In recent years, the number of disputes in Argentina between taxpayers and fiscal authorities has been increasing because of, for example, the introduction of new taxes, frequent changes in legislation and rules that were worded weakly or that had serious gaps. On the other hand, another factor that seems to have had an influence on this phenomenon is the more proactive attitude of the tax authorities, who have lately been showing special concern about various aspects of cross-border transactions among other areas.

Litigation process

In Argentina tax payment is based on self-assessment and the filing of tax returns. The tax authorities may review the tax returns filed, challenging the amounts declared by the taxpayer following the procedure established by the Tax Procedural Law 11,683. The statute of limitation is five years. This term begins on January 1 following the due date for the filing of the tax return.

To this end, the tax authorities (Federal Administration of Public Revenue - AFIP) must resort to an "ex officio assessment" process, which basically consists of an administrative discussion as to whether or not the challenges made by tax agents in relation to a taxpayer's return are valid. This process concludes with a ruling issued by an administrative judge (a tax authority officer with powers to, for example, modify the returns of taxpayers and impose penalties), who will rule on the definitive opinion of the tax authorities in relation to the taxpayer's tax returns and eventually on penalties and interest applicable.

A 1.5% monthly interest rate is applied by the tax authorities on any tax due.

Fines for tax omissions range from 50% to 100% on the tax unpaid, rising to 100% to 400% when the tax omitted originates in transactions with foreign parties. Penalties for tax fraud range from 200% to 1.000%. However, it is customary for the tax authorities to apply them within a range of 70% to 80% or 300% to 400% for cases involving tax omission or tax fraud, respectively. Certain reductions may apply based on the behaviour of the taxpayer and the timing of the settlement, if any.

The taxpayer is entitled to either appeal the ruling at a higher level within the AFIP, requesting the "reconsideration" of the decision or at the National Tax Tribunal (Tribunal Fiscal de la Nación or TFN). Either of these two proceedings prevents the tax authorities from enforcing collection of the tax being claimed, which will become payable once the appeal submitted by the taxpayer has been ruled upon and the assessment has been confirmed. Usually, taxpayers opt to appeal to the TFN.

The TFN is not strictly speaking a "court" but an administrative tribunal that specializes in the resolution of tax and customs matters. It is formed of judges specially appointed by the executive branch and who are distributed in "Rooms" of three "voting members" each.

The Rooms ruling on disputes are formed not only by lawyers but also by a voting member who is a certified accountant specialized in tax matters, giving rise to an interdisciplinary approach that has resulted in a more fruitful understanding of the cases.

Over more than 40 years, the TFN has earned considerable prestige and its rulings have inspired numerous changes in legislation. The existence of this tribunal enables the taxpayer to gain access to a stage of discussion with the tax authorities that can occur before a specialized body independent from the fiscal administration.

The subsequent legal proceedings before a court of appeal (to which the taxpayer will always have recourse regardless of whether "reconsideration" by the tax authorities has been previously requested or if an appeal was filed with the TFN) do not prevent the tax authorities from collecting the tax claimed if their position is upheld by the TFN. Moreover, appealing to court leads directly to the obligation to pay the amount claimed if the taxpayer had opted for requesting "reconsideration" from AFIP.

Tax claims not related to the calculation of the tax liability (for example, when the objection refers to the means of payment of the tax due) cannot be appealed to the TFN and can be reviewed only by the AFIP before the legal proceedings. Although in recent years there has been a trend towards restricting the competence of the TFN, it remains the most important tribunal for reviewing the decisions of the tax authorities.

As regards provincial and municipal taxes, in general there are no bodies equivalent to the TFN, and those that nominally take that role do not represent a body independent of the fiscal administration, which is aggravated by the solve et repete principle with subsequent appeal to a court of law.

Tax criminal law

Argentina has also specific tax crime legislation, which sets prison terms for those evading federal taxes (including social security). In the case of legal entities, directors, managers or representatives taking part in tax crimes may be subject to those penalties.

Under some circumstances, the current rules (Law 24,769 last modified in 2004) provide severe prison terms, which have been progressively increased since the enactment of the original law in 1990. The filing of criminal charges by the tax authorities requires a prior assessment at an administrative level of the tax evaded. The criminal proceedings will take place concurrently with the tax controversy at the TFN over the amount of the tax assessed.

Despite the existence of this criminal legislation, which imposes severe penalties, in practice there has not been any significant volume of relevant case law, and only in recent years have the first significant rulings been handed down. This is due not only to the relatively short time that has elapsed since the introduction of the tax criminal legislation and the existence of an acquittal in the event of the payment of the tax evaded when criminal charges are brought for the very first time (this acquitting excuse, extinguishing the criminal proceedings when the debt being claimed is paid, is now only applicable to cases of lesser significance), but also in particular to a series of regimes for the regularization of tax liabilities implemented by different administrations granting amnesties for tax code violations. It has been at least four years, however, since the last tax amnesty was introduced.

Early rulings providing an indication of the scope of criminal charges in this area include the one issued by the National Court of Appeals for Economic Crimes, Room A, on August 3 2004, in which a majority verdict concluded that even though it could be considered that the form adopted by the taxpayer was null and void, this did not represent a criminal act as the transaction was fully declared in the corresponding tax returns, enabling the tax authorities to carry out the tax audit.

Recent decisions

In recent years there has been a marked increase in tax disputes in Argentina, as a result of not only the tax authorities' more active role but the complexity and instability of the Argentine tax system.

The following table (see below), prepared on the basis of information provided by the National Tax Tribunal, compares the number of cases entering the TFN each year as appeals in tax matters (that is, excluding information on customs claims).

