Amendments to the Argentine Tax Procedure Law

Law No. 27,430 published in the Official Gazette on December 29, 2017 introduces amendments to the Tax Procedure Law among other relevant reforms to the Argentine tax system.

In our article in Marval News #178 (Tax Reform: Amendments to the Tax Procedure Law), we described in detail the modifications that had been proposed in the bill presented to the Congress by the Executive Branch of Power.

With the sanction of this Law 27,430, the abovementioned modifications have been included with some changes which we describe below.

I.- Final Voluntary Agreement

Law 27,430 adds a section next to section 16 of the Tax Procedure Law which provides that, prior to the administrative tax assessment of a tax debt there is a new instance: the so-called Final Voluntary Agreement.

As the Law indicates that the Tax Authority may authorize a final voluntary agreement instance, then this agreement would be optional for the Tax Authority.

In order to access this instance certain conditions must be met:

• The agreement is necessary to analyze the facts and the right law application to the specific case;

• The agreement is necessary to evaluate data, elements or other relevant tax obligation characteristics; or

• The agreement is necessary while dealing with situations that require a conciliatory solution due to their nature, novelty or complexity.

 Law 27,430 envisages the creation of a collegiate conciliation body which will issue a detailed report in which it will recommend a conciliatory solution or its rejection, and it may also request guarantees to grant the tax debt.

The agreement must be approved by the Federal Administrator. In the event that the taxpayer rejects the solution, the original tax assessment procedure will continue.

The law provides that once an agreement is met, the Tax Authority may not ignore the facts analyzed in it or may not challenge them in another jurisdiction (the law provides for certain exceptions).

The agreement will not be alleged as a precedent in other cases unless the discussion was based exclusively on the interpretation of the law.

The original bill added that once the agreement was concluded, it had to be reported to the National Audit Office, and excluded this notification of the protection of fiscal secrecy. Law 27,430 does not include this obligation.

II.- Amendments to the Infringements and Fines regime

Law 27,430 includes amendments to the Tax Procedure Law infringements and fines regime.
 

II.A. Infringements to information duties imposed as a result of Argentina commitments in the OECD context. Applicable fines

In September 2017 the Argentine Tax Authority issued General Resolution E-4130/2017, setting the commitments assumed by Argentina in the OECD context, specifically in relation with the Action Plan of Base Erosion and Profit Shifting (BEPS) - Action 13.

In order to increase tax transparency Argentina agreed to require multinational companies to provide information about their transfer pricings.

Hence, Tax Authority General Resolution E-4130/2017 requires obligations from Multinational Enterprise members such as submitting reports, including an annual report with the purpose of document transfer pricing, known as Country-by-Country Report.

Law 27,430 adds a section next to current section 39.1 of the Tax Procedure Law to apply fines those who:

• Omit to report their Multinational Enterprises membership when their annual incomes were equal or superior to the parameters that the Tax Authority determines (the fine may range from ARS80.000 to ARS 200.000). In the event that those incomes do not reach the abovementioned parameters the imposed fine decreases (it may range from ARS15.000 to ARS 70.000).
• Omit to report the Country-by-Country Report, or submit it wrongly or incorrectly (the fine may range from ARS 600.000 to ARS 900.000);
• Omit to submit any additional information the Tax Authority may require (the fine may range from ARS 180.000 to ARS 300.000);
• Additionally a fine of ARS 200.000 applicable to those who omit to compliance with formal duties requirements.

II.-B. Amendments to the closure of premises

Preventive closure of premises

According to subsection (f) of current Tax Procedure Law section 35, the preventive closure of premises can also take place if two or more facts or omissions provided for in section 40 are verified, such as: Tax Authority detects a lack of workers’ registration, among others.

It is also necessary to verify a serious harm or that the taxpayer has previous convictions for the commitment of the same infringement within two years since the detection of the previous one. This previous conviction must have a condemnatory resolution but it is not necessary that said resolution is final.

This new subsection: (i) raises up to two the number of facts that must be considered for the preventive closure of premises to proceed; (ii) increases to two years the period to be considered in which the taxpayer registers any record of having committed the same infringement; and (iii) it also adds that said record must have a condemnatory resolution but it is not necessary that the resolution is final.
 

Closure of premises

The Law 27,430 amends the closure of premises sanction, through which:

• The closure of premises’ sanction decreases its minimum from three to two days, and its maximum from ten to six days.
• This penalty will be also applicable to those establishments with (…) at least 10 employees, that has 50% or more of the workers without proper registration, even if they were registered as employers.

Law 27,430 eliminates the duplication of this sanction which was established in the event that, within two years of the infringement detected, a new infringement was committed.

In its previous text this section established the closure of premises’ sanction with a fine sanction applicable to all of the cases described in it. Law 27,430 establishes a fine –that may range from ARS3.000 to ARS100.000- only if the employee has improperly registered workers.
 

II.-C. Amendments to Neglecting to Pay Taxes and Tax Evasion fines

Neglecting to Pay Taxes:

Law 27,430 establishes the application of a fine equivalent to the 100% of the tax that was neglected to pay for those who omit: the payment of taxes, to act as withholding agent, advance payments.

