Financial and Economic Capacity of Taxpayers

The starting point for the implementation of the "Financial Economic Capacity System" (the “CEF System” after its acronym in Spanish) is the detection by the Argentine Tax Authority (the “AFIP” after its acronym in Spanish) of several cases of creation and registration of commercial companies with the aim of simulating a tax or patrimonial status different from the real one, to develop illegal transactions or activities. In this way, through the creation of the CEF System under General Resolution No. 4,294, the AFIP intends to verify that the transactions carried out by taxpayers meet their declared tax capacity.

The CEF System will assign, monthly, to each taxpayer and/or responsible party an assessment of their Financial Economic Capacity, which may consist of a determined amount. In principle, this parameter will be considered representative of the taxpayer’s capacity to perform some economic activities, and to establish their tax consequences.

The Resolution lists certain parameters that will be taken into account to make the valuation, including but not limited to: tax returns, mortgages, purchase or sale of properties and/or vehicles, purchase of assets, remunerations paid or collected, as appropriate, consumptions with debit and/or credit cards, payment of expenditures, and financial debts. The formula and the parameters considered at the time of the valuation may be adjusted and expanded according to the availability and analysis of other data informed by the taxpayer or third parties.

The CEF System will be available on the AFIP’s website and, for taxpayers and/or responsible  parties to have access to it and consult the assessment that was assigned to them, they must comply with the following requirements: (i) have a Tax Identification Code with Security Level 3 as a minimum, (ii) have a recorded electronic tax domicile and keep it updated, and (iii) keep  the code related to the activity that is developed updated in the Registry System.

Once per calendar month and upon presentation of the original and/or corrective tax returns that may be considered in a new assessment, taxpayers may request the "reprocessing" of the information through the AFIP’s website. Within five (5) calendar days after this request is submitted, a new process will be carried out with the updated information and the System will send the new assessment to the electronic tax domicile. If, as a result of the reprocessing, a difference comes up due to information not provided in the tax returns submitted, taxpayers may file a "request of disagreement" through a note which must have elements that support the claim made and that justify the increase of financial and economic capacity attached to it, according to the type of transactions or assets involved.

Finally, the Resolution clarifies that the implementation of the CEF System will be carried out by segmentation and characterization of taxpayers, which will be established by the AFIP through the issuance of new general resolutions, which will also indicate the particularities and services included. The Resolution will come into force 30 working days after its publication in the Official Gazette.

We consider that this novel CEF System raises several questions, among them: (i) how will this System be implemented in practice and how will the tax consequences that the AFIP will attribute to the financial economic capacity be determined? (ii) what is the specific formula or procedure that will allow the System to calculate with accuracy and on a monthly basis the valuation of the Financial Economic Capacity of each of the taxpayers? and (iii) how efficient will it be for a taxpayer to request the reprocessing or file their disagreement with the assessment made?