Implications of Some Provisions of the New Civil and Commercial Code on Taxation Matters

On October 1, 2014 the Argentine Congress enacted Law No. 26,994; the Law approved the new Argentine Civil and Commercial Code, which will come into force on January 1, 2016. We will briefly refer to some of the implications that the new Law has in taxation matters. It is important to underline the powers that the new Law grants to provincial and municipal government levels allowing them to establish barring periods different from those provided for in the Civil and Commercial Code.
 
1. Amendments to bear in mind
 
Interpretation of the tax law. Section 1 of the Tax Procedural Law (hereinafter, the “TPL”) establishes that when it is not possible to set the meaning or scope of TPL rules or of the tax laws subject to the TPL regime, Argentine Tax Authority (the “AFIP”) and judges should consider the rules, concepts and terms of private law. Furthermore, Section 2 of the TPL establishes the principle of the “economic reality” (which is similar to the “substance-over-the-form principle” applied in other legislations). Pursuant to this principle, the AFIP could re-characterize transactions if legal forms used by the taxpayers “lack economic substance”. Based on such provision, the AFIP could disregard the structures set up by the parties if they are not consistent with the taxpayers’ real economic purpose; therefore, the tax consequences could be determined based on the legal structure which would be more appropriate for the real economic intention of the parties involved (regardless of legal form). 
 
Hence, it is important to bear in mind that the new Argentine Civil and Commercial Code (the “CCC") contains a Preliminary Section pursuant to which the redactors aimed to set forth all the rules of the legal system, establishing how the Law should be applied and interpreted. In addition, the Preliminary Section refers to the concept of good faith, abuse of law and abuse of dominant position, in connection to the principle of “economic reality” explained above. Consequently, when the AFIP and judges understand that the regulations of the TPL are insufficient, the new provisions of the Preliminary Section of CCC should be applied in taxation matters at a national level.
 
Liability of companies’ administrators (chairmen, manager partners, etc.). Section 160 of the CCC establishes that companies’ administrators are jointly and unlimitedly liable to such corporations, their share or equity holders and third parties for the damage caused by their negligence when performing their duties. The provision reinforces the subjective attribution of liability that Sections 59 and 274 of the Argentine Corporations Law (the “ACL”) establishes for administrators. According to the ACL such administrators respond only when fraud or negligence is proven. Consequently, to extend tax liability to administrators it is not enough that they occupy a position in the company or that they participate in the events that generate the liability of the company; negligence or fraud must also be proven. Such criterion has been adopted by the TPL and accepted by the case law when the scope of a national tax law is discussed but not by all provincial jurisdictions. Thus, in provincial jurisdictions where tax authorities still extend tax liabilities to administrators without the demonstration of negligence or fraud, Section 160 of the CCC constitutes another line of defense to that claim. It could therefore be understood that such jurisdictions may incur in a breach of two rules established by substantive laws, the CCC and the ACL and, consequently, of Section 31 of the Argentine Constitution, which sets forth the preeminence of Argentine laws over any inconsistent provision contained in provincial constitutions or laws and the obligation of the provincial authorities of complying with the former.
 
Family Property Regime. In Sections 469 and 470, the CCC sets forth the marriage property regime pursuant by which each spouse has management and disposal of their own property and of the shared property they may have acquired. Considering that the Argentine Income Tax Law (the "ITL") and the Tax on Personal Assets, in general terms, establish that the benefits of a marriage’s shared property shall be attributed to the husband, adaptation of the rules seems to be necessary. (1)

Meanwhile, Section 518 of the CCC legislates on the common-law relationship (the so-called “unión convivencial”) and establishes that the economic relations between its members shall be governed by stipulations of the so-called “pact of coexistence”. If this pact does not exist, each member of the union shall freely manage and dispose of the property they own. There will likely be amendments in the income and property allocation alternatives for common-law relationships in the ITL and Tax on Personal Assets.
 
Single shareholder companies. Section No. 2.2 of the CCC’s Annex II amends the ACL and allows the incorporation of companies of one shareholder, which can only be incorporated as corporations (the so-called “S.A.”) and only by persons or entities that are not single shareholder companies. Currently, ITL legislation provides a special tax treatment for the so-called “empresas unipersonales” (one-person companies), which only gather information and determine taxable income, transferring it to the owner of such one-person companies. After that, such owner is the one who reports the income and then pays the tax. Meanwhile, regarding corporations, the ITL sets that they not only have to determine taxable income, but also declare and pay the tax. The tax authority criterion is important in this situation; namely, to decide whether the one-person company tax treatment or the corporation tax treatment is applicable to the single shareholder companies created by the CCC.
 
Statute of limitations in relation to local tax obligations. Sections. 2,532 and 2,560 of the CCC establish that provincial and municipal government levels are able to provide barring periods different from those provided by the CCC. Such provision is clearly relevant in the field of local tax procedures because it allows provincial and municipal representatives to establish longer barring periods for tax obligations than those provided by the CCC for analogous obligations (2 years). Since the "Filcrosa" case, issued in 2003, the Argentine Supreme Court had repeatedly held that, as provinces have delegated the National Congress with the issuance of the substantive codes (such as Civil Law, Corporations Law, etc.), provinces and municipalities were not allowed to legislate in the field of statute of limitations in a different way from substantive codes. In practice, the position of the Argentine Supreme Court implied that provinces and municipalities were not allowed to establish barring periods, methods to compute barring periods, or other matters in relation to barring periods in a different manner than the Civil Law in force. However, considering the modification provided by the CCC it is likely that taxpayers and tax authorities and case law will discuss whether the provinces and municipalities are allowed to legislate in statute of limitations matters setting aside provisions of the CCC for analogous obligations.
 
2. Conclusion
 
As we analyzed above, the enactment of the CCC will have important consequences in the field of substantive and procedural tax matters. It is important to be aware of modifications of tax laws as well as to the criterion adopted by the tax authorities and case law. The deferral of the coming into force of the CCC should allow for a careful analysis of the changes and their potential impact on tax matters.
 
 
 
This article is intended to provide readers with basic information concerning issues of general interest. It does not purport to be comprehensive or to render legal advice. For advice about particular facts and legal issues, the reader should consult legal 1. It should be recalled that by Law No. 26,618, enacted in 2010, the matrimony regime of the Civil Law was amended and marriages between partners of the same sex was allow. Although it was considered necessary to adapt the ITL and Tax on Personal Assets Law since then, only AFIP’s Ruling No. 8/11 has been issued, which has no binding nature. In this Ruling, AFIP instructs their dependents about treatment of the income and assets of the components of the matrimony’s property regime.