Another controversial resolution related to withholdings

In this opportunity, we refer to an issue analyzed in Marval News # 73 published on June 30, 2008 (please see “A worrisome resolution related to withholdings”)

Please bear in mind that in the “Aerolíneas Argentinas S.A.” (“Aerolíneas”)[1] and “Austral Líneas Aéreas Cielos del Sur S.A.” (“Austral”)[2] cases the Tax Court (Tribunal Fiscal de la Nación) and the Federal Court of Appeals on Contentious and Administrative Matters had to determine the tax consequences arising from the payments for the use of the system called “Amadeus”.

“Amadeus” is a system that allows for the booking of air tickets, hotels, car rentals, etc. The system has been set up by different airlines. It allows any tourist agency in the world to get information related to flights and book flight seats on a real time basis.

The Income Tax Law provides that gains derived from the rendering of services within Argentina and that payments due to technical, financial or other kind of advice rendered abroad that qualify as ”Technical Assistance” (asistencia técnica) are from Argentine-source income, and thus, levied with Argentine income tax.

In both cases, Aerolíneas and Austral made the payments to their Spanish counterpart without making any withholding, in the understanding that those payments were for services rendered outside Argentina. It was therefore understood that the services did not generate any Argentine-source income and that they did not qualify as Technical Assistance. Nevertheless, the Argentine Tax Authority claimed that the Argentine payers should have made withholdings on such payments. The Court of Appeals confirmed the Aerolíneas’ case, thereby validating the Tax Authority’s criteria.

However, in Austral the Tax Court confirmed the tax payer’s criteria, on the understanding that the payments were made for services rendered abroad which did not qualify as “technical assistance”.

In the case in question, the Court of Appeals had to decide on the appeal of the Tax Administration to the Tax Court’s decision which was contrary to its position. Tribunal V of the Court of Appeals reversed the Tax Court’s decision[3] and followed the position of the Tax Administration.

The Court of Appeals held that Amadeus provided Austral with the Technical Assistance necessary for its products to be acquired by different tourist agencies, and thus, Austral obtained gains derived from the sale of products with the use of such system. Also, the Court of Appeals held that the contractual relationship between Austral and Amadeus was not limited to the mere rendering of services, but that it qualified as a Technical Assistance. Moreover, the court adopted the arguments expressed by Tribunal I of the very same Court of Appeals in the case “Aerolíneas”.