The Supreme Court restrains the municipal power to tax

On February 7, 2006, the Argentine Supreme Court of Justice resolved the case "Y.P.F. S.A. vs. Municipality of Concepción del Uruguay”, related to the application of section 35 of the Multilateral Agreement (Convenio Multilateral) to liquidate the Contribution related to Sanitary Inspection, Hygiene, Prophylaxis and Security (Tasa por Inspección Sanitaria, Higiene, Profilaxis y Seguridad) of the Municipality of Concepción del Uruguay.

In the previous instance, the Federal Court of Appeals of Paraná had resolved that the Municipality of Concepción del Uruguay could determine the contribution under discussion based on the total gross income attributable to the Province of Entre Ríos, even when YPF developed activities in other municipalities of this province. In this sense, it resolved that the municipality could tax all the income of the province unless the taxpayer showed that it had paid a similar contribution in other municipalities of the same province, hypothesis in which the tax basis could be reduced.

Against the decision of the Federal Court of Appeals of Paraná, YPF filed an extraordinary appeal before the Argentine Supreme Court of Justice, based on the following grounds:

(i)    that the tax power of the Municipality of Concepción del Uruguay should be limited only to the portion of the gross income attributable to it; and

(ii)   that not showing payment of a similar contribution in other municipalities of the Province of Entre Ríos, did not entitle the Municipality of Concepción del Uruguay to increase its tax basis; in other words, that the Municipality of Concepción del Uruguay could not attribute to itself the tax basis of other municipalities.

The Argentine Supreme Court of Justice, agreeing with the Argentine Prosecutor, resolved the case in favor of YPF, on the understanding that the Multilateral Agreement does not foresee the possibility of increasing the tax basis of a jurisdiction as a consequence of the lack of proof of payment in another jurisdiction.