Deductibility of interest from a loan entered to reduce capital

On May 6, 2010 the Court of Appeals, Room I, confirmed the Tax Court’s decision in re “Swift Armour S.A. Argentina s/ recurso de apelación – Impuesto a las Ganancias” issued on October 25, 2005, dismissing the appeal of the tax authority (see “Interest deductions from a loan entered to reduce capital” published in Marval News # 47 on February 28, 2006).

The Tax Authority had challenged the deductibility of interest payments from a loan entered into to pay the shareholders a debt derived from a capital reduction. The Tax Authority had argued that interest thereof was not deductible because it was not related to obtaining, keeping or maintaining the source of taxable income. In the first stage, the Tax Court revoked the tax authority’s resolution.  

The Court of Appeals confirmed the Tax Court’s decision. It just remains to be seen if the question is definitively resolved or if the decision is appealed to the Supreme Court of Justice.