Court Rules Solidarity Contribution Does Not Apply to Those Who Lost Their Tax Residence in 2020

The Solidarity Contribution was established through Law 27605, which levied individuals residing in Argentina for their assets in the country and abroad, and also non-resident individuals for their assets in Argentina, both as from December 18, 2020.

According to article 2 of the Law, taxpayers of the Solidarity Contribution were governed by the residency criterion under the terms and conditions in articles 116 to 123 of the Income Tax Law, in force in 2019 (and its amendments) as of December 31, 2019.

The Law was published in the Official Gazette on December 18, 2020, and became effective that day.

The Case

In the case “B., R. c/ EN – AFIP- Ley 27605 s/ Proceso de Conocimiento” (Federal Court on Administrative Matters, Chamber 5), a taxpayer filed a request for a declaratory judgement regarding whether he should be considered an Argentine resident for purposes of the Solidarity Contribution, even though he had lost his tax residence in Argentina after December 31, 2019 but before December 18, 2020 and, if so, whether it was constitutional for the Law to retroactively consider as Argentine residents individuals who no longer had such status when the law became effective.

The taxpayer was Italian and, after working for some years in Argentina, he returned to his country. Before the enactment of the Law, he had requested the Federal Tax Authority to cancel his tax resident status in Argentina and he had ceased to be a taxpayer liable for income tax and personal assets tax for the fiscal year 2020. As evidence of this, he provided, among others, the certificate of residence issued by the Municipality of Milan and the certificate of the application for de-registration issued by the Register of Italians Living Abroad. Both documents had been issued before the Law became effective.

The Court understood that the Solidarity Contribution was a tax, and therefore it analyzed the incidence of the tax residence of the taxpayer and the potential retroactive application of the Law.

The Court highlighted that the residence in Italy started before the Law became effective, since the change of residence happened before December 18, 2020, and that this meant the taxpayer was protected by the principle of non-retroactivity of the law. Therefore, the Court held that the retroactivity in article 2 to assess taxpayers’ residence violated the right to property. Accordingly, in this case, the taxpayer was excluded from the Solidarity Contribution regarding his assets abroad because he was not an Argentine resident.

The ruling emphasizes that establishing the residence of the taxpayer as of December 31, 2019 could not be considered reasonable as compliance clause since "on that date the pandemic did not exist, there was no public debate in the media."

Likewise, it understood that it was incorrect to consider that "the retroactivity of the residence was demanded by the need to avoid the ‘tax leakage’ when the claim of temporary retraction of the taxable event unreasonably went back to almost a year before the publication of the corresponding regulation in the Official Gazette."

The claimant had argued that considering him as a taxpayer of the Solidarity Contribution on the totality of his assets, inside and outside Argentina, affected his rights and guarantees protected by the Argentine Constitution and the Double Taxation Treaty between Argentina and Italy, applicable to taxes on income and capital. In this sense, the Court ruled in favor of the taxpayer because the Solidarity Contribution had a tax nature and the Treaty applies to identical or similar taxes established after its signing and to those added later or replacing the ones in force at the time of the signing.

This is an interesting precedent in the current debates against the Solidarity Contribution. It reinforces the application of the principle of non-retroactivity in tax matters. The Federal Tax Authority appealed the sentence before the Federal Court of Appeals on Administrative Matters, thus the decision is not yet final.