Proving Suppliers Economic and Operational Capacity Not Necessary

On May 10, 2024, in the case “Noble Argentina SA c/ EN-AFIP-DGI-resol 105(RDEX) s/Direccion General Impositiva,” Chamber V of the Court of Appeals in Federal Administrative Matters in the City of Buenos Aires overturned the first instance ruling and analyzed the veracity of certain transactions Noble Argentina SA (currently Cofco Argentina SA) carried out with different suppliers, within the framework of a request for recognition of the VAT tax credit for exports.

 

The company filed an administrative lawsuit against the Argentine Tax Authority (AFIP) seeking the overturn of the resolutions through which AFIP rejected the appeals filed against the rejections of the reimbursement of VAT tax credits requested in due time. Since Chamber 4 of the Federal Court on Administrative Matters rejected the motion, Noble filed an appeal before the Court of Appeals in Federal Administrative Matters of the City of Buenos Aires.

 

In the said appeal, the company argued:

 

• The existence of an arbitrary and incorrect evaluation of the proof produced to accredit the operations with the challenged suppliers, since the veracity of: 1) the invoices, 2) of the documents that proved the payments, 3) the existence of the cereal, the company’s actual payment of the VAT is not controverted.

 

• Requiring proof of the economic or operational capacity of the challenged suppliers is inappropriate and impossible to comply with.

 

• AFIP's questioning of some of the suppliers arose from investigations initiated after the transactions with the company.

 

• AFIP recognized the materiality of the operations involved.

 

The Court highlighted that the company provided sufficient documentation to prove the veracity of the commercial transactions that AFIP had challenged.

 

The company mainly provided:

 

1. supporting documents of the contracts entered into,
2. invoices,
3. accounting records,
4. documentation of the purchase settlements,
5. bank statements,
6. withholdings made,
7. vouchers of the payments made.

 

It also requested the carriers to confirm the authenticity of the documents of the transfer of the goods and the banks involved in the electronic payments, to confirm the veracity of the documented payments.

 

The Court also emphasized that AFIP itself recognized that the documents sufficiently accredited the materiality of the transactions and the payment of the tax, notwithstanding the fact that it rejected the reimbursement due to the quality of the audited supplier. The Court highlighted that the expert confirmed that the transactions in dispute were recorded in the company's corporate books.

 

The Court considered, then, that the first instance ruling did not evaluate the documentation provided in the administrative instance and that it considered neither the conclusions of the expert opinion nor the result of the informative evidence. Further, the Court also stated that AFIP qualified certain suppliers as fraudulent and, by extension, their transactions as well, even though it is undisputed that the transactions existed and that the company documented and proved them.

 

This ruling also quotes case law of the Argentine Supreme Court of Justice to make a point that, for the purpose of the refund of the tax credit, sufficient elements must be provided to prove the veracity of the operations and their economic reality. Based on this, that the Court understood that AFIP had to refute the evidence the company provided and support the arguments presented in the administrative proceedings.

 

On the burden of proof, the Court sustained that placing it on the company also implies requirements for AFIP when it tries to challenge the elements the taxpayer provided. The Court's ruling emphasizes that if the taxpayer proves that the transactions really took place and were actually paid, the burden of proof is placed on AFIP, and it will be AFIP that will have to “make a greater effort to be able to concretize the challenge and impose its appraisal in the specific case over the evidence provided by the taxpayer.”

 

The Chamber highlighted that it had already stated in other cases with similar facts that it was AFIP’s responsibility to “prove the non-existence or lack of veracity of the transactions, because once the purchase, delivery, and payment had been demonstrated, it had to specify—no longer in a merely circumstantial or presumptive manner—for which specific reasons the transactions should be considered as not real or simulated.”

 

The ruling emphasizes that, to carry out the operations AFIP challenges, the taxpayer must prove the veracity of the operation but not the economic and operational capacity of the supplier.

 

The Court confirmed the appeal the company filed and overturned the first instance ruling. Therefore, it recognized the tax credit for the challenged transactions and ordered it be reimbursed to the company, plus interests at the average passive rate published by the Argentine Central Bank. AFIP also had to cover the court fees.

 

AFIP filed a Federal Extraordinary Appeal before the Argentine Supreme Court of Justice, which has not been resolved. Accordingly, this decision is not final.