Considering the judgment by the Argentine Supreme Court of Justice, it is imperative that the Municipality of Posadas reviews its position which involves claiming the payment of a retributive tax in absence of its required taxable event: the existence of an establishment or deposit where divisible services funded by the collection of such tax can be actually provided.
Almost seven years ago, on June 23 2009, the Argentine Supreme Court of Justice issued a judgment as a result of the appeal filed by Laboratorios Raffo S.A. against the decision pronounced by the Superior Court of Justice of the Province of Córdoba in favor of the tax assessment made by the Municipality of Córdoba with respect to the “Contribución que incide sobre el Comercio, la Industria y las Empresas de Servicios” (“CCIES”), a general services municipal tax.
The Argentine Supreme Court of Justice reaffirmed the position stated in the “Compañía Química” case (Fallos 312:1575, judgment dated September 5, 1989). Therefore, to determine the lawfulness of any tax, its legal nature must be analyzed by the Court. This examination is not merely academic or theoretical as it gains practical relevance because the taxable events differ in each kind of tax (taxes –“impuestos”, retributive taxes -“tasas”- and taxes levied for special purposes “contribuciones especiales”) and the actual configuration of the taxable event in each case determines if the tax must be paid or not.
The Argentine Supreme Court of Justice described the CCIES as a retributive tax and later on, analyzed if the tax was applicable to Laboratorios Raffo considering that the company commended the promotion of its products to a pharmaceutical sales representative that resided in the City of Córdoba but lacked an establishment or deposit of any kind within its jurisdiction.
The Argentine Supreme Court of Justice concluded that the position of the Municipality of Córdoba, according to which levying a retributive tax on the grounds of the provision of several general services considered as a whole (e.g. control of buildings; the coordination of transportation; the necessity of ordering the transit and regulation of parking spaces) is legal, does not satisfy the essential requirement applicable to all retributive taxes: the collection of such taxes requires a concrete, effective and individualized service, referred to something not less individualized (act or good) by the taxpayer, a requirement that, in the Court’s opinion, is based on Section 17 of the Argentine Constitution.
Lastly, the Argentine Supreme Court of Justice indicated that even though its judgments only decide in cases brought before it and its conclusions are not mandatory with respect to analogous cases, lower courts must align their decisions to those, as a result of which the sentences of lower courts that do not follow the Court’s precedents without giving new arguments are considered to be groundless.
The judgment issued in “Laboratorios Raffo” has been gradually followed by the lower courts of the Province of Córdoba and, later on, by its municipalities. To this date, there have been no new claims similar to the one that was decided in “Laboratorios Raffo”. In addition, some municipalities have been signing agreements with taxpayers to reimburse the sums paid by the companies as a procedural requirement to challenge administrative decisions in court. Therefore, it could be concluded that the Municipalities of the Province of Córdoba have complied with the caselaw of the Argentine Supreme Court of Justice.
After seven years since the “Laboratorios Raffo” ruling, the debate on whether retributive taxes can be levied without physical presence (that is, on companies that lack an authorized establishment or deposit within municipal jurisdiction) has been resumed by the Municipality of Posadas, Province of Misiones.
In this jurisdiction, the Municipal Tax Code sets forth a retributive tax similar to the CCIES, named “Derecho de Inspección, Registro y Servicio de Contralor” (“DIRySC”). In spite of its name, the DIRySC is a retributive tax, as a result of how the taxable event is defined by Section 107 of the Municipal Tax Code, which states that the DIRySC “will be applicable as a result of divisible or indivisible services of: registry, authorization, inspection, control of weights and measures, economic development and promotion, safety, hygiene and social attendance, among others, being this list not exhaustive.” Section 108 of the Municipal Tax Code contains a provision with respect to the taxpayers and expressly sets forth that the retributive tax is applicable whether or not taxpayers possess an establishment or deposit within the jurisdiction of the Municipality of Posadas. These provisions are supplemented by a tax collection and withholding regime and the massive designation of local individuals to act as withholding agents.
At first, the Municipality of Posadas –despite the broadness of the Municipal Tax Code provisions- acted in compliance with the caselaw stated by the Argentine Supreme Court of Justice in “Laboratorios Raffo”. In effect, it waived the payment of the DIRySC in cases of companies without physical presence within municipal jurisdiction and excluded such companies from the tax collection and withholding regime. The municipality even issued certificates of non-withholding.
Nevertheless, from 2014 onward the Municipality of Posadas stopped issuing certificates of non-withholding and decided to register for tax purposes (the DIRySC) many companies without establishment or deposits within municipal jurisdiction. Therefore, such companies started to be subject of the local withholding regime on the sales made to clients located within municipal jurisdiction. Later on, the municipality began tax assessments with respect to the DIRySC and often requested prejudgment attachments in order to secure credit. These prejudgment attachments have been granted by local courts disregarding the scope of the caselaw established by the Argentine Supreme Court of Justice.
The municipality’s behavior, as it involves claiming the payment of a retributive tax in absence of its required taxable event –the existence of an establishment or deposit where divisible services funded by the collection of such tax can be actually provided- is worrisome and must not be tolerated by the courts of justice.
Considering the judgment stated by the Argentine Supreme Court of Justice on the matter, prejudgment attachments of the kind requested by the Municipality of Posadas should not be granted. It is imperative that the Municipality of Posadas reviews its position in order to prevent alleged taxpayers from being forced to challenge the constitutionality of the DIRySC before federal and provincial courts. The experience gathered by the municipalities of the Province of Córdoba and their current serious financial difficulties as a result of the reimbursement of the CCIES should serve as an example of the risks that the administration of tax resources with disregard for the legal system and the precedents of the Supreme Court of Justice entail.
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