This trend towards a significant increase in tax inspections and controversies (a tendency that is confirmed by the number of cases brought in 2005 to date) can also be detected from the number of lawsuits brought by taxpayers claiming the unconstitutional nature of legislation. The TFN is not qualified to rule on the constitutionality of laws, decrees or resolutions. As a result, taxpayers basing their case exclusively on such grounds are likely to resort to federal courts to bring their claims.

The obvious outcome of this phenomenon is the increase in the number of court decisions. The Argentine legal system does not follow the Anglo-Saxon tradition of "case law" that enables decisions to be extended to resolve other lawsuits, as court rulings in Argentina are considered applicable only to the specific case being dealt with. Among others, the following verdicts handed down recently by the courts can be quoted:

• Santiago Duggan Trocello: in this case, the Supreme Court ruled that the taxpayer's allegation of unconstitutionality of the prohibition against the recognition of inflation for tax purposes after the devaluation of the Argentine peso was unfounded.

• International Engines South America, in which the TFN approved a tax-free corporate reorganization (merger by absorption), based on the understanding that as the reorganization took place between companies forming part of a single economic group, some of the requirements laid down by the income tax law (such as that the absorbed entity should have performed activities similar to those of the absorbing company for a certain period before the reorganization) were not applicable.

• Fiorito, Marcelo; Bearzi, Sergio and Autolatina Argentina SA among others, in which the TFN established the requirements for proof that must be followed to demonstrate the entry of funds into the country, to be able to justify variations in the net worth of taxpayers, and the elements required to show evidence of the existence of loans or contributions received from abroad, in some cases confirming the tax assessments made by the AFIP, and in other cases revoking them.

• Fiat Concord, Bio Sidus and Janssen Cilag Farmaceútica among others, in which the TFN rejected assessments made by the tax authorities in relation to loan agreements entered into between related parties by applying the notional interest rate stipulated by the income tax law. The TFN accepted the contractual terms agreed by the parts establishing the actual income, if any.

• Banco Río de la Plata v/Province of La Pampa, YPF v/Province of Tierra del Fuego and Transportadora de Gas del Sur v/Province of Santa Cruz among others, cases in which the Supreme Court rejected the assessment of provincial stamp tax on contracts between absent parties (tacitly accepted contracting terms), as such claims violated the restrictions that the provinces imposed on themselves when they signed the tax revenue-sharing agreement with the federal government.

• More recently, in Unilever v/Municipality of Rio Cuarto, Province of Córdoba, the Supreme Court ruled in favour of the competence of federal courts to rule on lawsuits brought against municipalities in cases charging the failure to comply with the mentioned federal revenue-sharing regime.

As can be seen, there are various topics on which Argentine courts have recently established jurisprudence in tax matters. In particular, the TFN has played a significant role in cases related to federal taxes, and in the case of provincial and municipal taxation there has been a noticeable increase in the involvement of federal courts and even the Supreme Court in the resolution of tax lawsuits. This trend has definitively marked the development of the tax controversy practice in Argentina.

Biographies

Andrés Mariano Edelstein PricewaterhouseCoopers Bouchard 557 10th floor (1106) Buenos Aires Tel: +54 11 4850 6722 Fax: +54 11 4850 6999 Email: andres.m.edelstein@ar.pwc.com Andrés Edelstein is a tax partner of PricewatehouseCoopers in Buenos Aires. Edelstein joined the firm in 1990 and has more than 10 years' experience assisting multinational companies with Argentine interests on Argentine and international tax matters. He was assigned to the Latin American Business Centre of PricewaterhouseCoopers in New York, where he worked extensively in the area of cross-border transactions. Edelstein has been a frequent contributor to International Tax Review, Tax Notes International and to several local publications (Doctrina Tributaria Errepar, Panorama Minero) and newspapers (Ambito Financiero, La Nación, Infobae). He is also a co-author of three books: Aspectos Fiscales del Leasing (March 2001), Impuesto sobre los Créditos y Débitos Bancarios (October 2002) and Tratado del Impuesto a las Ganancias (April 2005). Edelstein is a public accountant, graduatinh from Universidad Argentina de la Empresa, Argentina, with specialization studies in finance from the Universidad de Buenos Aires. He is member of the CPA Association of the City of Buenos Aires, the Argentine Fiscal Association and the International Fiscal Association.   Gustavo Wunder PricewaterhouseCoopers Bouchard 557 10th floor (1106) Buenos Aires Tel: +54 11 4850 6717 Fax: +54 11 4850 6999 Email: gustavo.wunder@ar.pwc.com Gustavo Wunder is a manager of the tax department of Price Waterhouse & Co Asesores de Empresas SRL in Buenos Aires, a member firm of PricewaterhouseCoopers. He specializes in international taxes, focusing on corporate structuring, M&A and cross-border transactions. During his career he has assisted multinational companies, mainly in the energy, mining and iron and steel industries. Wunder is a public accountant, graduating from Universidad de Buenos Aires, and former lecturer in tax law. He is a frequent correspondent to International Tax Review.   Eduardo Gil Roca PricewaterhouseCoopers Bouchard 557 10th floor (1106) Buenos Aires Tel: +54 4850 6728 Fax: +54 11 4850 6999 Email: eduardo.gil.roca@ar.pwc.com Eduardo Gil Roca is an attorney at law and public accountant and is a graduate of the University of Buenos Aires and the University of Belgrano. He joined PricewaterhouseCoopers in Argentina in 1993 and at present he is the director of the tax litigation area of the tax & legal practice. His experience includes tax consultancy, and the providing of assistance on tax litigation for industrial, consumer goods and services companies. Roca has participated in various local and international training courses conducted by PricewaterhouseCoopers relating to audit and tax. He lectures at the University of Social and Business Sciences and several other universities. He is also an instructor for in-house and external courses organized by the firm.