipient is a non-domiciled person and the use or consumption is made outside the national territory, in accordance with subparagraph 20 of article 1 of the RLIVA.

In the same sense, article 11 of the RLIVA regulates the cases that are exempt from paying VAT, in this regard, in subparagraph 1) the exemption is established for exports, imports, and internal consumption.

From the above quote, note that exports of goods, as well as operations related to these, are exempt, and regarding the authority to expand the list of services related to exports of goods referred to in the RLIVA, this General Directorate issued the recent Resolution called “Exempt Operations related to exports established in article 11 of the Value Added Tax Law Regulation,” MH-DGT-RES-0017-2023 of 8:05 a.m. on July 31, 2023.

On the other hand, article 66 of the RLIVA indicates that:

“Article 66.- Exporters Registry. The Tax Administration will create an exporters registry, which will be available on the Ministry of Finance’s website, to be consulted by all suppliers who carry out transactions with these taxpayers.

Taxpayers may enter this registry provided that they export at least 75% of their operations, a percentage that will be estimated based on the operations corresponding to the calendar year. Those taxpayers who do not reach the minimum of 75%, may also be included in this registry in cases where the tax incurred in the acquisition of taxed goods and services for all their operations exceeds the debit for the period for three consecutive periods, thus preventing the application of these balances in the tax return.

Once registered as Exporters, they may acquire goods and services directly and exclusively for their exports, provided they have the authorization granted by the General Directorate of Finance, for which they must comply with the procedure established in Executive Decree No. 31611-H of October 7, 2003, and its amendments.”

It is worth noting that re-exportation occurs with the exit of goods that are in the customs territory that have not been definitively imported; on the contrary, it is important to note that definitive exportation arises with the exit of national or previously nationalized goods that are in the customs territory and will be consumed abroad.

In the same vein, the RLIVA defines re-exportation as follows:

“2) Re-exportation. It is the regime that allows the exit from the customs territory of foreign goods that have arrived in the country and have not been definitively imported, in accordance with the provisions of Law No. 7557 General Customs Law of October 20, 1995, and its amendments.”

According to the legal foundation developed above and, in response to the consultations set out in your letter, it is evident that your represented company does not provide an export service, but rather what it does in the majority of its sales are re-exports, therefore, it should not be included in the exporters’ registry established in article 66 of the RLIVA since one of its requirements to be part of this is to always export at least 75% of its operations, a requirement that your represented company does not meet, as indicated, and therefore, based on this, your represented company is not entitled to VAT exemptions as consulted.

What your represented company does is re-exports, so it does not enjoy the benefit of VAT exemption established in article 8, paragraph 1 of the VAT Law.

Therefore, the Tax Administration of San José Este must proceed ex officio with the correction in the ATV system in order to remove the status of exporter from […] Corporation

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