Limitation to deduct certain advertisement expenses

As a general rule, Section 80 of Income Tax Law allows to deduct, from taxable income, expenses to obtain and preserve such incomes. Incomes are offset against expenses taking into account the source they arise from.

Recently published Law No 26,522 of Audiovisual Communication Services (the "Law") posed limits to deduct certain advertisement expenses (please see an article about the Law here http://www.marval.com.ar/LeydeMedios_en.pdf).

According to the Law, taxpayers who invest in advertisement to be broadcast in non-national channels may not deduct such expenses from taxable income under Income Tax Law. In other words, advertisement expenses may only be deducted (under terms of mentioned Section 80), if that expense is directed to a broadcasting company which qualifies as a national channel.

The Law does not provide us with a definition of “national channels”, as it does with “channels of national origin”; the latter are defined as those channels with a minimum of 60% of domestically produced broadcasts for each half-day of programming. Conversely, the Law qualifies as foreign channels whose contents have less than 60% of domestically produced broadcasts for each half-day of programming.

In turn, the Law deems domestically-produced content to those programs or advertisement messages produced entirely within the national territory or produced as co-productions with foreign capital with the participation of Argentine or Argentine resident authors, artists, musicians, directors, journalists, producers, investigators and technicians in a percentage not lower than 60%.

Although the Law has been enacted, implementing regulations clarifying the above have not been issued.

In addition, in every case it will be necessary to analyze if the Law’s restriction to deduct these expenses is in accordance with the Federal Constitution or whether or not it has been displaced by virtue of an International Treaty to Avoid Double Taxation.