Turnover Tax and provincial tax power

On September 8, 2003, the Argentine Supreme Court of Justice pronounced its judgment in the “Total Austral S.A. c/ Tierra del Fuego, Antártida e Islas del Atlántico Sur, Provincia de s/ acción declarativa” case, in which it was discussed if the Province had tax jurisdiction to claim Turnover Tax on a hydrocarbon field located in the Argentine territorial sea, beyond the 3 marine miles from the coast limit.

The taxpayer and other companies had the exploitation concession of the hydrocarbon field named “Hidra”, located 7 marine miles from the coast of the Province of Tierra del Fuego, Antártida e Islas del Atlántico Sur, in the Argentine territorial sea.

The Provincial Tax Authorities assessed a Turnover Tax debt for the periods between March 1991 and December 1992. Such claim was sustained on the ground that the Province of Tierra del Fuego, Antártida e Islas del Atlántico Sur had tax power beyond the 3 marine miles limit from the coast.

The company appealed the assessment but such appeal was rejected. Against the rejection, Total Austral Argentina S.A. filed a new appeal before the Minister of Economy of the Province. Before such new appeal was decided, the taxpayer brought a declaratory action before the Supreme Court. The periods involved in the action were 1991, 1992, 1993 and January 1994.

The Supreme Court ruled in favor of the company and established that provincial tax power is limited to a limit 3 marine miles from the coast. It also established that Section 81 of the Constitution of the Province of Tierra del Fuego, Antártida e Islas del Atlántico Sur violates the Argentine Constitution because it extends the provincial jurisdiction with respect to the economic exploitation up to the point where Argentina has jurisdiction. The Supreme Court indicated that the Province intended to apply a power that only the Federal Government has and which is forbidden to the Provinces.