Payment of tax liabilities with Certificates of Fiscal Credit

On April 29, 2004 the Federal Court of First Instance No 4 on Administrative Matters (Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal Nº 4) solved an “amparo claim” initiated by a tax payer to whom the Tax Authority had denied the possibility of paying his tax liabilities with CCFs.

The tax payer had the CCFs because he had exercised the option granted by Decree No 1226/01 to convert defaulted national bonds into CCFs. Said Decree set forth that, when they mature, the CCFs could be used to pay tax liabilities. Later on, Decree No 1657/02 suspended this possibility. The CCFs held by the tax payer were in U.S. Dollars, because the bonds originally held were in U.S. Dollars.

The Tax Authority did not recognize certain Income Tax and Personal Assets Tax payments made by the tax payer with CCFs. Faced with this situation, the tax payer initiated the “amparo claim”, arguing the unconstitutionality of Decree No 1657/2002, which prevented him from paying his taxes with CCFs. Furthermore, the tax payer also questioned the conversion of the CCFs into Argentine Pesos at the $1.40 relation under the applicable provisions, stating that the CCFs should be converted to Argentine Pesos at the fair market value of the U.S. Dollar on the date the payment took place.

The judge solved to partially admit the “amparo claim”, recognizing the tax payer’s right to pay his Income Tax and Personal Assets Tax liabilities with CCFs. But the judge did not allow the conversion of the CCFs into Argentine Pesos the way the tax payer argued.

Basically, the judge based the sentence on the following facts and considerations:

(i) the CCFs were issued in connection with defaulted national bonds;

(ii) the possibility of using the CCFs to pay tax liabilities was a key element for the tax payer when deciding to convert the defaulted bonds; and

(iii) denying the tax payer the possibility of paying his tax liabilities with the CCFs would cause him a damage even greater than the one already suffered because of the default of the bonds and the later conversion of the CCFs to Pesos.