Stocks sale and the Income Tax Law (Cont.)

On June 5, 2008 Tribunal II of the Argentine Court of Appeals sentenced in re: “Magariños” on the Income Tax situation of the transfer of stocks and other securities by Argentine-resident individuals who do not perform this kind of transactions on a regular basis.

It should be remembered that with the so-called Superpowers Law No 25,414 (“Ley de Superpoderes”, published in the Official Gazette of March 30, 2001), the Argentine Congress modified the Income Tax Law. In the first place, it included within the scope of the tax the income obtained from the transfer of stocks, whoever the subject obtaining it was. In the second place, it exempted income from those transactions made by any kind of individuals. At the same time, the Congress delegated in the Executive Branch the power to create and abrogate tax exemptions. The delegation was supposed to expire on March 1, 2002, and until then the decrees issued by the Executive Branch were in force.

Within the framework of the above-mentioned delegation, the Executive Branch issued Decree No 493/2001 (published in the Official Gazette of April 30, 2001), which left out of the exemption the income obtained by individuals from the transfer of non-quoting stock and other securities.

Lastly, on December 28, 2001 the Argentine Congress enacted Law No 25,556, by which it abrogated the superpowers law, leaving in question what would happen with the amendment introduced by Decree No 493/2001.

Consecutive opinions issued by the Argentine Solicitor General concluded that Decree No 493/2001 had been in force only during year 2001: between January and April only for individuals who performed this kind of transactions on a regular basis and between May and December for individuals who performed this kind of transactions on a regular basis or not (see “Stock sale and the Income Tax Law” in Marval News # 20 of August 29, 2003, and “Stock sale and the Income Tax Law (Cont.)”, in Marval News # 39 of May 31, 2005).

On December 21, 2004 it was the turn of the Argentine Tax Court to issue an opinion in “Magariños” case. Juan Carlos Magariños was an Argentine resident individual who did not perform this kind of transactions on a regular basis who sold non-quoting stocks on January 2, 2001.

The Argentine Tax Court considered that the transaction was affected by Argentine Income Tax because up to December 31, 2001, the date when the tax had to be calculated for the total amount of income obtained during fiscal year 2001, Decree No 493/2001 was in force since the abrogating law had not made any reference to its provisions.

The decision was later appealed and reversed. The Court of Appeals agreed with the Argentine Tax Court that when dealing with an annual tax, the applicable legislation is that which is in force at the closing of the fiscal year. However, it declared Decree No 493/2001 unconstitutional, as well as deeming unconstitutional Law No 25,414 only with respect to the delegation in the Executive Branch of a power that the Argentine Constitution grants exclusively to the Legislative Brach.

A reasonable conclusion that could be extracted from the decision is that income obtained from the transfer of stocks by individuals who performed this kind of transactions on a regular basis or not, would be, since year 2001 on, exempt from Income Tax since the declaration of unconstitutionality would lead to the conclusion that only the amendment introduced by Law No 25,414 remained in force.

It is worth mentioning that this decision is applicable only to the case it solves and to extend its effects to a new case, it would be necessary to present a new case before the Courts. In the meantime, sentences of Tribunals I, III and IV are expected (Tribunal V sentenced in the same way as Tribunal II in the “Boiteaux, Miguel Ángel” case on April 12, 2007) and, in any case, of the Supreme Court.