Tax Reform: Amendments to the Tax Procedure Law

On November 15, 2017 the Executive Branch submitted a bill of Law which provides a comprehensive tax system amendment to the House of Representatives.

The bill includes changes to Tax Procedure Law, No 11,683. We will refer to the final voluntary agreement, amendments to the infringements and sanctions, and the procedure related to the Mutual Agreement Procedure, provided in the Tax Treaties.
 

I.- Final Voluntary Agreement
 

The bill 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 bill 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.

The bill envisages the creation of a collegiate conciliation body which will be integrated by the professionals involved in the process that motivates the controversy, by Tax Authority’s highest legal and technical officials, and by specially designated internal controller's authorities.

This body will issue a detailed report in which it will recommend a conciliatory solution or its rejection, and it may also requests guarantees to grant the tax debt.

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

The bill 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 bill provides for certain exceptions).
 

II.- Amendments to the Infringements and Fines regime
 

The bill includes amendments to the Tax Procedure Law infringements and fines regime.
 

II.-A. Infringements to Information Duties Imposed as a Result of Argentine Commitments in the OECD Context. Applicable fines
 

As described in our Newsletter Marval News #176, in September the 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.

Due to the abovementioned requirement  Tax Authority General Resolution E-4130/2017 requires multinational companies to submit reports, including an annual report with the purpose of document transfer pricing, known as a Country – by - Country Report.

The bill proposes to add a section next to current section 39.1 of the Tax Procedure Law in order to apply fines for those who: (i) omit to report their multinational companies (the fine may go from AR$80.000 to AR$200.000); (ii) omit to report the Country-by-Country Report, or submit it wrongly or incorrectly (the fine may go from AR$600.000 to AR$900.000); (iii) omit to submit any additional information the Tax Authority may require (the fine may go from AR$180.000 to AR$300.000); (iv) additionally a fine of AR$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

The bill proposes to modify the subsection (f) of current Tax Procedure Law section 35. The preventive closure of premises can also take place in case Tax Authority detects a lack of workers registration.

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.

Closure of Premises

The bill proposes the amendment to the so called fine and closure of premises sanction, replacing it for a closure of premises sanction, only.

The proposed closure of premises sanction decreases its minimum from three to two days, and its maximum from ten to six days.

Otro de los cambios propuestos se verifica respecto del primer inciso de la norma. El actual inciso a) del artículo 40 establece que serán pasibles de esta sanción quienes “No entregaren o no emitieren facturas o comprobantes equivalentes (…)”.En este sentido, la modificación propone la aplicación de clausura solamente a quienes no emitieren facturas o comprobantes, eliminando del supuesto a quienes omitieren entregar estas constancias.

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.

Finally, the bill provides for the duplication of this sanction in the event that within two years of the infringement detected, a new infringement is committed.

Se agrega como último párrafo que en caso que sea pertinente, adicionalmente a la sanción de clausura podrá aplicarse la suspensión en el uso de matrícula, licencia o inscripción registral exigida para determinadas actividades y cuyo otorgamiento sea competencia del Poder Ejecutivo.
 

II.-C. Amendments of Tax Neglecting and Tax Evasion fines
 

Tax Neglecting:

The bill proposes the application of a fine equivalent to the 100% of the neglected tax for those who omit to  pay of taxes, to act as withholding agent, advance payments.

The fine goes up to the 200% of the neglected taxes when the omissions were in connection with transactions between local taxpayers and individuals 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 neglected tax. In case of recidivism of the conduct referred in the third paragraph, it increases up to the 300% of the neglected tax.

Tax Evasion

In the event of tax evasion, the bill proposes to decrease the applicable fine –that currently goes from 2 to 10 times the amount of the evaded tax-, from 2 to 6 times the amount of the evaded tax through misleading statements or malicious concealments.

The project replaces the section following to section 46 where applies a fine 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 a taxpayer purports the payment of a tax or a social security resources obligation, the bill sets forth a fine that goes from 2 to 6 times the simulated paid amount.
 

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

Withholding Agents

In the event that withholding agents avoid depositing the collected advanced payments with the Tax Authority the current fine range that goes from 2 to 10 times the amount of the withholding. The bill reduces the fine to a range that goes from 2 to 6 times the withholding amount.

Fines Exemption and Reduction

The bill modifies some aspects related to the exemption and reduction of fines. In the event that a taxpayer - not a recidivist one- regularizes their situation by submitting an original tax return between the notice of an intervention order and the notice of deficiency, the applicable fines will be reduced to a quarter of the legal minimum.

If the same situation occurs before the notice of deficiency in an administrative tax assessment procedure, the fines will be reduced to  half the 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. Note that the bill 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 the legal minimum.

Infringement Reiterations and Recidivism

The bill adds to the Procedural Law 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

The bill 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 the disputes 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, the bill proposes the regulation regarding mechanisms to carry out these procedures.

The Ministry of Finance will be the competent authority, and it will apply the MAP to cases where there is doubt 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 it 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.

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