The Supreme Court Rejected Deduction of Payments to Foreigners for Delayed Filing of Technical Assistance Agreement

In the “Empresa Distribuidora de Energía Sur S.A.” case the Tax Authority had challenged the deduction of the amounts paid by the company to the foreign beneficiary as a result of the signing of a technical assistance agreement, since the agreement had been filed before the National Institute of Industrial Property (“Instituto Nacional de Propiedad Industrial” or “INPI”) after the payments were made.

The Income Tax Law (“ITL”) sets forth certain net income presumptions, applicable in the case of payments made to foreign beneficiaries. The ITL presumes a 60% net income in the case of technical assistance, when the agreements are dully filed before the INPI. Also, the Transfer of Technology Law (“TTL”) establishes that the omission of filing prevents the deduction of the expense in the balance sheet.

In this case, the Federal Tax Court confirmed the Income Tax assessment made by the Tax Authority understanding that the payments made abroad were made before the filing of the agreement before the INPI. The Tax Court considered that the fact that the company had delayed the filing for more than two years after the signing when the payments had already been made implied a lack of fulfillment of the requirements set forth by the ITL for tax deduction. The Court of Appeals on Contentious and Administrative Matters confirmed this decision.

Finally, on March 2, 2011, the Federal Supreme Court of Justice confirmed the decision. It understood that the moment when the filing requirement is fulfilled is important for the purpose of tax deduction, and that the ITL specifies that the filing requirement must be fulfilled before making the payments and the taxpayer cannot evoke the guarantee of defense when they have acted negligently.