Stamp Tax: Scope of the Concept of “Effect” for Tax Contracts Executed In Foreign Jurisdictions

In the “Unilever”[i] case, the Contentious Administrative Court of Appeals of La Plata (“CCALP”) decided that technology transfer agreements and license of trademarks agreements executed outside the Province of Buenos Aires (“PBA”) are not subject to Stamp Tax in such jurisdiction. This was on the grounds that they do not have effect within its territory, even if according to the wording of these agreements the territory where the license was granted or where the technology was transferred included the PBA as a result of referring to the “Argentine Republic”.

The Tax Authority of the PBA had assessed Stamp Tax with respect to three license of trademarks and three technology transfer contracts (all of which Unilever had executed outside the territory of the PBA), which granted the right to use trademarks and technology within the territory of Argentina.

On the one hand, the Tax Authority of the PBA held that, as trademarks and technology could be used in all the country, such contracts had effects within the PBA and, therefore, were subject to Stamp Tax in this jurisdiction. On the other hand, the taxpayer understood that the only obligations performed under these contracts were the payment and the transfer of the license rights without any effect within the PBA. Additionally, Unilever argued that it should be understood that the effect related to the performance of contract obligations –unless it is otherwise stated in the contract- occur within the jurisdiction where the receiver of technology and the licensee are domiciled.

The First Instance Judge had confirmed the Tax Authority’s assessment on the grounds that even if the immediate contract obligations were limited to those performed at the time at the execution of the contracts (outside the PBA), their effect was not limited to those as they were contracts of continuous performance that produced effect at the time of the actual transfer of technology or trademark. In the opinion of the First Instance Judge, it was relevant to the case that royalties were agreed with respect to the performance of the business that included the production and sale –in all Argentine territory- of the goods that involved the trademarks, licenses and technologies. In addition, it was held that the Tax Authority’s position was supported by the fact that in order to enforce the rights granted as a result of these agreements (the use of trademarks and knowledge) in Argentina they had been registered with the National Institute of Industrial Technology.

It must be noted that Section 253 of the Tax Code of the PBA sets forth that acts, contracts and operations of onerous nature performed or entered into by means of public or private instruments outside the PBA are subject to Stamp Tax when they produce an effect within the PBA through any of the following acts: acceptance, protest, negotiation, breach of contract lawsuit or performance of contract obligations, as long as Stamp Tax has not been paid in the jurisdiction where such acts, contracts or operations have been “instrumented” or an exemption is not justified.

The CCALP interpreted that the lawmaker limited the scope of the concept of “effect” to the cases expressly included in this provision (acceptance, protest, negotiation, breach of contract lawsuit or performance of contract obligations) and, therefore, concluded that the lack of legal effect in its territory, in accordance with this legal rule, means that the taxable event did not occur.

Continuing with its arguments, the Court held that the performance of economic activities in Argentina and within the PBA through the production and sale of goods that involved the agreed trademarks, licenses and transfer of technology did not implicate any act of beginning, modification or extinction of rights granted as a result of the legal relationships arising from these contracts. On the contrary, these legal relationships are of an instantaneous and complete nature from the time of their “instrumentation”. As a result, legal effect takes place at that moment without any continuous performance with no additional legal consequences to those actually agreed upon.

The CCALP also rejected the “substance over form” argument as grounds to apply Stamp Tax on these contracts, holding that this criterion is of no relevance in Stamp Tax which is not applicable on the economic activity with respect to which the “substance over form” principle would determine how to measure income but only on the instrument by means of which the act, contract or operation is formalized.

Finally, the Court held that the registration of these contracts with a National Registry is also irrelevant because such registration does not imply acceptance, protest, negotiation, breach of contract lawsuit or performance of contract obligations, the only cases set forth in the Tax Code as relevant acts which produce legal effects.

[i] Judgment dated November 3, 2015.