Provincial Court Says the Tax Code’s Joint Liability Regime for Company Directors is Unconstitutional

Sections 21, 24 and 63 of the Tax Code of the Province of Buenos Aires (according to its consolidated 2011 text) and identical sections in terms of content in other years’ tax codes establish a joint liability regime governing tax, interest and fine-related matters affecting those who have a certain relationship with taxable events or taxpayers, even if unrelated to the material tax relationship with the provincial tax authority (“ARBA,” after its acronym in Spanish) and are, therefore, appointed by the legislator as liable parties. These persons include members of administrative bodies (which we will refer to as “Directors”).

The joint liability regime applicable to Directors for tax debts claimed by ARBA is governed by the Tax Code in a substantially “objective” manner and has been historically enforced by ARBA and by the Provincial Tax Court “objectively.” So-called “objective” enforcement of this regime implies that joint liability is extended regardless of the weight carried by the allegedly responsible party’s conduct. In other words, it applies regardless of whether or not nonpayment of a tax results from negligence or fraud. All that matters is whether that person ever held the position of Director.

Similarly, the regime does not apply subsidiarily, which means that the debt assessment procedure and any eventual tax enforcement proceedings will be filed by ARBA simultaneously. In fact, for ARBA, it makes no difference whether the taxpayer incurred prior breach or failed to pay by the estimated date. In all cases, proceedings are conducted against all those deemed liable (i.e., taxpayers and Directors alike).

On August 30, 2021, the Supreme Court of the Province of Buenos Aires (the “SCBA,” after its acronym in Spanish) handed down a ruling on the regime outlined in the case of “Toledo, Juan Antonio v. ARBA on collateral issue” (C. 121.754). In their majority vote, all five SCBA justices (Genoud, Soria, Pettigiani, Kogan and Torres) found the regime that provides for the extension of responsibility to Directors to be unconstitutional. The Court reached this conclusion by analyzing various aspects of the regime, holding most notably that:

-    The mere fact of serving on the Board of Directors means that Directors are bound by the duties set forth in the Tax Code. This means the Tax Code attributes liability to Directors differently from the Argentine Civil and Commercial Code as legislated by the National Congress, which only attributes liability in the event of fraud or negligence in the fulfillment of duties. Thus, the Tax Code legislates substantial aspects of the relationship between debtors and creditors as outlined by the lawmaker. In doing so, the Tax Code clashes with article 75, paragraph 12 of the Argentina Constitution, which establishes that the National Congress is the organ with power to regulate substantive laws and ordinary law, such as the substantial aspects of the relationships between debtors and creditors.

-    The liability regime under the Tax Code is even more burdensome than that provided by National Law No. 11,683. This is so in that, in similar circumstances, an ARBA debtor is in a more burdensome subjective situation than an AFIP debtor. And there is no well-founded reason for that disparity in treatment.

-    Likewise, the liability regime and the only defenses available (such as demonstrating that the funds for paying the tax were requested from the taxpayer and that the principal made it impossible for the Director to comply with their duties) are disproportionately rigid, unreasonable, and inconsistent with the public interest and due process.

-    Ultimately, the Tax Code’s extension of joint liability to Directors, regardless of the specific actions of the Directors and pertinent Board decisions, is not sufficient to hold them personally liable.

The SCBA’s ruling is significant because its five justices have found that the articles of the Tax Code that regulate the extension of liability are unconstitutional. That finding forces both provincial lawmakers to amend the regime and ARBA to follow applicable proceedings specifically weighing the conduct of each of the Directors and holding them liable only after they are proven responsible for fraud or negligence. This also means ending with the repeated practice of collecting tax debts from taxpayers and directors jointly and simultaneously.