It is common to hear the terms fraud and tax evasion in El Salvador and treat them as if they mean the same thing; however, they are two different concepts. Firstly, fraud refers to the deliberate violation of criminal and tax laws, while tax evasion involves hiding income to pay fewer taxes.

Tax fraud is a deliberate administrative offense commonly referred to as “defrauding,” which is taken into account in our tax and criminal laws when it comes to the “intention” of the taxpayer’s actions.

Our associate lawyer, Adalicia Torres, explains that Salvadoran legislation and regulatory norms are explicit when it comes to tax fraud. The Tax Code and the Penal Code cover this type of offense.

“Basically, the crime of tax fraud consists of committing one or several acts to prevent the payment of all or part of the taxes, harming the tax collection and public spending system,” she adds.

The Penal Code includes five tax fraud offenses: tax evasion, misappropriation of tax withholdings or collections, improper refunds, returns, offsets, or credits; forgery in the printing, issuance, delivery, or granting of documents supporting tax transactions; and conspiracy to commit any of the aforementioned offenses.

Tax evasion, according to Salvadoran laws, occurs when individuals omit declaring taxable events or declare non-existent costs, expenses, purchases, or tax credits with the purpose of evading taxes. It can be punished with imprisonment ranging from 4 to 8 years.

“Many times, people act with malicious intent and hide their true income and information from the Ministry of Finance. Why? Because this way, they would pay a lower amount of taxes than they actually owe,” says the head of the Tax Department.

The Tax Code indicates the existence of unintentional evasion for failing to file a declaration or submitting an incorrect one and intentional evasion when taxpayers attempt to produce total or partial evasion through omission, assertion, simulation, concealment, maneuver, or other means.

Our expert recommends having internal control within the company as the primary element of prevention against any fraudulent activity that could be carried out by employees in their daily operational activities. This can help deter fraudulent behavior that puts the company at risk.

“It is important to establish a culture of compliance with tax laws, have robust information systems, and well-trained staff. Organizations need to seek advice to identify and minimize these practices,” she advises.

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