El Salvador: Cases With No Limits on Tax Audits

Published on Oct 3, 2025

Rene García, Senior Counsel in El Salvador and expert in taxes, shares this article about the cases in which the statute of limitations does not apply to the Tax Authority’s power to audit, assess taxes, and impose penalties, meaning that in such cases the authority may exercise these powers without any time limit, as outlined below:

As a general rule, the Tax Authority has a time limit to exercise its audit and assessment powers, which is established for reasons of legal certainty. Under Salvadoran tax law, this time limit is referred to as "statute of limitations” and is commonly known as the assessment deadline. The period of statute of limitations for the Tax Authority to audit and assess taxes is three years when the taxpayer files the tax return within the legal deadline, or five years when the taxpayer fails to file the respective return.

These periods are counted from the due date for filing the return, unless the return was filed late, in which case the period runs from the day following the filing date.

Within these limitation periods, the Tax Authority must issue and notify the resolution containing the tax assessment and the imposition of penalties, if applicable.

For example, the statute of limitations for tax returns filed within the legal deadline for the Income Tax for the fiscal year from January 1 to December 31, 2022, expires on April 30, 2026. This is the last day on which the Tax Authority may notify the resolutions assessing the corresponding taxes and penalties, since the deadline for filing the return was April 30, 2023.

Thus, the Tax Authority’s powers to audit, assess taxes, and impose related penalties expire with the passage of time, as defined by the Tax Code under the term statute of limitations.

Exceptionally, tax legislation establishes cases in which no time limit applies, meaning that in such situations the statute of limitations does not operate, and the Tax Authority may exercise its audit and assessment powers without any time restriction.

The cases in which the statute of limitations does not apply are:

  1. When tax withholdings or collections are made but the amounts withheld or collected are not paid over; and
  2. When tax returns report credit balances, remaining VAT balances, tax benefits, or any other tax rights.

Although these cases in which the statute of limitations does not apply were incorporated into tax legislation through legal reforms dating back to 2004, it was only upon their recent application by the Tax Authority that disputes arose. This led taxpayers to file appeals and administrative lawsuits, arguing in their defense the principle of legal certainty and the expiration of the three-year statute of limitations applicable to cases where the audited tax returns had been duly filed. Cases of this nature began to be resolved in 2020.

With respect to the challenges filed by taxpayers regarding the absence of a statute of limitations for the Tax Authority to audit and assess taxes, both at the administrative level—the Tax Appeals Tribunal for Internal Taxes and Customs—and at the judicial level—the First Chamber of Administrative Litigation and the Administrative Litigation Chamber—have held that, although the statute of limitations on the Tax Authority’s audit, assessment, and sanctioning powers is intended to prevent indefinite proceedings and the availability of rights for an unlimited period, as such situations create legal uncertainty or insecurity for the parties concerned (Constitutional Chamber judgment, reference 37-C-96, issued at 8:15 a.m. on November 16, 1998), the exceptions set out in the law are intended to safeguard the interests of the Treasury. These exceptions seek to prevent a withholding or collecting agent from appropriating amounts withheld from other taxpayers, or to prevent taxpayers from improperly claiming benefits, credit balances, or VAT credit carryforwards and making use of them after the ordinary statute of limitations has elapsed, thereby causing fiscal harm to the Tax Authority and/or third parties.

In these cases, the aforementioned tribunals have found that, in the tax returns for the audited fiscal years or tax periods, taxpayers claimed credit balances (returns with a right to an income tax refund) or VAT credit carryforwards. Therefore, the tribunals have held that, as provided by law, the statute of limitations does not apply. Consequently, the Tax Authority is empowered to verify the validity of what was reported through audit procedures, official tax assessments, and the imposition of penalties, without being subject to any limitation period.

In one case, the Tax Appeals Tribunal held that the statute of limitations did not apply even though amended returns had been filed showing balances payable instead of credit balances. This was because, at the start of the audit, the income tax returns filed reflected advance payments and apparent credit balances, and it was only after the audit had been completed that the amended returns were filed, showing tax due. However, this tax due was not the amount determined in the audit report.

In light of the above, current administrative and judicial case law has consolidated the position that, pursuant to the second paragraph of Article 175 of the Tax Code, the statute of limitations does not apply to the powers of the Directorate General of Internal Taxes to audit and determine reductions of credit balances, tax liabilities, and to impose penalties related to such liabilities in fiscal years or tax periods where credit balances or VAT credit carryforwards have been declared.

As a consequence of the foregoing, and by way of conclusion, it is important for companies and all taxpayers to be aware that when their tax returns report credit balances (i.e., amounts refundable under income tax) or VAT credit carryforwards, the Tax Authority may audit them at any time, since there is no statutory time limit for this purpose. Under these circumstances, taxpayers remain indefinitely exposed to potential audits and tax assessments by the Tax Authority. Only when their tax returns report a tax payable and are filed within the legal deadline will the three-year statute of limitations apply.


The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.