2019 Budget Bill: Changes in Taxation on International Trade of Goods and Services

In the current scenario in which the Argentine currency has depreciated greatly, the Argentine Government considered it appropriate to impose a temporary export duty to tax the additional income obtained by those economic agents whose incomes are set in foreign currency.

This situation includes both the sectors that export goods and the sectors that render services abroad.

Regarding the export of goods, taxation was already established by the Executive Branch through Decree No. 793/18, imposing an additional Export Duty of 12% on the entire universe of goods included in the nomenclature, in force until December 31, 2020.

The imposition of Export Duties through an Executive Branch decree is in conflict with constitutional provisions and with the judicial criterion set by the Argentine Supreme Court in the  "Camaronera Patagónica" case, ruled in 2014.

To address this issue, the 2019 Budget Bill includes a provision through which the Argentine  Congress maintains the validity and term of Decree No. 793/18. This kind of legislative ratification would put an end to the constitutional controversy regarding this Decree and others mentioned there, but only regarding its application to exports that are declared to Customs after such legislative ratification comes into force.

On this matter, the 2019 Budget Bill contains provisions that intend to support the delegation of powers provided in Section 755 of the Customs Code for both goods and services, by setting a temporary framework, until December 31, 2020, and a quantitative guideline (Export Duties’ rate up to 30% of the taxable value).

The constitutionality of this regulation is debatable due to the fact that the Argentine Constitution prohibits the delegation of legislative affairs  to the Executive Branch, exceptionally enabling it under conditions that do not appear to be met in this case. For this purpose, it should be considered that the timing and opportunity to impose export duties, whose exported goods will be subject to the duty, the export duty rate, and the extension of the term in which export duties would be levied, are all issues that largely exceed the definition of "certain administrative matters or public emergency", as well as the lack of  legislative policy that determines the conduct to be followed by the Executive Branch ("delegation grounds").

This issue is particularly important since, as has been announced, the Executive Branch in the exercise of this delegation intends to levy Export Duties on the services rendered whose use or effective exploitation takes place abroad.

In addition to the aforementioned constitutional question of authority, other issues such as the extension of customs taxation to an area in which its application is inappropriate will arise.

It should be noted that the idea of giving services rendered abroad a treatment "as if they were goods" clashes with the regulations according to which, for customs purposes, goods are individualized and classified in accordance with the provisions in the Harmonized Commodity Description and Coding System, which does not include services.

Another more common criticism of the change is the distribution of tax sources in the Argentine  Constitution and the Federal Co-Participation Regime, as a tax applicable to the provision of services is an indirect tax; thus, its revenue must be shared with the provinces.

It is expected that the Bill will be questioned on these grounds during the congressional discussion.