Extension of directors’ liability for tax debts of the corporations

On June 9, 2005 the Argentine Court of Appeals in Administrative Matters, Tribunal No I ruled about the several liability of a director for tax debts of the corporation in which he held such position, after the cancellation of the corporation, in re: “Werthein, Julio vs. Dirección Genera. Impositiva”.

In the mentioned case, the Federal Tax Bureau (Administración Federal de Ingresos Públicos – AFIP) assessed income tax to the director of “Producciones Liceo S.A.” corporation, as severally liable for the tax debt of the company. When the Federal Tax Bureau assessed the tax, the corporation had been wound up and its registration before the Public Registry of Commerce (Inspección General de Justicia – IGJ) had been cancelled.

In the first stage, the Argentine Tax Courts (Tribunal Fiscal de la Nación) considered that, though in principle directors are severally liable for tax obligations of the corporations that correspond to the period when they were in charge, the winding up of the company, executed in accordance with the requisites of Companies Law No 19,550, constitutes a barrier for third parties that had not challenged the cancellation and/or filed their claims. Furthermore, it considered that such limitation also applied to the Federal Tax Bureau. It should be pointed out that the Companies Law sets forth that cancellation and winding up of the company is enough to free directors of responsibility against third parties.

The Federal Tax Bureau appealed the resolution of the Argentine Tax Courts. The Argentine Court of Appeals in Administrative Matters, Tribunal No I revoked such decision.

To rule in this sense it understood that dispositions of the Companies Law cannot be applied to tax matters. Such circumstance would imply incorporating a cancellation hypothesis of tax obligations, which is not foreseen in the specific tax law.

In conclusion, in accordance with the legal precedent of the Argentine Court of Appeals in Administrative Matters Tribunal No I, if all requisites, both objective and subjective, are gathered in order to justify the personal and several liability of the director in respect to potential debts of the corporation, the Federal Tax Bureau is allowed to start a claim against the director, even when the corporation was cancelled and wound up in accordance with the Companies Law and its cancellation was registered before the Public Registry of Commerce.

Please note that this resolution was appealed by the taxpayer and the Argentine Supreme Court of Justice will probably have to make a definitive decision on this issue.