Allowance of deductions for payments in connection with technical assistance agreements despite late registration

On March 3, 2010, Tribunal “C” of the Federal Tax Court (Tribunal Fiscal de la Nación) ruled in the “Ledesma S.A.A.I.” case, where the Argentine Tax Authority (“AFIP” for its Spanish acronym) had challenged the deduction in the Income Tax of the payments made to a foreign company in consideration of technical assistance.

In the case under analysis, the Argentine company had filed the agreements with the INPI after making the payments to the foreign beneficiary but within the same fiscal year. Then, the company deducted such payments for purposes of calculating its net taxable income.

The AFIP challenged the deduction arguing the registration with the INPI should be prior to the payments, for the deduction to be admissible.

The Transfer of Technology Law provides that the failure to file transfer of technology agreements (i.e. governed by this law) with the INPI does not affect their validity but payments made under this law shall not be deductible for tax purposes.

The Federal Tax Court confirmed the taxpayer’s position and accepted the deduction. It understood that the fact that the registration is made after the payments does not prevent the expense deduction, because the income tax liability is calculated on a yearly basis and it comprises taxable events that take place during the whole period.

This decision confirms the precedent of Tribunal “B” of the Tax Court in the “Coca Cola Polar Argentina S.A.” case dated September 9, 2005.