The Argentine Supreme Court disqualifies municipal taxes (“tasas municipales”) that are based on rendering general services

On June 23, 2009 in the “Recurso de hecho deducido por la actora en la causa Laboratorios Raffo S.A: c/ Municipalidad de Córdoba” case, the Supreme Court of Justice, sharing the grounds put forward by the General Attorney, revoked the judgment of the Superior Court of Justice of the Province of Cordoba (“SCJ”), that issued its decision in favor of the application of the “Contribución que incide sobre el Comercio, la Industria y las Empresas de Servicios” (the “CCIES”) claimed by the Municipality of Cordoba.

According to Section 167 of the Municipal Fiscal Code of such Municipality (in force both during the claimed fiscal periods and currently) the taxable event of the CCIES is defined as it follows: “Any commercial or industrial activity, the performance of services, or any other activity performed in an onerous manner, and any other fact or action destined to promote, stimulate or exhibit it in any way; is subject to the payment of the CCIES, according to the rates, the additional, the fixed amounts and the minimums that the Annual Tax Law establishes, by virtue of the municipal services of control, health, hygiene and social attendance and any other not repaid by a special tax, but that tends to the general well-being of the population”.

In order to judge in favor of the Municipality, the SCJ had considered, among other aspects, that:

(a) section 167 of the Municipal Tax Code does not demand, as a requirement for the collection of the CCIES, the existence of an authorized establishment; and

(b) that the legal definition of a same taxable event can operate, indifferently, as a retributive tax[1] (“tasa”) or as a tax (“impuesto”) according to the modality of the activity on which the tax falls.

When filing its complaint before the Court, the company sustained the illegitimacy of the municipal position on the following grounds:

(a) if the CCIES is considered a retributive tax, it does not satisfy the requirement imposed by the Court’s jurisprudence, in the sense that such taxes always require a “specific, effective and individualized service regarding something not less individualized (act or goods) of the tax payer”, since services cannot be rendered to a person that does not have physical presence within the Municipality;

(b) if the CCIES is considered to be a tax, it does not respect the Federal Tax Sharing Agreement (“Régimen de Coparticipación Federal”) as the CCIES is analogous to VAT, in violation of Section 9 Subsection b) of Law No 23,548.

The Court rejected the argument used by the SCJ whereby the CCIES could operate, indifferently either as a tax which is retributive for a specific public service ("tasa") or as a tax which is not directly retributive for any specific public service ("impuesto"), and in such sense remarked that the difference between both tax categories is determined by the existence or not -in its respective taxable events- of the development of a state activity that concerns the taxpayer. In addition, the Court added that the distinction between both categories is not merely academic but is essential in the coordination of tax powers between the different government levels. This coordination arises from the Federal Tax Sharing Agreement which exceptionally authorizes municipalities to charge for the same taxable events as the Argentine shared taxes only if the municipal tax recompenses services effectively rendered by the Municipality.

Based on such analysis, the Court concluded that the CCIES must be considered as a retributive tax (“tasa”) and not as a tax (“impuesto”), inasmuch as Section 167 of the Municipal Tax Code specifically mentions certain services that must be rendered by the Municipality.

In these terms, the Court finally analyzed whether the CCIES, as a retributive tax, could validly be claimed from Laboratorios Raffo, a company that although it promoted its products through a medical advertising agent in the City of Cordoba, lacked any deposit or establishment in this jurisdiction.

The Court concluded that the Municipality’s position, in the sense of trying to justify the collection of the CCIES in general services (such as the control of buildings; the coordination of transport; the necessity of ordering the transit and regulation of the parking; etc.) does not satisfy the essential requirement applicable to retributive taxes, as far as which collection must always correspond to a concrete, effective and individualized service, referred to something not less individualized (act or goods) by the tax payer, a requirement that, in the Court’s opinion, is based on Section 17 of the Argentine Constitution.

Lastly, the Court indicated that although its judgments only decide in special cases analyzed by it, and its conclusions are not mandatory for analogous cases, lower courts must concur their decisions to those, as a result of which, the sentences of lower courts that do not respect the Court’s precedents, without giving new arguments, are considered to be groundless.

The holding of the Court in this case is particularly significant as there are many municipalities that, like the Municipality of Córdoba, have built in to their tax legislation this type of “apocryphal municipal taxes”, which have fortunately been disqualified by the Supreme Court.

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