As the title of the note indicates, it is a question and reflection about one of the taxes with the greatest impact that affects individuals and legal entities and that impacts different areas of activity, including foreign trade in relation to import and export operations. To this end, let us begin with the basics regarding the power to set taxes of a national nature.
National Constitution
The aforementioned power arises first from art. 75 of the CN, which grants said power to the National Congress, expressly mentioning the following:
To impose indirect contributions as a concurrent power with the provinces. To impose direct contributions, for a determined period of time, proportionally equal throughout the territory of the Nation, provided that the defense, common security and general good of the State so require. The contributions provided for in this section, with the exception of part or all of those that have a specific allocation, are shared.
An agreement law, based on agreements between the Nation and the provinces, will institute regimes for the co-participation of these contributions, guaranteeing automaticity in the remittance of funds.
The distribution between the Nation, the provinces and the city of Buenos Aires and among them, will be carried out in direct relation to the competences, services and functions of each one of them, considering objective criteria of distribution; it will be equitable, supportive and will give priority to the achievement of an equivalent degree of development, quality of life and equality of opportunities throughout the national territory….
According to the traditional classification and without entering into technical discussions about the terms “contributions” and “tributes”, we understand that direct contributions are those that fall directly on the assets of the obligated subject (taxpayer), such as the so-called Personal Property Tax and the well-known Income Tax; while indirect contributions fall on consumption, such as VAT.
This power, which arises from art. 75 of the CN, is part of the so-called powers delegated by the provinces to the federal government. In this sense, it should be noted that such power is granted with certain limitations, since the same section mentioned above states that such contributions will be imposed for a determined time, proportionally equal throughout the territory and as a consequence of an express need that would be its condition. Therefore, there is a temporal limitation, equity of territorial application and conditioning in response to an express need (national security, for example).
What about income tax?
This tax, of a national nature and formerly called “Income Tax”, could be considered unconstitutional. Why? Because such a Contribution, based on the constitutional powers already mentioned and being a direct contribution, was created in 1933 with the name of Income Tax through Law 11.682, sanctioned in January 1933; that is, it has been in force for 91 years. In its original wording it said “This tax will expire on December 31, 1934…".
That is to say, it was a direct contribution, as an emergency, of equitable application throughout the national territory and obviously, for a determined time. But the constant extensions have distorted its reason for existence, systematically violating the constitutional mandate, by evading temporality with successive extensions, converting the Income Tax into a perpetual tax. It does not pass a simple reasonableness test according to the time limits that the Constitution itself indicates, and its constant application, which as indicated ut-above, is already 91 years old.
Background
As a precedent, there is the ruling of the Supreme Court of the United States of America in the case "Pollock vs Farmers Loan & Trust Co.", for a direct tax sanctioned in 1894, created as Income Tax but which did not qualify as an emergency, since the nation was not at war, thus exceeding the powers granted by the Constitution to the federal power.
In the particular Argentine case, taking into account that article 75, paragraph 2 of the National Constitution imposes clear and precise requirements regarding the imposition of direct contributions, it would not be argumentatively acceptable to consider that a direct contribution could be extended indefinitely and without an emergency reason that also justifies it.
The claim of unconstitutionality could be filed by individuals and legal entities affected by the tax in question, in addition to provincial jurisdictions, as long as a Direct Contribution is not subsequently shared and it could be determined that it does not comply with the specific allocation emanating from the constitutional text.
As regards foreign trade activities covered by the Income Tax, it would obviously also apply to operators to file an unconstitutionality claim, for the reasons briefly stated and also because the Federal Government would be violating nothing less than the federal constitutional system in such a sensitive matter.
Conclusion
In the event of a claim of unconstitutionality, the Judiciary should grant effective judicial protection, taking into account the restrictive nature of the powers of the Federal Government based on the specific constitutional text itself and the republican and federal system of government. Consequently, given that the so-called Income Tax has been in force for 91 years, it obviously has a temporary unreasonableness defect that the constitutional text itself frames; otherwise it could be considered that the federal government would be exercising a competence not supported by the constitutional text, without this exempting another Power of the State from responsibility, such as the National Congress.
It is therefore appropriate to consider that those directly affected by the application of the Income Tax, linked to import and export activities, could consider and raise the unconstitutionality of the aforementioned tax.
The author is a lawyer and member of the Institute of Customs Law and International Trade of the Argentine Association of Constitutional Justice.
