Deductibility of the Personal Assets Tax for purposes of determining Income Tax liability

Pursuant to the facts described in the sentences of the Federal Court of Appeals and of the Federal Tax Court (Tribunal Fiscal de la Nación), the taxpayer paid Personal Assets Tax on the shares he owned from a local company and deducted said tax as an expense for purposes of determining his income tax liability for the 1997 and 1998 fiscal periods. The Federal Tax Authority challenged said deduction arguing that the shares for which he had paid the Tax on Personal Assets did not generate taxable income for him and consequently, the tax paid was not an expense related to a taxable income. The taxpayer appealed the assessment before the Federal Tax Court. This court revoked in July, 2004. Although the grounds of Federal Tax Court to revoke are not very clear, it seems that it understood that the shares produced taxable income, and, since the Income Tax Law allows for the deduction of taxes levied on goods that produce income, it ruled in favor of the deductibility of the Personal Assets Tax. It also argued that, according to the Income Tax law, the only taxes that are not deductible are Income Tax itself and the taxes levied on vacant and unexploited plots of real estate, a case different from the one under analysis. The Federal Tax Authority appealed said decision. The Federal Court of Appeals revoked the Federal Tax Court’s ruling, holding that since the taxpayer had not declared any taxable income for his equity holding, the expense related to such holding was not deductible. Furthermore, it also argued that dividends are not a taxable income for shareholders for Income Tax purposes. This is the first case that rules that the part of Personal Assets Tax paid for the shares of a local company is not deductible for Income Tax purposes. CONTACTS For more information, please contact: Gabriel Gotlib Walter Keiniger