Understanding Tax Exemptions: Types and Key Differences

Tax Exemption Explained

Article 22 of the LGT defines tax exemptions as instances where, despite an activity being taxable, the law exempts it from the primary tax liability. This occurs when a rule stipulates that a tax provision doesn't apply to specific factual circumstances that would typically trigger tax liability, or when it prevents the legal consequences arising from the tax rule for subjects within the exemption's scope.

Key Features of Tax Exemptions

• Exceptional Nature: Tax exemptions are purely exceptional.
• Dual Standards: They involve two standards: one subjecting certain assumptions and people to tax, and another exempting some of the same circumstances.
• Timing: The exemption is made after the taxable event occurs.
• No Tax Liability: Results in no tax liability.

Classes of Tax Exemptions

Objective Exemptions

These exemptions define the rule in a way that deprives the budget of constitutive effectiveness of tax obligations regarding acts that do not generate tax liability.

Subjective Exemptions

These exemptions aim to ensure that individuals are not liable to contribute, even if the obligation could legally arise.

Temporary Exemptions

These exemptions produce an exclusionary effect on the tax obligation only for a limited period, as defined at the time of creation.

Permanent Exemptions

These exemptions do not have a time limit.

Total Exemptions

These exemptions prevent the creation of a tax liability for specific acts or subjects.

Partial Exemptions

These exemptions do not prevent the creation of the obligation but reduce the amount of debt.

Exemption vs. Non-Taxable

Rules defining non-taxable activities clarify or supplement the definition of taxable transactions through a negative determination, explaining situations outside its scope. With no birth fails to subject the tax liability, facts that are not subject.

The key difference is that exemption requires two standards, where the second prevents the implementation of the first. Non-taxable assumes a single subject rule, which is not applicable, and therefore no tax liability arises.

Possible Scenarios

• Subject and exempt.
• Subject and not exempt.
• Not subject (by logic).

Impossible Scenario

• Not subject and exempt (no logic).