November 8, 2021
Dominican Republicís Ministry of Finance and General Directorate of Internal Taxes issue guidance on non-invoiced inventory outflows
The General Rule establishes the requirements non-invoiced inventory outflows of perishable products must meet to not be subject to income or value-added tax. Failure to comply with the requirements could result in penalties.
The Dominican Republic’s Ministry of Finance and General Directorate of Internal Taxes issued guidance (General Rule No. 09-2021) strengthening the rules for non-invoiced inventory outflows of perishable products. Non-invoiced inventory outflows are inventory outflows that have not been invoiced to a client or have been taken out of the inventory process and cannot be traced. The guidance also sets out the rules non-invoiced inventory outflows must meet to not trigger a taxable event for income tax (IT) and value-added tax (VAT) purposes.
The guidance applies to any taxpayer that declares a reduction in inventory or inventory losses due to conditions outside of the production process. General Rule No. 09-2021 is effective from its date of publication in the Official Gazette on 18 October 2021. According to General Rule No. 09-2021, the purpose of the guidance is to reduce tax evasion and ensure the effective collection of taxes.
Procedure for inventory outflows for uncontrollable causes
The following will be considered losses related to perishable products due to uncontrollable causes inherent to the nature or production process of the products: evaporation, weight loss resulting from cutting, dehydration of fruits, and freezing and thawing of fish, seafood and meat. These commercial losses may be evidenced through a technical report issued by an independent and competent professional.
“Ordinary procedure” for inventory outflows not invoiced for other reasons
Taxpayers must use the “ordinary procedure” established in the Dominican Tax Code and Regulation No. 139-98 when non-invoiced inventory outflows are due to (1) third-party causes (theft), (2) controllable causes, or (3) measurable, identifiable and inherent causes related to their nature or production process. These causes include breakage, expiration, discontinuation or deterioration. Force majeure causes also would require taxpayers to use the “ordinary procedure” and would include accidents, hurricanes and floods, among other things.
Inventory outflows do not constitute a taxable event subject to VAT if the inventory outflows result from the company's own consumption (self-consumption) of (1) goods available for sale or (2) any other type of inventory produced or supplied by the company.
Recording of non-invoiced inventory outflows
The facts justifying the non-invoiced inventory outflows must be (1) recorded chronologically, (2) carried out only in the permanent inventory system and (3) directly related to the accounting records maintained by the seller. Taxpayers must account for quantities and values on the date in which the inventory outflow occurs or is identified. If taxpayers fail to comply with the procedures for missing inventories, any expenses related to those inventories will not be deductible. Sanctions will apply if the taxpayer fails to comply with the provisions of General Rule 09-2021.
For additional information with respect to this Alert, please contact the following:
Ernst & Young, Dominican Republic
Ernst & Young LLP (United States), Latin American Business Center, New York
Ernst & Young Abogados, Latin America Business Center, Madrid
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific