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Argentina: Case law against minimum notional income tax

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Andrés Edelstein


Ignacio Rodríguez

By the middle of last February, the Supreme Court of Justice issued a new opinion in case law "Editorial Perfil" against the constitutionality of the Argentine Minimum Notional Income Tax (MNIT). The MNIT is a sort of alternative minimum income tax, and is payable by companies, partnerships and other business entities organised or established in Argentina (including branches of foreign companies, certain trusts, closed mutual funds, and so on). The tax is also payable by individuals (or undivided estates) but only in respect of the rural real estate that they own.

The 1% tax is imposed annually on the assessed valuation for tax purposes of the assets at the end of each fiscal year, when it exceeds AR $200,000 (US$24,000). Banks and insurance companies are taxed only on 20% of such assets.

Shares and other equity interests in companies or partnerships subject to MNIT are not included among the taxable assets, nor is the value corresponding to new depreciable movable assets other than motorcars during their first two years, or building constructions or improvements.

The income tax corresponding to the same fiscal year may be recognized as a payment on account of the MNIT, up to an amount which matches the latter. If a MNIT balance remains and has to be paid after subtracting the income tax, this excess may be carried forward and counted as a payment on account of the income tax exceeding the MNIT liability for any of the following 10 fiscal years.

The Supreme Court's opinion involved the pronouncement of non-constitutionality for this tax in this particular case due to the lack of taxable contributing capability where no gain has been determined regardless of whether the assets of the taxpayer have the potential and future ability of generating income, even when this latter criteria had also been raised in another ruling in 2010 (Hermitage).

This conclusion was based on the understanding that the MNIT consists of a notional taxable income not allowing proof to the contrary while when it can be duly sustained that there were no gains and rather losses – as in the case under analysis – that assumption of having capability to generate taxable income based on the size of the assets becomes invalid. Thus, if the lack of taxable income is duly demonstrated the tax would become non-constitutional, according to the Court's opinion. As mentioned, in this particular case, this situation was verified and, in the opinion of the Court, duly proved.

It is important to point out that the opinion does not necessarily imply the MNIT's repeal or a general non-constitutionality statement. Rather, it is a conceptual argument to sustain that the tax may not apply in certain situations although there are some others in which further analysis may be required such as those in which there is gain but the 1% on the assets in higher than the income tax of the same year considering how both taxes articulate as explained above.

Although this ruling favoured a particular taxpayer, it cannot be omitted that the criterion may be replicated for other taxpayers that in essence are in similar situations: continuing lack of taxable income that may derive from different reasons.

The new scenario that takes place as a consequence of this jurisprudence obliges each taxpayer to review its situation to evaluate whether it is possible to fall under the Court's doctrine and, in this case, to define the steps to be taken not only with regard to stop paying the tax for future years but also for potentially claiming a refund of the tax paid in past years – in principle those not barred by the statute of limitations.

Andrés Edelstein (andres.m.edelstein@ar.pwc.com) and Ignacio Rodríguez (ignacio.e.rodriguez@ar.pwc.com), Buenos Aires

PwC

Tel: +54 11 4850 4651

Website: www.pwc.com/ar

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