Value Added Tax and the assignment of rights

In general terms, Valued Added Tax (VAT) is levied upon the sale and importation of goods, the lease of works and the provision of services. VAT is not levied on the assignment of rights. However, in the case of leases or provision of services levied with the tax, the assignment of the use or enjoyment of intellectual, industrial or commercial property rights (excluding writers’ and singers’ authors rights), and an assignment which concerns a financial service or the exploitation of an industrial or commercial concession will also attract VAT.

Division A of the Argentine Tax Court (“Tribunal Fiscal de la Nación” or “TFN”) considered in re: “Red Hotelera Iberoamericana S.A.,”[1] whether the assignment of the rights for use, enjoyment and exploitation of premises should attract Value Added Tax. 

As stated in this case, in 1998 Red Hotelera Iberoamericana S.A. (Red Hotelera) temporarily assigned to a company the rights for use, enjoyment and exploitation of a hotel. Furthermore, it leased with a purchase option the goods used at the Hotel; transferred the personnel and assigned the Hotel Costa Galana trademark. Red Hotelera did not charge VAT on the payments arising from the assignment of the hotel or the trademark.

The Argentine Tax Authority (“Administración Federal de Ingresos Públicos” or “AFIP”) considered that the assignment of the hotel did attract IVA since Red Hotelera had assigned a commercial property right and had entered into a leasing agreement related to such assignment. Moreover, AFIP considered that Red Hotelera was still enjoying the control and income of the hotel.

Finally, the Argentine Tax Court decided in favor of Red Hotelera. The Court considered that the assignment of the hotel should be understood as an assignment of a real property right which is not taxable under the VAT Law. However, the Court stated that in order to decide this matter, the control exercised by Red Hotelera had to be analyzed. Regarding this issue, the Court pointed out that Red Hotelera only performed a simple auditory control and that it should not be considered that due to such control Red Hotelera participated in the business of the assignee.

This decision is interesting because, in addition to basing its decision on the fact that the assignment of a real property right is not taxable under the VAT Law, the Court also analyzed the participation of the assignor in the transferred business.