Social security contributions of directors of various corporations

During recent years a controversy has arisen regarding social security contributions that must be made by persons who are appointed as directors of various corporations simultaneously.

We shall refer herein to directors in a broad sense, including all persons who habitually manage, administrate or conduct companies in Argentina (directors of S.A., managers of S.R.L., managers of cooperatives, etc.).

Law Nº 24,241 provides that directors will be considered independent workers (autónomos) (Section 2 b), and that all persons concurrently performing more than one of the activities included in Section 2 a), b), or c) must contribute for each of such activities (Section 5).

The AFIP (Argentine tax collecting state agency) considers that the performance of management duties in various companies constitutes the performance of concurrent activities which give rise to different contributions. Therefore, contributions should be made for each of those activities.

This interpretation was upheld by a ruling of Chamber III of the Social Security Court of Appeals (“Chamber III”) (in re “Sánchez, Hugo Osvaldo v. D.G.I regarding debt cancellation”, of year 1996).

The other two Chambers of the Federal Social Security Court of Appeals subsequently ruled against this interpretation, and determined that management of companies must be considered as one activity.

Chamber I of the Federal Social Security Court of Appeals (“Chamber I”) determined that to give the concept of “management” performed in different companies the nature of different activities would be contrary to the spirit and black letter terms of the law. Additionally, it determined that if the contributions of health professionals, freight carriers, artists and musicians; are not multiplied by the number of clients contracting or using their services, then contributions must not be multiplied either in the case of persons who are directors of various corporations. (in re: “Buhar Yako v/A.F.I.P. – D.G.I. regarding debt cancellation”, of year 1999).

Chamber II of the Federal Social Security Court of Appeals (“Chamber II”) upheld the interpretation that corporate management constitutes only one activity (in re: “Soldati Alejandro v. D.G.I.regarding debt cancellation”, of year 2000).

In March 2001, Chamber III reverted its position and upheld the view of Chambers I and II, ruling that the simultaneous appointment as director of various corporations does not imply the performance of more than one activity, which results in the sole social contribution having to be determined on the basis of the category that results from the aggregate number of workers of all relevant businesses, exploitations and companies. (In re: “Soldati, Santiago v. A.F.I.P – D.G.I. regarding debt cancellation”).

As of this last ruling, the three Chambers are now of the opinion that being appointed as director of various companies should be considered as only one activity for social security purposes.

The AFIP does not share the currently unanimous opinion of the Chambers. Therefore it has filed an appeal before the Supreme Court of Justice, which is still pending to be resolved. Until the Supreme Court passes judgment on the matter, the AFIP has ordered the suspension of all current claims against persons who made only one contribution even though they were appointed as directors of various companies simultaneously.