No application of fine in case of inflation adjustment (‘ajuste por inflación’) for income tax purposes

On July 24, 2008, Tribunal II of the Federal Court of Appeals on Administrative and Contentious Matters ruled in “Cepas Argentinas S.A.”, overruling the Tax Court’s resolution that had admitted the application of a fine to a taxpayer that had applied inflation adjustment to the income tax return for year 2002.

According to the Court’s description of the facts, the taxpayer had first applied the adjustment, but later submitted a new return without any adjustment and simultaneously paid the difference thereof.

Given these facts, the AFIP applied a fine. The Tax Court confirmed the application of the fine on the grounds that excusable error (“error excusable”) was not applicable because the statutory rules revolving around the application of the inflation adjustment were clear and could not lead to any misinterpretation or misapplication.

The tax payer appealed and the Court of Appeals reversed, resolving the non-applicability of the fine. To rule in this sense, the Court of Appeals found that the excusable error was indeed applicable to the case on the grounds that

(i)             the statutory rules were not easy to understand;

(ii)            the statutory rules were not clear; and

(iii)           the existence of contradictory case law on the subject matter.