The fine rises up to 200% of the taxes that were neglected to pay when the omissions were in connection with transactions between local taxpayers and human or legal entities, or other non-resident entities.

In case of recidivism of the conduct indicated in the second paragraph the fine increases up to the 200% of the tax that was neglected to pay. In the event of recidivism of the conduct referred in the third paragraph, it increases up to 300% of the  tax that was neglected to pay.
 

Tax Evasion:

In the event of tax evasion, the applicable fine decreases from 2 to 6 times the amount of the evaded tax through misleading statements or malicious concealments.

Law 27,430 replaces the section following to section 46 where a fine applies for the taxpayer that takes advantage of tax benefits, reimbursements, recoveries or returns. The recommended fines go from 2 to 6 times the amount of the tax benefit.

In the event that a taxpayer expects the payment of a tax or a social security resources obligation, the law sets forth a fine that goes from 2 to 6 times the simulated paid amount.

Among the cases that might be considered as revealing a will to defraud the Tax Authority described in section 47 of the Tax Procedure Law, subsection f) includes a case where the taxpayers do not use the instruments of measurement, control, tracking and location of goods when mandatory.
 

II.-D. Other amendments to the Infringements and Fines regime

Withholding agents

If withholding agents avoid depositing  the Tax Authority the collected advanced payments, the previous fine range that was from 2 to 10 times the amount of the withholding reduces to a fine range that goes from 2 to 6 times the withholding amount.
 

Fines exemption and reduction

The Law 27,430 modifies some aspects related to the exemption and reduction of fines.

If a taxpayer - not a recidivist one- regularizes their situation by submitting an original tax return before the notice of an intervention order, the taxpayer will be released from any responsibility. If the same situation happens between the notice of an intervention order and the notice of deficiency, the applicable fines will reduce to one quarter of its legal minimum. The section refers to the procedure related to neglecting to pay tax and tax evasion-

If the same situation occurs before the notice of deficiency in an administrative tax assessment procedure, the fines will reduce to the half their legal minimum. The reduction will be of three-quarters of the fine’s legal minimum if the taxpayer regularizes their situation after the notice of deficiency but before the expiration of the first 15-day term to answer it. Please note that the law refers to the first 15-day term. Such fine reduction would not be applicable if  an extension of the due date has been requested.

If the taxpayer - not a recidivist one - agrees to the administrative tax assessment the applicable fine will be reduced to its legal minimum.

If a final voluntary agreement is authorized this section will not be applicable.
 

Infringement reiterations and recidivism

Law 27,430 adds to Procedural Law the cases considered as infringement reiterations and recidivism.

Infringement reiterations take place when more than one infringement of the same nature is committed without having a conviction at the time of the new infringement commission.

Recidivism occurs when the convicted offender commits a new infraction of the same nature within a period of five (5) years from the date of the conviction.

Mitigating and aggravating circumstances

Law 27,430 describes circumstances that will be considered as mitigating or aggravating at the time of the sanctions graduations. Having a positive attitude and collaborating with the Tax Authority audit and general good behavior, among others, are considered mitigating circumstances. On the other hand, having a negative attitude, lack of collaboration with the Tax Authority audit, and insufficient fulfillment of formal duties, among others, are considered aggravating circumstances.
 

III.- Regulation for the Mutual Agreement Procedure (MAP), provided in the Conventions for the Avoidance of Double Taxation

Many models of tax conventions for the avoidance of double taxation, such as the ones proposed by the United Nations and the OECD, provide a procedure for dispute resolution known as Mutual Agreement Procedure (MAP).

Through these procedures, the relevant authorities of the Contracting States may intervene to resolve international taxation disputes. The contests submitted to this procedure might be related to cases of double taxation and inconsistencies in the interpretation or application of the tax conventions.

In this sense, Law 27,430 includes the regulation regarding mechanisms to carry out these procedures to the Tax Procedure Law as Title IV.

The Ministry of Finance will be the competent authority and it will apply the MAP to cases where there are doubts regarding tax convention application.

Argentine tax residents, or non-residents in certain cases, are entitled to request the initiation of this procedure.

The procedure must be requested before the end of the term established in the applicable Tax Treaty or within 3 years from the day after the first notification of the act that may cause a taxation that is not in accordance with the provisions of the tax convention.

The competent authority must inform a procedure request to the competent authority of the other Estate. In two months the competent authority must decide whether admits or denies the procedure request, for which the competent authority is entitled to request additional documentation.

If the controversy is based on a tax convention application in Argentina, the local competent authority will decide the dispute unilaterally. Otherwise the other Estate authority must be informed.

In the event that a communication from another Contracting State is received, the Law establishes that the competent authority will have a maximum period of 6 months from the receipt of the communication - and its supporting documentation - to issue an initial communication stating its position.

This procedure may conclude by a taxpayer’s withdrawal or by a decision settled by the competent authority.

In the event that a controversy was also subject to a jurisdictional process (administrative or judicial), and the decision settled by the competent authority was favorable to the taxpayer, the Tax Authority must adopt such criterion. In this case it will not entail the imposition of court fees.