Argentine Supreme Court Issues New Decision on Differential Tax Treatment According to Taxpayers’ Locations

Establishing a differential tax treatment based on the taxpayers’ locations has already been subject to debate before the Argentine Supreme Court (CSJN) on several occasions. Now, the Court’s opinion issued in the case "Mastellone San Luis S.A. v. Salta, Province of Salta s/ acción declarativa de inconstitucionalidad" on August 29, 2023, confirmed the unconstitutionality of a provincial rule establishing differential treatment according to the taxpayer’s locations.

In the case, Mastellone San Luis SA had filed a lawsuit seeking the unconstitutionality of a regulation issued by the Province of Salta, which established differential rates in Turnover Tax based on where the industrial plant was, where the taxpayer's activity is being carried out. Particularly, the Tax Code established an exemption for taxpayers whose facilities were in the Province of Salta. The company’s facility was not in Salta but in the Province of San Luis, and was thus subject to a 3.6% tax rate.

Mastellone stated in its lawsuit that the differential tax rate it was applied because its facility was not in Salta violated the principle of equality, a guarantee in section 16 of the Argentine Constitution. It also violated the prohibition to establish internal customs—sections 9, 10, 11, and 12 of the Argentine Constitution—since these rules lead to conclude that there can be no customs other than the federal one, and that the internal circulation of goods must be free of transit duties.

Salta, on the other hand, argued that the purpose of the exemption for taxpayers with facilities within the province was to promote the development of industries there and to create new jobs for Salta’s population. According to Salta, this did not violate the guarantees the company quoted.

The Court ruled in favor of the taxpayer, understanding that having an industrial facility in Salta to receive the exemption provided for in the Tax Code was unconstitutional.

In so deciding, the Court sustained that:

• The issue to be solved had substantial analogies with those already solved in cases on this same subject matter ("Harriet y Donnelly S.A. c/ Chaco, Provincia del s/ acción declarativa de certeza" and "Bayer S.A. c/Santa Fe, Provincia de s/ acción declarativa de certeza", both dated October 31, 2017) [See our comments on this ruling in the Marval News No. 178 https://www.marval.com/publicacion/inconstitucionalidad-del-tratamiento-diferencial-en-el-impuesto-sobre-los-ingresos-brutos-13090].
• Based on those rulings, applying differential tax rates hindered the development of trade among the provinces, which harms the principle of equality and interrupts the natural flow of trade (section 75, paragraph 13, and section 126 of the Argentine Constitution, which state that it is the National Congress that regulates trade among provinces, and that provinces cannot create provincial customs or pass laws regarding trade). Rules like Salta’s create a sort of "internal customs", something prohibited in the Argentine Constitution (sections 9 to 12), harming the commerce of goods produced in other parts of the country, while benefitting those produced in the province.

The Court thus once again disqualified the discriminatory tax treatment based solely on the taxpayer's location. The main difference with the "Harriet and Donnelly" precedent—and with that group of opinions—is that in Mastellone’s case, the Court itself rejected the possibility of denying an exemption based on the location of the industrial plant. In the other precedents, the Court had declared it had no competence to rule. Accordingly, the provinces’ claims to deny exemptions or reduce tax rates based solely on the taxpayers’ location would, in principle, be within the CSJN’s original jurisdiction and violate the rights and principles mentioned above.