The Location of a Registered Office Is Not a Reasonable Criterion to Justify Applying a Higher Tax Rate

The Supreme Court declared the unconstitutionality of the tax system in relation to stamp tax established by the Province of Buenos Aires. This system contemplated higher tax rates for those agreements for the sale of grains, cereals and oilseeds registered with tax collection agencies (“Bolsa de Cereales”) if such agencies had their registered office outside the Province of Buenos Aires. On the other hand, if such agencies had their registered offices within the Province, a lower tax rate would apply.

1. The Case

Historically, taxpayers who celebrated agreements for the sale of grains, cereals and oilseeds have been registering such agreements at different chambers of commerce, markets or similar entities (in the “Bolsa de Cereales de Buenos Aires” case), who acted as agents for the collection of stamp tax, thus, said taxpayers were able to pay the tax pursuant to a lower rate than the general provided by the tax law.

Recently, the Province of Buenos Aires has enacted several regulations in order to limit the applying of the lower rate. Then, by the enactment of Law No. 14,333, as amended, the Province established that the lower tax rate was only applicable when the collecting agents had their registered office within the Province. On the contrary, if such agents had no registered office within the Province, even if they had a regional office, the general rate should apply, concluding in a higher amount of tax. In other words, the tax treatment of the agreements mentioned was different whether the registered office of the collecting agents was or was not located within the Province. The provincial tax authority ("ARBA") stated that the purpose of the requirement mentioned was to benefit local agents in order for them to be the ones to receive the revenue from the registration price.

In re “Bolsa de Cereales de Buenos Aires c. Provincia de Buenos Aires”, dated December 16, 2014, the Supreme Court asserted that the prevision of different categories for the collection of taxes must be compatible with the equality principle. The Court considered that this principle does not prescribe a rigid equality, because it is discretional for government -according to its criteria- to sort and classify taxable subjects or events. However, the Court upheld that laws are subject to constitutional challenge when they are unreasonable. In the case in question, the unreasonableness of the provincial law challenged was verified, as the Court said, because it does not seem that the “Bolsa de Cereales de Buenos Aires” was in a different situation than other entities that perform the same activity of registration and tax collection. Discrimination according to the seat of the corporate registered offices is not a reasonable guideline in order to authorize to locate relevant entities in different groups, for tax purposes. Subsequently, the Court states that a rule cannot compel a person to settle within the provincial territory to develop an activity for which it is expressed and legal empowered, in order to obtain a reduced tax rate. A contrary position would imply damages to the freedom of choice of the place of business and to the equality principle in relation to those entities which are qualified and with the same activity that decided to settle in the province.

2. Another Recent Precedent

In February 2015, in re “Harriet & Donnelly S.A. c. Provincia de Chaco” the Court issued an injunction pursuant to which a company with its registered office in the City of Buenos Aires will be able to pay the tax on gross income collected by the Province of Chaco on its primary production activity by applying the same tax rate provided for taxpayers headquartered in the province of Chaco. Therefore, although the Province of Chaco establishes that taxpayers that, as Harriet & Donnelly, are headquartered outside its jurisdiction are subject to tax under at a higher rate, in this particular case, the taxpayer will be able to pay the tax regarding the regular rate.

In order to reach this decision, the Court judged that in this case the likelihood of the law should be taken into account; moreover, that it was necessary to determine whether the Province had exceeded its taxing jurisdiction and to specify the scope of such jurisdiction in order to apply a differential tax rate. The Court may respond to such interrogations when it issues its final decision.

3. Conclusions

The precedents outlined above seem to indicate the critical position that the Court adopts against provincial legislation that, in an increasingly usual manner, provides tax benefits (on stamp tax, gross income tax, gratuitous transfer of assets tax, etc.) in favor of a category including exclusively people domiciled or with registered offices located under its jurisdiction, at the expense of another category including exclusively those other people located or with registered offices outside the province. What may be inferred from the above precedents is that this conduct is unreasonable and exceeds the provincial jurisdiction applying different tax treatment to certain people, on the sole basis of their domicile or the location of registered offices in either one or another location.