Congress Passes New Fiscal Consensus

Law 27687, published in the Official Gazette on October 4, 2022, approved the Fiscal Consensus the National Executive Branch and the representatives of the provinces (except for the City of Buenos Aires, La Pampa, and San Luis) subscribed on December 27, 2021. The agreement includes commitments on tax and fiscal responsibility, and on responsible indebtedness and judicial proceedings.

Said agreement will be effective for the subscribing jurisdictions as of the enactment of the local laws approving the consensus. To date, the provinces adhering to the Fiscal Consensus by means of provincial laws are Córdoba, Corrientes, Chaco, Chubut, Buenos Aires, Entre Ríos, Jujuy, La Rioja, Misiones, Mendoza, Neuquén, Salta, Tucumán, San Juan, Santa Cruz, and Tierra del Fuego.

The main commitments in tax matters that either stand out or raise questions regarding their application are the following:

 

- Tax administration: the Federal Government and the provinces undertake to continue working on a comprehensive program aimed at simplifying and coordinating federal taxes by establishing, among others, common criteria on:

(i) withholding, perception, and collection regimes, with the jurisdictions’ commitment to continue adjusting their collection of Gross Income Tax, so as to respect the territorial limit of each province’s taxing power and to avoid constantly generating balances in favor of taxpayers. This, as well as establishing measures that allow an automatic refund of balances or their compensations, is of utmost importance.

(ii) general and procedural rules regarding federal, provincial, and municipal taxes, considering that each jurisdiction has different and specific procedures and this makes harder for taxpayers to exercise their right to defense.

 

- Gross Income Tax: Section I, second clause, subsection (a) states that provinces agree on determining as taxable events the exercise of commerce, industry, professions, trade, businesses, leases of goods, works or services, or any other habitual and payable activity -lucrative or not- within the jurisdictions, regardless of whether the subject is a person or a company and where it is carried out.

Article 9 of the Tax Distribution Law No. 23548 established the basic characteristics according to which the provinces must adjust turnover tax when defining the taxable event. One of these characteristics is that the tax is levied on income from lucrative activities, which means that the activity being payable, as stated in the Tax Consensus, is not enough.

Although this issue has already caused controversy in different provincial courts’ case law, the question is whether a rule such as the consensus -which was not subscribed by all the provincial jurisdictions- can override the uniform guidelines of the Tax Distribution Law. 

The same subsection refers to a broad concept of “jurisdictional nexus” to justify the exercise of taxing powers. This raises questions as to whether it refers to the traditional concept -understood as the development of an activity within the provincial territory in accordance with the commitment regarding collection systems- or to other situations and, if so, with what scope and limits.

 The subsection later refers to the commercialization of goods or services through electronic means, platforms, or technological application and/or digital platforms carried out in the country. In this sense, it states that the “jurisdictional nexus” applies to:

• Parties domiciled, established, or incorporated in the country, when there is a digital presence of the seller, provider, and/or lessor within the jurisdiction of the purchaser’s domicile.
• Parties domiciled, residing, or incorporated abroad, when they commercialize digital services, if a) the service rendered is provided or has an economic impact in the jurisdiction; b) the service is provided for subjects, goods, persons, or things set, domiciled, or located within the provincial territory; or c) the provider or lessor has digital presence in the jurisdiction, regardless of the means and/or platform or place used to provide the service.

 

(ii)  Subsection (c) establishes a series of maximum tax rates according to the type of activity, with the provinces’ commitment to not exceed them. Although most of the established caps match those in the Fiscal Consensus 2017 for the fiscal year 2019 (the caps agreed on for the fiscal years 2020 and 2021 were suspended by the subsequent agreements), there are certain activities affected by the establishment of a notoriously higher maximum rate (e.g. communications, brokerage, and financial services).

It was also agreed that the services related to the activities mentioned above would not be subject to maximum tax rates. An analysis should be made to see if this contradicts article 9 of the Federal Tax Distribution Law, which establishes that complementary activities or items will have the same tax rate as the main activity.

(iii) Finally, subsection (d) states that the jurisdictions commit to not add tax rates to those agreed on. Although the text does not clarify what “additional tax rates” means, it should be analyzed whether this applies in the following cases: a) the creation of higher rates based on the taxpayers' income; b) the provinces’ creation of a percentage of certain funds or contributions “for specific purposes”, calculated as an additional on the Gross Income Tax; and; c) the establishment of tax rates which -for any reason- imply exceeding the caps established for each activity. 

 

- Stamp Tax: in the third clause, subsection c), the provinces agree to set a maximum rate of 3.5% for the transfer of real estate, 3% for the transfer of motor vehicles, and 2% for the rest of the acts, contracts, and transactions included in the tax.

This clause shows an essential change in the objective set when subscribing the Fiscal Consensus 2017, which included the committed to not increase the rates corresponding to the transfer of real estate and motor vehicles and to establish a 0.75% cap for the rest of the acts and contracts levied by the tax. These were to be gradually reduced until their elimination in fiscal year 2022.

 

- Tax on the increase of wealth obtained free of charge: in the seventh clause, the provinces agree to analyze the imposition of a tax on any wealth increase obtained free of charge (inheritances, legacies, donations, advance payments of inheritances, and any other transfers implying an enrichment free of charge) involving assets located within their territory and/or benefiting individuals or corporations domiciled therein. To date, this tax is only collected by the province of Buenos Aires.

 

- Waiver of commitments taken on in previous consensuses: Finally, in the sixteenth clause, the parties agree to annul the obligations assumed regarding provincial tax matters established in the 2017, 2018, 2019, and 2020 Fiscal Consensuses. Only those clauses whose compliance was already effective when signing the consensus and those expressly stipulated in the new consensus will remaining enforceable.

 

This clause raises several questions:

1. regarding the enforcement of commitments in process of execution (for example, when the tax rates were reduced during the 2018 or 2019 periods following the previous consensus’ caps, and then in subsequent periods higher rates have been applied);
2. whether the taxpayers have been vested rights under the protection of the previous fiscal consensuses;
3. Regarding the uncertainty this may cause to those taxpayers who have taken legal actions to enforce the commitments taken on by the jurisdictions during previous consensuses, since the judges will have to analyze whether or not to rule considering this clause and, if so, how it will impact the case.