The practice of trade is influenced by customs. In fact, we can affirm that trade is born and develops on the basis of the daily exercise of operational mechanics that become what is commonly known as “commercial custom”. This “commercial custom” has various definitions, all of which are subsidiaries of the consulted bibliography. However, for the purposes of this space, we can affirm that commercial custom is something that “is learned by doing”.
Simply carrying out an activity implies replicating what has been done but also consulting how it is carried out by industry peers. When doing business with ties in different jurisdictions, the effect is manifested because the industry is global and, consequently, the practices will also be global.
In this context, of unavoidable reference, we observe the dynamic force of tax law, always jurisdictional (local) and the impact of international agreements via conventions that in our legal context will have supra-legal rank (Art. 75, inc. 22, CN) or international recommendations that, today, cannot be ignored (soft-law).
The dynamism of tax law, the jurisdictionality imposed by the concept of fiscal sovereignty, as well as the interest in coordinating the exercise of tax jurisdiction at an international level promoted by the OECD, is not always understood by the economic operator who, on a daily basis, does not subject its business model, its tax practices to fiscal scrutiny or, worse still, does not analyze the construction of its "defense file" for tax purposes.
The above is demonstrated in cases such as PEX SRL where the National Federal Administrative Litigation Chamber – Room IV – 28-06-2016 was forced to analyze a legal concept as basic (but evidently forgotten) as the delimitation of the national territory to end up reminding the taxpayer that the Free Trade Zones are also part of our territory so that the operations carried out there will be considered income from an Argentine source in the terms of Art. 5 Law 20.628.
Following the reform carried out by Law 27.430, the Argentine tax regime has been substantially modified, but as far as this article is concerned, the recommendations made by the OECD in the inclusive BEPS framework and, specifically, in its Action 7 are taken into account. The latter is aimed at combating common practices aimed at avoiding setting up a permanent establishment in a given jurisdiction.
The permanent establishment is linked to the minimum threshold to be linked to a territory in order for it to be able to legitimately exercise its jurisdiction for tax purposes. In other words, we can report that it represents a minimum settlement measure so that, once verified, the operating unit is treated as a resident for tax purposes in said jurisdiction. This effect generates, in most cases, taxation on income tax on a global basis, taxation of assets on a global basis, transfer prices as well as a multiplicity of formal and material obligations.
In this context, we must highlight the importance that the aforementioned reform (Law 27.430) has given to Law 20.628 (income tax) since, in the current system, Art. 22 Law 20.628 incorporates definitions of situations that would allow the establishment of a permanent establishment in the Argentine Republic. It should be noted that this local definition will be used whenever the counterparty does not reside in a jurisdiction with which the Republic has entered into an international agreement to avoid double taxation.
Reading the different assumptions of the reference article allows us to visualize the broadness of the recent definition of Permanent Establishment for the purposes of Law 20.628. Now, considering a certain way of doing business in the field of international trade of goods (and if you like, of services), the special regulation made in the sixth paragraph of Art. 22 of the norm under reference is important, which, due to its importance, we transcribe in full:
“Notwithstanding the provisions of the preceding paragraphs, a permanent establishment is considered to exist when a subject acts in the national territory on behalf of a natural or legal person, entity or property from abroad and said subject:
a) possesses and habitually exercises powers that enable him to conclude contracts on behalf of the said natural or legal person, entity or foreign property, or plays a significant role that leads to the conclusion of said contracts;
b) maintains a warehouse of goods or merchandise in the country from which it regularly delivers goods or merchandise on behalf of the foreign entity;
c) assume risks that correspond to the subject residing abroad;
d) acts subject to detailed instructions or general control of the subject from outside;
e) carries out activities that economically correspond to the resident abroad and not to his own activities; or
f) receive their remuneration independently of the results of their activities.”
The reader should note that what before the tax reform in question would have been a common practice in trade (in this case international), would currently radically modify the obligations to the local tax authority (AFIP) of a previously understood business execution mechanism motivated by the obligatory capacity of the local subject, representative of the subject abroad.
The previously made introduction allows us to visualize the perniciousness of developing businesses simply "as they were being developed" or "as it is developed in other latitudes", the reference to the dynamism of local tax law allows us to visualize the importance (and need) of recurrently testing the applied business models, the reference to international recommendations (and their local strength) implies analyzing the business scheme under execution and its capacity to sustain itself in the future.
Although in the story I have made (summarized for reasons of space) in reference to the previously mentioned antecedent (PEX SRL) I have used a rhetoric that calls for the absurdity of the taxpayer's error, the reality is that, in the new regulatory context, not visualizing the "turn" given by Law 27.430 on the legal consequences of a business model would imply that, in the future, the taxpayer's error could be described with the same rhetoric (even mocking) because we speak at all times of a much deeper but always present concept: tax jurisdiction.
The analysis of the tax framework for the present moment or the study of the tax framework previously assigned to the business involves an exercise in risk and damage control. The study with a vision of the future, considering the sense of international recommendations (soft-law) makes the task of the international tax planner and the study of scenarios (contingents) so necessary for the course of business.
Sergio Carbone is a Public Accountant (UBA)
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