Social security contributions of directors of various corporations. A decision by the Supreme Court

The Argentine Supreme Court of Justice has confirmed a judgement rendered by Tribunal I of the Federal Court of Appeals on Social Security Matters, which had considered that individuals who are appointed as directors of various corporations are considered to perform a single activity only for the purpose of making their social security contribution.

Reference is made herein to directors in a broad sense, including any individual who habitually manages, administrates or conducts companies in Argentina (directors of SAs, managers of SRLs, managers of cooperatives, etc.).

Law No 24,241 provides that directors shall be considered independent workers (“autónomos”) (Section 2 b), and that any individual 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 agency) considers that the performance of management duties in various companies constitutes the performance of concurrent activities that require different contributions. Therefore, contributions should be made for each of those activities.

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

The remaining two Tribunals of the Federal Court of Appeals on Social Security Matters subsequently ruled against this interpretation, and determined that management of different companies must be considered as a sole activity.

Tribunal I of the Federal Court of Appeals on Social Security Matters (“Tribunal 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 letter of the law. Additionally, it was 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).

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

In March 2001, Tribunal III reverted its position and upheld the view of Tribunals 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”).

Since this last ruling, the three Tribunals are of the opinion that being appointed as director of various companies should be considered as a single activity for social security purposes.

The AFIP does not agree with the current unanimous opinion of the Tribunals. Therefore it filed an appeal before the Argentine Supreme Court and suspended all claims against individuals who made only one contribution even though they were appointed as directors of various companies simultaneously.

On September 8, 2003, the Argentine Supreme Court decided on the “Buhar Yaco v. Administración Federal de Ingresos Públicos (AFIP)” case and upheld that the extraordinary appeal filed by the AFIP, whose rejection caused the remedy analyzed therein, could not be accepted pursuant to Section 280 of the Civil and Commercial Procedural Code and, consequently, rejected such remedy as well.

Notwithstanding the foregoing, the President of the Supreme Court, Dr. Carlos Fayt, and Justice Dr. Adolfo Vázquez stated that the broad interpretation of the concept “activity” adopted by AFIP resolution, whose challenge is the cause of these proceedings, adversely affects the principle of legality as it orders something not provided by law and creates assessments not contemplated by the law as well.

Such decision is grounded on the fact that the concept of activity should not be misinterpreted as office, position or presumption of incomes, as the obligation to make social security contributions is caused by the actual performance of the activity as director, regardless of the number of facilities or companies in which such performance takes place, as well as of the compensation, utility or income obtained therefor.

It is further stated that the interpretation of the AFIP is discriminatory as such entity would not apply such an adverse criteria regarding other cases of independent workers, but only in relation to directors of corporations.

Finally, the Supreme Court said that there is no legal support for the administrative decisions that required a single contribution for each position or director, grounded on the fact that the term activity should be interpreted not in reference to a generic professional category, but to the actual performance of such activity in each company or corporation.

In our opinion, although the Supreme Court rejected the appeal for formal reasons without analyzing the substance of the proceedings, as a result of this judgement, which confirms the opinion of the three Tribunals of the Federal Court of Appeals on Social Security Matters, the AFIP should review its opinion regarding the concept of activity of directors of corporations and modify its interpretation, thus holding that individuals holding office as directors of different corporations perform a sole activity for purposes of determining the applicable social security contributions.