Congress passes a new bill providing for an installment agreement for tax obligations among other important topics

The Bill basically aims at: (i) the regularization of taxes and social security contributions; (ii) the regularization of informal employment; and (iii) the possibility of declaring foreign and local currencies and other assets in Argentina or abroad. Besides, Section 44 of the Bill suspends the time of the statute of limitations applicable to Federal Tax Authority's (“AFIP”) powers to carry out tax assessments to one year.

The following comments are based upon the Bill as it has been passed by the Congress, still unpublished and subject to further regulation (reglamentación) by the Executive Branch.

1.    Regime to Settle Taxes and Social Security Resources

Tax obligations or infractions due in December 31, 2007 —even if a judicial or administrative proceeding is in course— fall within the scope of the Bill. If applicable, the taxpayer should allow the tax claim or desist from the pending appeal pleadings. In all cases, the taxpayer's allowance involves his or her waiver to every right, including the right to lodge a recovery action.

Entering into an installment agreement involves certain benefits for the taxpayer such as the substantial remission of fines and interest, the possibility of settling (refinancing) the debt and the criminal action extinguishment if the taxpayer pays the whole debt off (even when entering into an installment agreement and as long as it is fulfilled). The remaining debt may be paid in up to 120 installments applying a 0.75% monthly interest rate (with an initial payment equal to the 6% of the debt).

Obligations and infractions linked to promotional regimes which afford tax benefits and contributions to health insurance systems are excluded from the Bill's regime.

In the past, the Federal State has set up several regimes to settle tax obligations, allowing taxpayers to regularize their tax returns with advantages such as interests and tax penalties, and the possibility of deferring payments to cancel debt. As usual in these kinds of regimes, if taxpayer fails to comply with its duties, termination of the agreement occurs and benefits expire.

Many features of these regimes gave rise to different questions afforded by case law and legal authors. Among them we find the possibility of declaring the settlement void because taxpayer did not meet with certain requirements, for example, non-voluntary default, the right to challenge the regime’s expiry before the Tax Court, the effect of the settlement upon criminal proceedings, and its influence in the debt estimation criteria over unsettled tax periods. Other topics under discussion hinge on the consequences of amounts paid by mistake, or whose existence was doubtful: namely, because taxpayers often regularize obligations whose validity may be challenged in order to minimize risks and costs derived from a judicial claim against the AFIP. Surely, that case law and opinions will help to solve the different situations arising in the scenario of the new Bill's regime.

2.    Regime to declare the holding of national and foreign currency and assets in Argentina or abroad

The Bill's regime allows for regularizing tax obligations by means of declaring Argentine or foreign currencies and assets in Argentina or abroad. This regularization comprises periods not barred by the statute of limitations as to the date the law is published and ended on December 31, 2007.

The regularized amount is subject to a special tax according to the following rates:

•      8% for goods placed abroad and possessions of currencies abroad not transferred to Argentina.

•      6% for goods placed in Argentina and local or foreign currency holding without specific allocation by the taxpayer.

•      3% for local currency or foreign currency, either in Argentina or abroad, allocated to buy public debt securities (if transferred within 24 months, 5% shall be added).

•      1% for local currency or foreign currency, either in Argentina or abroad, owned by individuals, allocated to buy real estate, finishing construction works, financing infrastructure works, real estate or agricultural investments, in Argentina. According to the Bill, the individual must hold the investment during a two year minimum period.

The main benefits of this regime are: (i) tax assumptions based on undeclared net worth increase are not applicable; (ii) the taxpayers allowance entails the barring of criminal action, and fiscal actions to recover unpaid taxes (i.e. Income Tax, Value Added Tax and Personal Assets Tax). However, the Bill does not provide for the cancellation of Special Tax regarding Income Tax or Equalization Tax.

3.    General Provisions

Section 41:d) of the Bill provides, with unclear wording, that corporations whose managers have been reported based upon Criminal Tax Law, and a final judicial decree has been issued before the law's entry into force.

Probably, this provision will give rise to several questions; for example, if the release of a judicial decree involves the rebate of evaded taxes or a total exclusion of the regime, or what happens if the criminally sentenced manager works for more than one corporation, or is currently not in office because of resignation.

Similar questions will probably arise around Section 41:2 of the Bill which excludes from the Bill's benefits those individuals against whom the AFIP has brought a criminal action and a final judicial decree has been released before the Bill has entered into force.

Another feature of this regime is that, as a condition to keep its benefits, employers may not reduce personnel after two years as from the benefits’ expiration. The Bill does not clarify if personnel reduction involves maintaining the same employees or just the same number.

The Bill does not clarify if the benefits expiration term should be counted as from the allowance of the regime by the taxpayer, as from the settlement finalization date or whether some other event triggers the time computation.