Compliance with an acceptable and fair tax administration is fundamental to a developing social and economic system, yet its implementation is fraught with challenges. Similar to other Governments around the world, the Costa Rican Administration is facing an increasingly difficult balancing act in fostering mutual trust, respect and responsibility between taxpayers, tax advisers, tax administrations and the State.

On the one hand, the executive and administration need to have the discretion to apply the laws relating to tax collection. On the other hand, there is a need to maintain the principle of the rule of law. When there is perceived or real tension between the legitimate needs of tax authorities and the equally legitimate interests and rights of taxpayers, the delicate balancing act can become unbalanced.

In 2014, tax petitioners in Costa Rica challenged the constitutionality of Article 144 of the Tax Law, the Código de Normas y Procedimientos Tributarios (CNPT), amended by Article 1 of Law N° 9069 of September 10, 2012. Article 144 of the CNPT stipulates that once the Tax Authority has determined the tax amount, the taxpayer is required to pay the sum, or provide a bank guarantee, including in cases where there is a dispute regarding the amount. Before the 2012 amendment, payment was required upon completion of the proceedings after the Administrative Tax Court had decided whether the amount requested by the Tax Authority was acceptable - a process which could take up to five years. Tax petitioners argue that the dispute process prior to the enforcement of Article 144 maintained a careful balance between the discretionary decisions of the tax authority and the rights of the tax payer.

On August 11, 2016, the Costa Rican Constitutional Chamber held an oral hearing for the file 14-0011798-0007-CO against Article 144 to understand the practical implications of the enforcement of the Article from the tax petitioners, amicus curiae, the Tax Authority and the Attorney General of the Republic. The Constitutional Judges listened to arguments relating to the obligation to pay upon the administrative resolution and the feasibility of obtaining a bank guarantee for tax amounts under dispute. The petitioners and amicus curiae argued that to pay an arbitrary amount before the Administrative Tax Court had reviewed the Tax Authority's decision could cause serious financial impact to the taxpayer and may even result in insolvency. As a result, and depending on the financial impact to the taxpayer, it may be impossible to obtain a bank guarantee. Finally, if there is credit due to the taxpayer following dispute resolution, it remains at the discretion of the Tax Authority when the credit is paid to the taxpayer, resulting in an uncertain financial position for the taxpayer.

Clearly, this case raises many questions and concerns about the careful balance between the tax administration exercising its discretionary power and the legitimate interests and rights of taxpayers. Costa Rica prides itself in maintaining rule of law principles, and Arias & Muñoz, as part of its Rule of Law Initiative prides itself in supporting taxpayers in using all administrative and judicial measures to present their cases to the appropriate authorities and to protect themselves from unfair tax authority practices.