Call Center Services Rendered Abroad: Foreign-Source Income

In the case "DIRECTV ARGENTINA S.A. (TF 100109460-I) c/DIRECCION GENERAL IMPOSITIVA s/RECURSO DIRECTO DE ORGANISMO EXTERNO," Chamber II of the National Court of Appeals in Federal Administrative Matters upheld the Argentine Tax Court's ruling.^[1] The Court held that income earned by foreign providers from call center services rendered entirely from Colombia constituted foreign-source income, even though DirecTV used the result of those services in Argentina. Accordingly, DirecTV was not required to withhold and remit Argentine Income Tax on the payments made.

The Argentine Tax Authority appealed the Tax Court's ruling, arguing that the income foreign providers earn is Argentine-source income because the services were economically used in Argentina. Therefore, the Tax Authority maintained that the taxpayer was required to withhold the tax.

The Court of Appeals noted that it was undisputed that DirecTV customers' calls originated in Argentina; that the taxpayer had the telephone exchange, management systems, lines, links, and other technical elements required to route the communications in Argentina; and that the foreign companies followed instructions and procedures provided by DirecTV. It found that these circumstances were not, in and of themselves, sufficient to characterize the income earned by the foreign providers as Argentine-source income. The decisive issue was not where DirecTV's business activity was located, but rather which activity generated the income the foreign companies earned.

In this regard, the Court of Appeals stated that, under article 5 of the Income Tax Law, the income in question had to be classified by reference to the activity carried out by the foreign beneficiaries, not the place where DirecTV commercially used the result of the contracted services. It further held that the reference to "economic use" in that article applies to assets and does not authorize that criterion to be extended, absent an express statutory provision, to services rendered abroad.

The Court of Appeals emphasized that the Argentine Tax Court had concluded that the Colombian companies provided telephone support services through operators located in Colombia, without any physical presence in Argentina. It also noted that the contracted service essentially consisted of supplying personnel assigned to handle calls routed by DirecTV, and that the providers' facilities, personnel, and infrastructure were located in Colombia.

The Court of Appeals emphasized that the activity giving rise to the income-producing activity (i.e., handling calls through operators assigned to the service) was performed entirely outside Argentina.

Accordingly, the Court of Appeals upheld the Argentine Tax Court's ruling, ruling that it had not been established that the foreign companies exploited assets or rights located in Argentina or carried out in Argentina the activity for which they were paid. Rather, the services were rendered abroad by personnel located outside Argentine territory, although they were intended to meet the operational needs of an Argentine resident company. Therefore, the income earned did not fall within any of the Argentine-source income categories set forth in the Income Tax Law.