No Service, No Tax, Says Court to Municipalities of the Province of Buenos Aires

The Argentine Supreme Court has a consolidated legal standard under which the State can only collect taxes on public services if those services are rendered in a “concrete, effective and individual manner in benefit of the taxpayer” (Judgment 332:1503, among many others). This means that if the State wants to collect taxes on safety, security and sanitary inspections, it can’t simply rely on the fact that taxpayers who did not receive any such inspection are still benefited from the inspections of other taxpayers in the same municipality. Instead, it has to effectively inspect that taxpayer too. In addition, the Supreme Court has added that the burden to prove that services were effectively rendered falls on the municipalities—and not taxpayers (Judgment 335:1987, among others).

Although this Argentine Supreme Court standard is clear and has been sustained for decades, a local lower court, i.e. the Supreme Court of the Province of Buenos Aires (the “SCBA,” after its acronym in Spanish) and many trial and appellate courts of that province have followed a different standard (thus circumventing their duty to follow Argentine Supreme Court standards as emanating from the highest court of the land). The SCBA has found in many cases that the rationale for collecting these taxes is the provision of actual or potential public services, adding that if the taxpayer alleges that the service was not rendered, that taxpayer would bear the burden to prove it (see, e.g. “Nobleza Piccardo c. Municipalidad de General San Martín,” Judgement of November 28, 1995, among others).

While the SCBA acknowledged that demonstrating that services were not rendered (i.e.  proving an omission) was extremely challenging, taxpayers still paid these taxes even if no services were actually rendered. And this matter comes up often in cases involving the safety, security and sanitary inspections of stores, offices and other establishments, where taxpayers are taxed for inspections even if no inspection actually took place.

But in a December 29, 2020 judgment, the SCBA changed its interpretation. The case is “Automóvil Club Argentino c. Municipalidad de La Plata.” This time, the provincial court concluded that its original standard cannot be understood as meaning that municipalities can limit the taxed service to administrative matters alone and, on those grounds, collect taxes without actually carrying out any inspection. In addition, the SCBA also enforced the Argentine Supreme Court Standard under which, if a given taxpayer alleges that the respective services were not rendered, the municipality bears the burden of proving the contrary.

The new criterion was also ratified by the SCBA in “Cappaccioni Roberto L. c. Municipalidad de Coronel Rosales,” of February 24, 2021, as well as by provincial appeal courts (such as the Court in Contentious Administrative Matters of San Martin in “AMX Argentina S.A. c. Municipalidad de Merlo,” of April 20, 2021).

This new interpretation by the SCBA will probably have a clear impact in current lawsuits against municipalities as well as in future claims, because it enforces a taxing requirement that was systematically being circumvented  by many municipalities in the Province of Buenos Aires. Now these municipalities will have to demonstrate that they have rendered the respective public services in a concrete, effective and individual manner in benefit of taxpayers. Otherwise, the collection of these taxes may be deemed unjustified.

Safety, security and sanitary inspection services in particular represent one of the most highly taxed services by municipalities. As a result, the new SCBA standard may have a financial impact on these municipalities, as they may have to increase their number of inspections or face litigation or collect less money. It is therefore reasonable to expect that larger taxpayers will very likely be inspected in the near future.

With respect to taxes for safety, security and sanitary inspections of stores, offices and other establishments located in the Province of Buenos Aires, the new SCBA standard revitalized a usual argument that had previously been ignored, except in some isolated cases (such as the case of the Court of Appeals in Contentious Administrative Matters of Mar del Plata).

The revitalization of this argument in the province gives taxpayers a strategically analytical tool in litigation or audits by the municipalities, allowing them to determine the priority of each of their arguments and to take into account which court has jurisdiction over their dispute (for example, when lack of services coincides with federal matters).