The assignment of rights under Value Added Tax

In general terms, Value Added Tax (“VAT”) is levied upon the sale and importation of goods, the lease of works and the provision of services. VAT is not levied on the assignment of rights, except where:

(i)            there is a lease of works or provision of services upon which the tax is levied, and also there is a transfer or assignment of the use or enjoyment of intellectual, industrial or commercial property rights (excluding writers’ and singers’ authors rights) related to such leases or provision of services levied with the tax; or

(ii)           the assignment concerns a financial service or the exploitation of an industrial or commercial concession.

Recently, the Argentine Supreme Court of Justice has confirmed, in a judgment in re: “San Buenaventura S.R.L.” issued on May 23, 2006, that the assignment of rights are not subject to VAT, except where certain circumstances together apply (see our article “The Supreme Court of Justice confirmed that the assignment of rights is out of the scope of the value added tax” in Marval News # 51, dated June 30, 2006).

As stated in the “Telesport” case, the company had acquired different rights to show sports events on television and paid fixed annual amounts to their organizers (including the Argentine Association of Polo, and the Argentine Rugby Union). In certain cases, Telesport was the exclusive commercial agent of the organizer and had the ability to negotiate advertising agreements or commercially exploit the sporting events.

Telesport assigned the rights to show sport events on television to Sportv S.A. for a fixed price for each type of event. The assignment was effected by means of a licensing agreement of sporting rights. The Federal Tax Authority (“Administración Federal de Ingresos Públicos” or “AFIP”) considered that the assignment of rights amounted to a commercial exploitation concession and thus, the assignment of rights in favor of Sportv S.A. attracted VAT.

The Argentine Tax Courts (“Tribunal Fiscal de la Nación” or “TFN”) decided in favor of the AFIP.

Even though the reasoning is not at all clear, the TFN seems to have held that, in the case under analysis, there was an assignment of rights that amounted to a commercial exploitation concession (which is one of the cases in which VAT applies to the assignment of rights) since Telesport had assigned the chance to exploit the rights to show and distribute the sporting events organized by the different associations commercially.

Even though the term “concession” does not have a clear definition, concession as now interpreted by the TFN will mean that almost every assignment of rights amounts to a concession and thus this requisite would be redundant, all assignments would be levied and the exception would be the rule.

The resolution of the TFN was appealed, and a decision from the Federal Court of Appeals in Contentious and Administrative Matters is still pending.