QCOSTARICA – The government of Luis Guillermo Solis aims to revive the corporation tax, which was declared unconstitutional and suspended in January, supporting a bill promoted by Partido Acción Ciudadana (PAC) legislator, Nidia Jiménez.
The initiative seeks to address the mistake of not making public the changes made by legislators in 2011, when the new tax was passed, according Jiménez.
In January, the Constitutional Court declared the corporations tax law null and void.
The new bill, presented last month, is awaiting debate in the Legislative Committee on Legal Affairs (Comisión de Asuntos Jurídicos).
Fernando Rodriguez, Deputy Minister of Revenue at the Ministry of Finance (Ministerio de Hacienda), told Nacion.com that “… We hope to have broad support from legislators to restore the tax. During the discussion itself we intend to improve aspects of the project such as a proper definition of what is a dormant company. There are companies that fall into this category, but are used to register goods. ”
However, there are legislators, like former presidential candidate and leader of the Movimiento Libertario party, Otto Guevara, who do not support this measure, assert that is negatively affects small and medium businesses.
Alan Saborio, CEO of Deloitte, specializing in tax consulting, said the (Constitutional Court) judges did an argument for the constitutionality of the tax, but the legislative process. The tax expert added that legislators, with the new bill, can deal with topics not scrutinized by the judges.
Source: Nacion.com
What does “used to register goods” mean?
The reference “used to register goods” is the practice of using a corporation to hold title to a property, such as land, a vehicle, inventory, etc. These corporations are seen as any other, but do not have any commercial activity.
Better than taxing these corporations is to ban them altogether.
The main argument in favor of incorporation is that it allows businesses to raise more capital than could a sole proprietorship or partnership. This is accomplished because corporations limit the liability of investors to the amount they have invested. That is, an investor (owner) of a corporation is not personally responsible for the actions of the corporation, its officers or employees, etc. The reasoning is therefore that by limiting the liability of the investors, corporations can raise capital more easily, thus expand more easily, create more jobs, and so on.
I personally don’t buy this rationale even for business incorporation, at least as routine practice, since I see no reason why the owners of businesses shouldn’t be held as responsible as everyone else. However, I really don’t buy it for non-business incorporation. When people establish corporations for the sole purpose of owning their houses, vehicles, and guns, I can’t fathom how this is in the public good. No businesses are grown, no products and services introduced, no jobs created. The absolute only thing these corporations achieve is limiting the liability of the real owners and users of the property. How is this right?
I realize that establishing these corporate shells is the way ownership of darn near everything is done in Costa Rica, but this doesn’t make it right. It’s just a legal ruse for people not to take responsibility for their actions.