Stocks sale and the Income Tax Law (Cont.)

On January 21, 2005 the Solicitor General issued Opinion No 20/2005, concluding that income arising from the sale of non-quoting stocks performed between January an April, 2001, obtained by Argentine-resident individuals who do not perform these transactions on a regular basis, was not subject to income tax.

It should be remembered that: (i) as per Law No 25,414 (published in the Official Gazette of March 30, 2001), the Argentine Congress had transferred the power to create and eliminate tax exemptions (the so called “superpoderes” superpowers) to the Federal Executive Branch who, vested with that power, issued Decree No 493/01 (published in the Official Gazette of April 30, 2001), according to which income from the transfer of non-quoting stock, obtained by Argentine-resident individuals, was subject to income tax; and (ii) on December 28, 2001, superpowers Law No 25,414 was abrogated.

When the Solicitor General had to issue an opinion about the effects of Law No 25,556, he interpreted that it became effective as of the beginning of fiscal year 2002, and, consequently, income obtained from the transfer of non-quoting stocks performed between May (when Decree No 493/01 became effective) and December, 2001 was subject to income tax (Opinion No 351/03, see “Stock sale and the Income Tax Law” in Marval News # 20 of August 29, 2003).

But there was still the issue of income obtained from the transfer of stocks performed during the first four months of year 2001, during which the exemption stated in article 20 section w) of income tax law, according to which income from sales of quoting and non-quoting stocks was not subject to tax, was in force.

With Opinion No 20/2005, the Solicitor General, whose decisions, it should be remembered, operate as guidelines for the other government offices, even though they are not mandatory, concluded that those transfers income was not subject to the income tax. He argued that, even though the income tax is a periodic tax which has to be determined every year on December 31, the scheme is designed for those who buy and sell stocks on a regular basis, are aware of the mechanics of the tax and can prevent its natural risks; the same could not be expected from an individual who does not buy and sell stocks on a regular basis.

The National Tax Court decided on a similar issue on December 20, 2004 (“Magariños, Juan Carlos”, National Tax Court, Room B, 12/20/2004). In this case, the tax payer, an Argentine-resident individual, had performed a stocks’ sale on January 2, 2001. The Tax Court concluded that the income arising from that sale was subject to the tax. The Tax Court argued that, up until December 31, 2001, the date when the tax had to be liquidated for the whole amount of income obtained during the corresponding fiscal year, according to the current legal frame, Decree No 493/01 showed validity and efficacy, for the abrogating law had not mentioned any of its provisions and, under that norm, the analyzed operation was reached by the tax.

This decision, which would have been recently appealed and which current effects do not appear clear, seems to openly contradict the Solicitor General‘s opinions, who has considered that only income obtained from stocks’ sales performed between May and December, 2001, would be subject to tax, apparently leading to a debate that has only just begun.