On December 29, 2017, Law No. 27,430 was published in the Official Gazette. Such law included a new paragraph on Section 79 of Income Tax Law, by means of which the sums derived from the termination of an employment relationship, perceived by individuals bearing administrator positions and executive charges in public and private companies, are considered subject to Income Tax, to the extent that those sums exceed minimum amounts set in the relevant labor law. The regulation to this amendment by the Executive Branch or the Argentine Tax Authority is pending.
Law 27,430 amended Section 79 of the Income Tax Law (“ITL”), including a new paragraph that taxes the sums perceived by administrators and executives in charge of public and private companies arising exclusively from the termination of a labor relationship and/or originated in agreements with their employers, despite the denomination given to such payments, but only in the proportion exceeding the minimum amounts set for severance payments in the relevant labor law. Pursuant to Law 27,430, regulations on this new disposition must be issued.
Until December 31, 2017 there was a discussion on whether certain sums paid to employees –administrators or executives charges or not– derived from the termination of a labor relationship (“compensation for maternity”, “special severance for trade union representatives” and “bonuses” for the termination of the employment relationship, among others) were subject to Income Tax, and so, to a withholding to be made by the employer, or not. The Argentine Supreme Court (“CSJN”)had issued several rulings asserting that sums paid to employees caused by the termination of an employment relationship are not included within the scope of Income Tax.[1] The CSJN understood that those payments do not derive from a “permanent and periodic source”, a condition that must be complied with to the sums perceived by individuals are taxed. The Argentine Tax Authority (“AFIP”) has issued several internal rulings adhering to the Supreme Court’s precedents. By means of one of such rulings, Ruling No. 4/2016, the AFIP clarified that payments made as “bonuses” for the termination of the employment relationship by agreement of both parties were not subject to Income Tax.
The paragraph included to Section 79 of ITL seems to redefine the scope of the tax and amends, partially, the situation explained above –only for certain positions and as from certain sums– and, also, generates several questions that should be answered by means of the regulation the Argentine Executive and/or the AFIP must issue: (i) which employees fall under the definition of “administrators and executives”; (ii) how should the minimum amount set for severances in “relevant labor law” be calculated?; (iii) in which cases do precedents “De Lorenzo”, “Cuevas” and “Negri” still apply; (iv) to what extent has the scope of Income Tax been redefined regarding the payment of sums arising from the employment relationship termination.
To the date of this publication, neither the Argentine Executive nor the AFIP have issued the relevant regulation, despite the fact that the amendments introduced by means of Law No. 27,430 to ITL are in force as from January 1, 2018.
[1] Rulings D. 1148. XLII; "De Lorenzo, Amalia Beatriz c/DGI", June 17, 2009; Ruling 333:2193; "Cuevas, Luis Miguel c/AFIP-DGI s/contencioso administrativo", November 30, 2010; Ruling N. 204. XLVIII; "Negri, Fernando Horacio c/ AFIP-DGI", July 15, 2014.
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