AFIP provided clarification on how income tax impacts the amounts paid upon termination of employment

On October 18, 2021, Circular Letter No. 04/2021 (the “Letter”) was published in the Official Gazette, by means of which, based on Supreme Court precedents and the reform introduced by Law No. 27,430, the AFIP states that:

1. Severance payments or bonuses paid upon termination of employment to employees who do not hold managerial or executive positions are not subject to income tax, but for those who hold such positions (and meet the conditions set forth in Decree No. 862/2019), any amount exceeding the severance amounts provided in Section 245 of the Labor Contract Law is in fact taxable.

2. All other items paid by the employer upon termination of employment are taxable and subject to the applicable withholding tax regime, even if the amount corresponding to such items is not expressly identified or is subsumed under another label.

Although the agency sets forth its criteria and interpretation of taxable persons and concepts and the scope of the term “minimum compensation amounts” when referring to Section 245 of the Labor Contract Law, it is yet to be seen in each specific case which amounts are subject to the tax and what the scope of the withholding is, if any.

 This article is a brief comment on legal news in Argentina; it does not purport to be an exhaustive analysis or to provide legal advice.