Province of Neuquén: Federal Court Orders Cautionary Measure Ensuring Tax Stability Under Mining Investment Act

On October 14, 1998, Minera Andacollo Gold S.A. subscribed an usufruct agreement with Cormine S.A. in order to develop mines located in the Andacollo area, in the Province of Neuquén. On February 12, 2003, the Secretary of Mining of Argentina granted Minera Andacollo Gold S.A. a tax stability certificate for thirty years, under Law No. 24,196 ("Mining Investmet Act"). Said certificate states that Minera Andacollo Gold S.A. is "protected under the guarantee of the Tax Stability Regime, concerning national taxes in-force in Argentina as of December 14, 1998" (highlight added).

At the beginning of 2007, the Secretary of Domestic Trade, jointly with the Secretary of Mining of Argentina, enacted Resolutions No. 288 and 130 ("Resolutions SDT 288 and SMA 130"), instructing the General Customs Bureau (Dirección General de Aduanas or "DGA") to collect import duties from companies who were granted tax stability certificates (provided under the Mining Investment Act) prior to the levying of export duties (Ministry of Economy and Infrastructure Resolution No. 11/2002), dated 03/05/2002). The argument stated for the imposition of this tax to companies under tax stability was the following: when the tax stability certificates were granted, the price of minerals was significantly lower than the price in 2007; consequently, tax stability was based on the value of minerals upon the presentation of projects. Due to the increase of mineral value -which in some cases has tripled its price since the time when the tax stability certificates were granted- the stability guarantee was no longer applicable.

Provided that Minera Andacollo Gold S.A. obtained a tax stability benefit regarding taxes in force as from December 14, 1998 (see first paragraph), Minera Andacollo Gold S.A. filed an amparo (accelerated proceeding which protects constitutional rights - Argentine Constitution, Section 43) for the annulment of Resolutions SDT 288 and SMA 130, as they breached the tax stability standard provided under the Mining Investment Act. Furthermore, it requested the ordering of a cautionary measure impeding the Federal Tax Bureau (Administración Federal de Ingresos Públicos or "AFIP") and the DGA from applying Resolutions SDT 288 and SMA 130.

The claim was assigned to Federal Court No. 1 of the Province of Neuquén, which awarded the cautionary measure requested by Minera Andacollo Gold S.A. on June 8, 2010, based on the following grounds:

- The documents provided did not evidence a Government act vacating the tax stability benefit granted in favor of Minera Andacollo Gold S.A., nor the enacting of any regulation which modifies the Mining Investment Act Regime.

- The lack of any subsequent Government act suspending the effects of tax stability certificates issued by the Secretary of Mining of Argentina, under Section 8 of the Mining Investment Act, would constitute ab initio (notwithstanding the possible decision on the subject matter) an irregular behavior on behalf of the government, which is forbidden by the regulations in-force.

- In virtue thereof, the legal plausibility of the claim is evidenced, as well as the periculum in mora (both are procedural requirements for cautionary measures), due to the altering of the project's financial equation, by the increase of the tax burden assessed to determine its ratability. This is based on the high monthly income stated (USD 50,000). Lastly, the court ordered Minera Andacollo Gold S.A. to post a bond in order to make effective the cautionary measure requested.

The cautionary measure ruled by Federal Court No. 1 of the Province of Neuquén in favor of Minera Andacollo Gold S.A. displays not only a fair and adequate construction of the regulations at issue but also of the reigning legal precedents on the subject matter (in this regard, see Rodríguez, Leonardo G. and Schiariti, M. Lorena: "Derechos de exportación aplicados a ventas al exterior de empresas amparadas por la ley de inversiones mineras: Un buen precedente", El Derecho, 12/17/2009). The Supreme Court of Justice of Argentina will be the one to determine this case. Given this court's decision in re: "Cerro Vanguardia c. Dirección General Impositiva" dated June 30, 2009, it would not be reckless to foresee a decision favoring the companies under the Mining Investment Act regime. In said case, Argentina's highest court held that the Government imposed a limit on itself through the Mining Investment Act, by assuring tax stability for thirty years to companies launching mining developments. Hence, new taxes altering the financial equation upon which the feasibility study was based, may not be levied (in this regard see: Rodríguez, Leonardo G., "Alentador precedente de la Corte Suprema de Justicia de la Nación en torno a la Ley de Inversiones Mineras", Panorama Minero, Year XXXII, Edition No. 359, September 2009).