Tax on Credits and Debits: The Argentine Supreme Court Decided on their Constitutionality

Piantoni Hnos. was a wholesale distributor of cigarettes and tobacco products that were acquired from its supplier. It operated by collecting in cash the amounts originated in sales and depositing, on a regular basis, the cash in the supplier's bank account. Thus, through this mechanism, the payment was made without Piantoni Hnos. using its own bank accounts.

The Argentine Tax Authority argued that according to Law No. 25,413, its regulatory decree and the Tax Authority’s General Resolutions No. 1135 and No. 2111/2006, the deposit of funds in the supplier's account was a transfer of funds subject to the tax on credits and debits in bank accounts and other transactions (the "Tax").

The Argentine Supreme Court, by majority vote, decided that the regulations challenged by the Company did not infringe the Constitution and reviews, in first instance, its text and scope. In particular, it indicates that Section 1 of Law No. 25,413 established that "all transfers of funds, own or of third parties, even in cash, that any person [...] make for its own account or on behalf of others, whatever the mechanisms used to make them, the denominations granted, or the legal instrumentation ... ", among others, are subject to the Tax.

Afterwards, the Court noted that the regulation (Decree No. 380/2001) provided a similar rule that was also regulated by section 43 of the Tax Authority’s General Resolution No. 1135/2001, which stipulated that: “the transfer or deliveries of funds included […] are those that are made through organized payment systems -existing or not to the validity of the tax on credits and debits in bank accounts and other operations-, replacing the use of the accounts provided in section 1 , subsection a) of Law 25,413 and its amendments. The provisions set forth above apply, provided that such transfers or deliveries of funds are made, on their own behalf and / or by others, in the exercise of economic activities”.

Judges Highton de Nolasco and Maqueda concluded that the essential elements of the Tax (its taxable event, the taxpayers, the taxable base and the exemptions) were expressly established by a formal and material law passed by Congress; therefore the unconstitutionality claim cannot succeed.

Further on, they argued that the legislator did not seek to tax any transfer of funds but only that which could reasonably be considered to be "replacing" a transaction that was not made through a debit or credit in the bank accounts of the subject making the operation. They noted that the purpose of taxing the "transfers of funds" that substitute the use of bank accounts was to eliminate those sources of avoidance that had appeared since the Tax came into force. In this way, they dismissed that the regulation had exceeded the terms of the Law.

According to this, they concluded that Piantoni Hnos.'s operation - that regularly deposits of cash in the bank account of its supplier and that those payments were made within the contractual relationship in exercise of economic activities, in this way replacing the use of their own bank accounts- entailed a transfer of funds subject to the Tax.

Likewise, Judge Rosenkrantz in his concurring vote, agreed with the aforementioned solution, adding that the taxable event was broadened by means of Law No. 25,453. Additionally, he considered that Tax Authority’s General Resolution No. 1135/01 did not infringe the rule of law since it did not exceed the legislator’s will as  established in the Law. He also noted that the fiscal rule does not presuppose or establish the legal obligation to deposit in the taxpayer's own bank account the cash obtained by its commercial activity before transferring it to a third party (client or supplier). On the contrary, the Law creates tax incentives for taxpayers to transfer all funds through bank accounts and does so through the presumption that cash operations replace banking operations and the consequent application of twice the current rate for transfer of unbanked funds (there is no obligation to deposit the cash in an account of one’s own before making the movement of the funds but, if it is not done, the tax rate is higher).

Finally, Judge Lorenzetti, in his dissenting vote, decided to render null and void the Court of Appeal’s judgment. To this end, he considered the questioned rule to infringe the Constitution because it did not respect the rule of law since it was otherwise generic and undetermined and did not contain all the necessary elements to create a fiscal obligation. He also argued that it is the law’s duty and not of the regulation or of the interpreter to establish and outline, in a certain and precise manner the tax legal event, in such a way as to allow the taxpayer to recognize it and verify if it has been produced. The lack of characterization of the aforementioned material element affects legal certainty by leaving the final definition of the taxable event to the criterion of the collecting authority.

On the same date, the Argentine Supreme Court reiterated this majority criterion in the case "Máxima Energía S.A.".

The judgment that we comment is the first in which the Argentine Supreme Court decides on the tax treatment to be applied to the "organized payment systems" and, quite possibly, its case law will be adopted by other courts in similar cases.