Substantial Revision of Tax Assessment and the Duty of Taxable Profit Arbitration

Abstract

The objective of the present study is to examine the existence of the legal duty of profit arbitration regarding situations in which tax authorities carries out a substantial revision of corporate taxpayer’s tax assessment. In order to do so, the article is divided into two parts. In the first one, it will be analyzed the definition of taxable income and the necessity of consideration of the net income principle regarding the legislative conformation of the corporate income tax base. In the second one, it will be analyzed the duty of taxable profit arbitration in face of the worthlessness of the taxpayer’s tax registers and the consequent impossibility of assessment of its taxable profit as a condition of due measurement of taxable income. I intend to demonstrate that the absence of suitable documentation to prove a substantial amount of deductible expenditures prevents the suitable assessment of the corporate tax base and, therefore, distorts the amount of the taxpayer’s taxable income. Therefore, tax authorities must carry out the arbitration of taxable profits in order to adequately measure the corporate taxpayer’s taxable income.