Non-Profit Activities Are Not Subject to Turnover Tax

On March 19, 2024, in the case "Recurso de hecho deducido por la parte actora en la causa Cooperativa Farmacéutica de Provisión y Consumo Alberdi LTDA c/ Provincia del Chaco s/ amparo," the Argentine Supreme Court analyzed the constitutionality of levying the turnover tax on any regular onerous activity, even if it is non-profit.

In the case, the taxpayer filed an amparo action against the tax authority of the Province of Chaco requesting the unconstitutionality of article 116 of the Tax Code of the province and the nullity of the debt determinations for non-profit activities carried out in the province. There, it argued that the article did not comply with the terms of the Federal Tax Distribution Law 23548.

The Tax Code of the Province of Chaco—in force at the time of the facts—established as a taxable the habitual onerous exercise of trade, industry, profession, business and other activities, lucrative or not, for valuable consideration in such province, regardless of the party carrying them out, including cooperatives.

The Federal Tax Distribution Law establishes that the tax is levied on income obtained from "the exercise of business activities (including sole proprietorships), civil or commercial for profit, professions, trades, intermediaries and any other habitual activity, excluding activities carried out in a relationship of dependence and the performance of public positions."

The First Instance Court of the Province of Chaco rejected the action arguing that the Tax Code allows the taxation of “any other habitual activity” and therefore it is not required that it be for profit. It pointed out that this does not contradict the Federal Tax Distribution Law, but rather complements and specifies it, since the Law only establishes the basic characteristics of the turnover tax.

Chamber III of the Court of Appeals of the Province of Chaco upheld the ruling, which was subsequently confirmed by the Superior Court of Justice of that province. Therefore, the criterion of all judicial instances in Chaco was that the tax applied to all usual onerous activities, whether they were for profit or not.

The taxpayer then filed a Federal Extraordinary Appeal, which was rejected, and therefore filed a claim with the Supreme Court.
The Supreme Court held that the rules must be interpreted in accordance with the given meaning of the words, considering that the terms used are not superfluous, but have been used for some purpose: to expand, limit, or correct the concepts.  If it were allowed to levy the turnover tax on any other habitual onerous activity, even if it is non-profit, the term "for profit" the Federal Tax Distribution Law used would become superfluous and without any operative purpose.

The Supreme Court understood that the Federal Tax Distribution Law limits the application of the tax to "profit-making activities," so that the article in the Tax Code is unconstitutional because it extends the tax to non-profit activities.

The Court highlighted that the law had established a series of basic characteristics.  The provinces that adhered to the Federal Tax Distribution Regime must adjust their rules and laws accordingly when structuring their tax system, including the requirement that the activities must be for profit. 

Therefore, the Supreme Court ruled that the appealed decision was arbitrary and should be overturned.