Solidarity Contribution: Assets Disposals During the 180 Days Before the Law Entered into Force

The Solidarity Contribution—created through Law 27605 and published in the Official Gazette on December 18, 2020—was levied on residents in Argentina for their assets in the country and abroad, and on non-residents for their assets in Argentina, both as of December 18, 2020. The third paragraph of article 9 of the Law states that “When variations in the assets subject to the Solidarity Contribution during the one hundred and eighty (180) days immediately prior to the date of entry into force of this law lead to the presumption, in the absence of proof on the contrary, of an operation that constitutes an evasion scheme or is intended to evade its payment, the Argentine Tax Authority may order that they be computed for tax determination.”

In the case “Lagrutta, Carlos María,” the taxpayer filed an appeal before the Federal Tax Court against the tax authorities' debt determination of the Solidarity Contribution. The Argentine Tax Authority made this determination because the taxpayer had included within the basis for determining the Contribution the shares that it had donated to his children within 180 days prior to the entry into force of Law 27605.

Accordingly, on November 20, 2020, the taxpayer had donated the bare ownership of the shares of a company to his children. As he did not exceed the minimum exemption of ARS 200,000,000 due to his ownership of assets as of December 18, 2020, he did not file the affidavit of the Solidarity Contribution because he was considered exempt. He filed, among other proof, the public deed of donation dated November 20, 2020, and remarked that in the case of shares donation with usufruct the taxpayer responsible for declaring them and paying the tax is the bare owner.

The Federal Tax Court pointed out that the bare owners of the shares were the sons, so these assets were not part of the taxpayer's tax base. It also pointed out that, since the tax is an instantaneous tax, it could not be levied on assets that were not part of the taxpayer's equity on December 18, 2020, without infringing fundamental principles such as legality, non-retroactivity, certainty, and contributive capacity.

The Federal Tax Court  ruled on the presumption established in the third paragraph of  Law 27605 article 9, which would allow the Argentine Tax Authority—in certain cases—to include in the basis for determining the Solidarity Contribution the variations in the assets of the taxpayers that took place during the 180 days immediately prior to December 18,2020.

The Court stated that “The law that established the Solidarity Contribution does not extend the taxable event to assets existing 180 days prior to the entry into force of the law, but provides a presumption that allows the Tax Authority to include the changes in assets that took place in the 180 days prior to the entry into force of the law in the tax determination of the Solidarity Contribution. However, to do so, the Tax Authority should at least state the bases for such consideration, since the rule does not include all changes in assets but only those that ‘lead to the presumption, in the absence of evidence to the contrary, of an operation that constitutes an evasion scheme or is intended to evade payment,” which must be supported by the Tax Authority.  This is not the case here, since the Tax Authority has not been successful in proving the illegitimacy of the donation to the forced heirs, nor has it demonstrated that inappropriate forms were used, or that the operation was intended to evade the Solidarity Contribution which, at the date of the donation, was not yet in force.”

The Court pointed out that, beyond the legal provision of suspicion, at the time the donation was made, the law and the conditions for the taxability of the Solidarity Contribution did not exist, so the taxpayer could not have had in mind the evasion or avoidance of a rule that did not yet exist. It also emphasized that the presumption of suspicion to establish an “evasive scheme” must arise “from a finding in the specific case of the use of forms or figures that are manifestly unsuitable for carrying out the legal transactions entered into.”

The Tax Court decided to overturn the debt determination made on the basis of the presumption of article 9 paragraph 3 of the Law, since the Tax Authority failed to prove that the donation made was defective or that it was simulated for the purpose of evading the tax.

The Tax Authority appealed the decision before the Court of Appeals in Federal Administrative Matters in the City of Buenos Aires, which means this decision is not final.