The Supreme Court Dismissed the Application of Value Added Tax to the “Jet Paq” Service

In the “Austral Cielos del Sur S.A. vs. Argentine Tax Authority” proceedings, the matter under discussion was based on the validity of the modification set forth by Decree No. 879/1992 (the “Decree”) regarding the exemption established by Section 6, subsection 12, appendix J), of Law No. 23,346, exempting the “human and freight transport” from Value Added Tax (“VAT”). Through the Decree, the Executive Branch limited the text of the exception, establishing its applicability to “… the services of transportation of passengers, through land, air or sea, performed in the country”, and adding a second paragraph setting forth that the exemption also applies to “the freight services that were accessories to the passenger transportation performed in the country”.

Based on the modifications set forth by the Decree, the Argentine Tax Authority considered that the activities performed by the taxpayer were not included under the scope of the exemption, since the Decree requires the service of transportation of packages to be performed in the same vehicles used for the transportation of passengers, which was not the way in which the “Jet Paq” service was rendered.

On June 23, 2011, the Argentine Supreme Court ruled that the modification of an exemption by the Executive Branch through a decree violates the constitutional principle of legality set forth by Section 17 of the Federal Constitution, which was strengthened after the modification of the Federal Constitution in 1994, through the prohibition established in Section 99, subsection 3.

Finally, the Supreme Court established that the ratification of the Decree made by Law No. 24,447 was irrelevant due to the fact that such law was enforced after the fiscal periods assessed by the Tax Authority. Thus, its provisions could not apply retroactively.