Unjustified Increase in Net Worth and its Effect on Income Tax

By MAF. Gabriela Páez

Tax Manager - EAS LATAM

Resolution TFA No. 014-P-2026, issued by the First Chamber of the Tax Administrative Court on January 15, 2026, analyzes a case that provides an important lesson for companies: accounting can explain an operation, but in a tax audit it must be accompanied by sufficient, specific and verifiable documentation.

The case relates to an income tax assessment for the 2014 fiscal year, in which the Puntarenas Tax Administration made adjustments for unjustified increases in net worth and for the disallowance of salary expenses. The discussion did not center on the reclassification of loans as dividends, but rather on whether the company adequately demonstrated the origin of the funds used to record accounts receivable from related companies.

Case summary

revised concept	Adjusted amount (colons)	What the Administration observed	Why it matters
Accounts receivable from related companies	340.711.313	The company recorded loans or credits in its favor from related companies.	The Administration requested proof of the origin of the funds used to grant those loans.
Rejection of spending for salaries	70,937,142	The company deducted salaries for an amount higher than that reported to the CCSS.	The difference was rejected because, in the Administration's opinion, it did not meet the deductibility requirements.
Total adjustments to the taxable base	411,648,455	Sum of the unjustified increase in assets and the rejected salary expense.	Both adjustments were treated as increases to the base for Income Tax purposes.
Increase in the tax rate	107,792,670	Result of the adjustment determined in the tax.	It represents the additional tax effect determined by the Administration.

How to read the ruling in one line

Accounting record

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Tax Authority Requirement

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Proof documentary

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Fiscal result

1. Accounts receivable from related parties: the starting point

The central issue in the case was that the taxpayer maintained accounts receivable from related companies, originating from loans or credits recorded in favor of the company. From an accounting perspective, this means that the company had recorded a right to collect from related entities.

However, for tax purposes, the Tax Administration did not limit itself to reviewing the accounting existence of those accounts, but also requested proof of the origin of the funds that allowed those loans to be granted.

2. Cash flow helped, but it wasn't enough.

The company maintained that the origin of the funds could be explained through its Statement of Cash Flows, its audited financial statements, and certain transactions arising from its operations and financing. However, Management considered that this general financial explanation insufficient without supporting documentation that would allow for concrete verification of the source of the funds.

This point is key. A statement of cash flows can show, in aggregate, how funds were generated and used during a period. However, it does not necessarily prove, on its own, the specific origin of each transfer, loan, assignment, or intragroup movement. In an audit, traceability must be possible from the accounting entry to the source document.

3. What must be demonstrable

Financial statements, supporting documents, and accounting reports are indispensable tools, but they must be supported by contracts, agreements, bank transfers, assignments of rights, minutes, detailed supporting documents, and other documents that allow verification of the economic and legal reality of the operation.

It is also important to clarify that the tax authorities did not treat these receivables as dividends. The adjustment was based on the concept of unjustified increases in net worth, regulated in Article 5 of the Income Tax Law. Under this concept, when an increase in net worth is identified whose origin is not sufficiently documented, the taxpayer is responsible for demonstrating the source of that increase, whether it has already been taxed, whether it is exempt, or whether it is not subject to tax.

4. Unjustified increase in assets: a presumption that can be rebutted with evidence

In the case under review, the Court noted that the unjustified increase in net worth operates as a rebuttable legal presumption. This means that it can be rebutted by the taxpayer, but only with sufficient and compelling evidence.

A general explanation of cash flow is insufficient without supporting documentation to verify the transactions in question. The issue is not merely accounting; it is evidentiary.

5. The second adjustment: salaries and consistency with the CCSS

The second adjustment involved the disallowance of salary expenses. The Administration compared the salary expenses deducted by the company with those reported to the Costa Rican Social Security Fund and determined a difference of 70,937,142 colones. This difference was disallowed as a deductible expense.

This point reinforces another practical lesson: accounting, payroll, tax returns, and reports to third parties must be reconciled and consistent with each other.

6. Could both adjustments coexist?

The ruling also addresses a key argument raised by the taxpayer: whether it was possible to simultaneously apply an adjustment for unjustified asset growth and another for disallowed expenses. The Court held that they could coexist because they stem from different circumstances.

One relates to the lack of sufficient evidence regarding the origin of funds used in loans to related parties; the other, to the impropriety of an expense deducted for salaries.

Minimum checklist of tests

Area	Recommended documents	Control objective
Intragroup loans	Contract, conditions, internal approval, schedule and assistants.	Demonstrate economic cause and right to collect.
Bank transfers	Receipts, account statements, reconciliations and origin-destination traceability.	Test the actual flow of funds.
Transfers or restructurings	Assignment contracts, minutes, annexes and valuation of rights.	Explain the legal origin of the account receivable.
Salary expenses	Payroll, CCSS reports, accounting entry and monthly reconciliation.	Avoid discrepancies between deducted expenses and reports to third parties.
Financial statements	Statement of cash flows, notes, supporting documents and working papers.	Connect aggregated figures with source documents.

TFA Resolution No. 014-P-2026 reiterates that orderly accounting is necessary, but not sufficient. In an audit, accounting records must be linked to concrete, verifiable, and consistent documentation based on the principle of economic reality.

For companies, the main lesson is that related-party transactions must be documented from the moment they occur. An intragroup loan, a receivable, or an assignment of rights should not be explained solely in the balance sheet or cash flow statement. They must be supported by sufficient legal, financial, banking, and accounting documentation.

In practical terms, compliance isn't built at the time of an audit. It's built beforehand, through clear records, complete supporting documentation, regular reconciliations, and documented files that demonstrate the reality of each relevant transaction.

References

Tax and Administrative Court. First Chamber. Resolution TFA No. 014-P-2026, San José, ten hours thirty-five minutes on January 15, 2026.

Puntarenas Tax Administration. Resolution MH-DGT-ATP-SF-RES-0020-2024, dated 8:05 a.m. on December 16, 2024.

Puntarenas Tax Administration. Determination Resolution DT-06-FISC-R-028-2020, dated 3:00 p.m. on November 6, 2020.

Income Tax Law, Law No. 7092, articles 5, 8 and 9.

Regulations to the Income Tax Law, Article 8.

Tax Code of Standards and Procedures, Law No. 4755, articles 103, 146, 147, 176, 187 and 188.

General Directorate of Taxation. Institutional Criterion DGT-CI-001-2012, dated January 6, 2012.

Note: This document is for informational purposes only and does not constitute legal or tax advice for any specific case. Each situation must be analyzed according to its specific facts, documentation, and applicable regulations.