The Income Tax is levied on all income, profits and enrichment. This profit may be from an Argentine or foreign source. The Argentine Republic applies the principle of Capital Export Neutrality (worldwide income), consequently the tax obligation on profits from foreign sources will apply if the person subject to the tax is an Argentine resident.
Imports
For its part, art. 9 of the Income Tax Law states that the profits of the foreign exporter upon the introduction of its products into the territory will be of foreign source and will not be taxed with this tax. This rule does not apply if it is an exporter from abroad who resides in Argentina. However, Yes, a fee is charged –additional value- of the Income tax on imports of a definitive nature. The profit collection regime on definitive imports is regulated in Art. 5 of General Resolution 4579/2019 of AFIP: the rate will be 6% on the normal price defined for the application of import duties, to which will be added all taxes on or due to the import and the rates that may apply; in the case of definitive imports of goods that are intended for the particular use or consumption of the importer, the rate to be applied will be 11%..
Although this perception may be subject to deduction in order to obtain the basis for calculating the advances, the regime itself presumes it as a continuation of annual income, obliging the taxpayer to enter advances on account of the tax of the current year and on the basis of the sworn declaration of the previous year.- AFIP General Resolution No. 327/99-, therefore, similar to the perception of Income Tax that was settled on the import.
This means unfavorable situations for the importer, further aggravated by the economic downturn caused by the health emergency.
COVID-19 tax advance
Imports should not be taxed with the tax created to apply to income and not purchases, nor as an advance payment, since the determination and liquidation cause the perception to become a quasi-tax on a fact that is not taxable by law.
No one is unaware of the delicate situation that Argentina and the rest of the countries are going through as a consequence of the health crisis and with it, the sharp drop in internal and external commercial activity. In this sense, Is it reasonable for the tax authorities to assume that the taxpayer can generate the same profits as in the previous fiscal period?
Although there is the possibility of benefiting from the reduction of advance payments, when those responsible consider that the sum to be paid in such concept exceeds the final amount of the obligation of the fiscal period to which it should be imputed, they may choose to make the aforementioned payments on account, for an amount equivalent to the result of the estimate they estimate. This action requires compliance with requirements that should be waived in the context of the current crisis.
It should be remembered that the optional regime operates when the taxpayer faces a significant drop in the level of his income, an option that may be exercised from the third advance payment (inclusive). However, it may be carried out from the first advance payment when it is considered that the total amount to be paid in such concept –by the general regime– would exceed by more than 40% the estimated amount of the obligation for the fiscal period to which it is attributable.
Undoubtedly, this benefit works to prevent the taxpayer from making excessive advance payments and generating a positive balance in the sworn statement.
However, taking into account the serious situation of the economic downturn due to the provisions of the Executive Power (Decree No. 297/20) that ordered preventive and mandatory social isolation as of March 20, 2020, the aforementioned benefit is not sufficient. Even though the option can be exercised by any obliged subject, the burden of proof falls on the taxpayer and the Treasury reserves the power to admit it or not. It is understood, then, that the benefit is limited and exceptional.
Within the framework of mandatory quarantine, no one can escape, not even the State that resolved such an extraordinary measure, that the taxpayer is not generating the same profits as in the previous fiscal period; therefore the benefit of reducing advance payments should be automatic, without the need for AFIP approval. At least exceptionally due to the current context, it would be appropriate to arrange for the burden of proof to be reversed on the active subject and not on the taxpayer. This would facilitate the tax determination scheme and make the collection effective, in safeguarding its own spirit and intended purpose. Even more so, when the Treasury itself has the power to charge interest as a result of reducing unjustified advances. Indeed, if the taxpayer unjustifiably reduces the advances, and the AFIP detects it, by submitting a sworn statement in which a profit is verified that is higher than that in proportion to which the reduced advances were entered, the taxpayer is obliged to pay interest on the sums whose entry was omitted. This measure acts as a guarantee in favor of the active subject, the State. This further supports the possibility of automating this benefit in the face of the current situation.
It is understood that the purpose of collecting advances as a perception is to provide a regular flow of funds to the State to allow it to ensure tax collection and thus be able to supply the needs of the public treasury without waiting for the end of the fiscal year. However, this tax-collecting spirit cannot exceed either the tax capacity or the principle of reasonableness, much less become confiscatory. These aspects should be adjusted in view of a universe of taxpayers who will see their profits reduced in 2020.
Income tax is levied annually, but advances are collected in certain months and at a time when the economy is in a complete slowdown. Such a tax requirement in the current situation could be considered confiscatory, since the principle of reasonableness must always be present in all tax imposition.
Conclusion
The quarantine imposed by the National Government requires the effort, responsibility and solidarity of all citizens, but the State itself must also join in with measures that protect the guarantees of taxpayers.
Although the definitive import currently imposes the payment of an advance payment of Income Tax, it still acts as a basis for calculating the advance payments. This requirement is imposed prior to the event that generates the tax obligation, that is, before the profit. In short, it taxes a taxable event that has not occurred and is even more detrimental to the importer, when in the current context it is clear that it will not occur.
Consequently, the collection of income tax on imports, at a time when there is no evidence of a taxable event in terms of the Income Tax Law, violates the guarantee of ownership and the principle of legality.
In this sense, the tax settled on an import, as well as the advance payments required by the Treasury, should be subject to review, not only due to its possible unconstitutionality by affecting fundamental principles in tax matters, but also in light of the current context of the health crisis caused by COVID-19, which exposes the lack of reasonableness in its determination.
By: Dr. Felipe Coronel de la Torre. Lawyer at the Guifecor Firm – Customs Law Attorneys
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