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Unconstitutionality of the Tax on Presumed Minimum Income Impacts Taxpayers
In Argentina, tax on presumed minimum income ("TPMI") applies to worldwide assets of Argentine companies and other entities, such as Argentine trusts; common investment funds; and permanent establishments of foreign entities and individuals in Argentina. This tax only applies if the total value of the assets exceeds AR$ 200,000 at the end of the entity's financial year. The total value of the assets is then taxed at a rate of 1%. This tax will only be owed if the income tax determined for any fiscal year does not equal or exceed the amount owed under the TPMI. The 1% tax is levied on the excess of the TPMI determined in fiscal year over the income tax determined for the same fiscal year. Any TPMI paid will be applied as a credit toward income tax owed in the immediately following ten fiscal years. Taxand Argentina examines the legal implications of TPMI being ruled unconstitutional for taxpayers following a high profile court case.
On 15 June 2010 the Supreme Court of Justice ("SCJ") issued an important sentence deciding the unconstitutionality of the TPMI in "Hermitage SA vs. Ministry of Economy".
Hermitage, a hotel chain company, filed a complaint with the aim of obtaining the declaration of unconstitutionality of the TPMI arguing the existence of losses -which were proved by an accountant expert report- during the fiscal periods 1995, 1996 and 1998. The SCJ declared TPMI is unconstitutional for the Hermitage's case.
According to the SCJ, the main issue to decide on this matter was if the taxation method of the TPMI was unconstitutional for Hermitage since this method does not take into account the liabilities or debts of the companies on which the tax is levied or their effective incomes or profits. In this particular case, Hermitage proved the existence of losses in its activities.
The SCJ considered that this tax was intended to levy a minimum income presumed by law and that this presumption does not admit proof to the contrary. The SCJ explained that although the application of the presumption technique in a law was not forbidden, the use of this method must be limited to those cases where particular circumstances exist justifying its use, especially when the presumption does not admit proof to the contrary.
As a consequence, and bearing in mind that this presumption affected many different activities and that there is not a justified reason for not admitting the proof to contrary, the SCJ considered that the presumption of the TPMI was unconstitutional for the particular case of Hermitage.
Although the legal effects of the SCJ sentence are limited to this particular case, since Hermitage had to convincingly prove only the lack of existence of incomes presumed by the TPMI, this ruling might have many legal implications such as the following:
- Other taxpayers proving an analogous situation to the Hermitage's case might file a complaint with the aim of obtaining the declaration of unconstitutionality of the TPMI.
- Certain vehicles might consider that they do not have to prove the lack of income in order to obtain the declaration of unconstitutionality since they are unable to obtain any income (for instance, guaranty trusts).
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Lucia Peralta Krogslund
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