The Tax Court declares on Income Tax withholding to foreign beneficiaries for the use of on-line travel booking software

In re: “Lineas Aereas Privadas Argentinas S.A.”[1] Tribunal C of National Tax Court revoked the AFIP’s determination on Income Tax to a local company. The AFIP had determined that Lineas Aereas Privadas Argentinas S.A. (LAPA) did not withhold the corresponding amount of the payments made to “Amadeus”, considering this company to be a foreign beneficiary. Amadeus is an on-line travel booking software that allows travel agencies and other users to access a centralized data base located abroad. The processing and transmission of the stored data is paid for by the users.

The discussion is centered on deciding whether the use of the software generates an income of Argentine source, in which case it is subject to the withholding tax. According to the second paragraph of Article 12 of Income Tax Law (ITL), considerations for technical advice rendered from other countries are regarded as Argentine source income.

Withholding the tax’s admissibility was discussed at National Tax Court and National Contentious-Administrative Court of Appeals. Tribunal D of National Tax Court in the case “Aerolineas Argentinas S.A.”[2] declared in favor of the AFIP’s opinion. The Tribunal understood that payment to Amadeus for the use of the software was the consideration for an economic use in Argentina of a service provided abroad, considering the matter to be included in Article 12 ITL. This judgment was confirmed by Tribunal V of the Court of Appeals. [3] 

The Tax Court’s Tribunal A in “Austral Líneas Aéreas Cielos del Sur S.A.” [4] revoked the determination of the Treasury, considering that the services rendered abroad were not taxed since they were not technical advice according to Article 12 ITL. However, the Court of Appeals reversed this decision,[5] with a similar basis to the prior “Aerolineas Argentinas” case. 

On this occasion, Tribunal C of Tax Court concluded as Tribunal A did in the “Austral” case. The majority voted that payments made to Amadeus were exempt from withholding tax. To reach this conclusion, judges said that data-processing was provided and concluded abroad, so it did not correspond with the concept of “technical advice” of Article 12 ITL. Therefore, the income obtained by the service provider was from foreign source and, consequently, was beyond the scope of Argentine tax authorities.

The minority ruled to the contrary, following arguments set out in previous cases that were favorable to the tax authority. The judge held that LAPA paid financial compensation in Argentina for a service provided abroad. For that reason, it constituted as taxed Argentine-source income.

These various interpretations reveal the lack of uniform criteria between the Tribunals of National Tax Court and National Contentious-Administrative Court of Appeals.

 

 

 

[1] Judgment of April 14, 2010.

[2] Judgment of May 15, 2004.

[3] See Marval News # 73, June 30, 2008.

[4] Judgment of February 06, 2007.

[5] See Marval News # 84, June 30, 2009.