Regarding the application of the tax inflation adjustment, the Supreme Court of Justice (“SCJ”) has invariably ruled that the scope of application of such mechanism, in the terms of the leading case “Candy SA”, is only for the purpose of avoiding the confiscation that would occur when the State absorbs a substantial portion of the taxpayer’s income or capital; which prevents the use of this mechanism to achieve the recognition of a greater loss that can be used in subsequent periods due to previous net operative losses. Under this assumption, there is no tax to be paid that can be compared with the taxed capital or income.
However, yesterday, the SCJ issued the decision in the case of “Telefónica de Argentina SA y otro c/ EN-AFIP-DGI s/ Dirección General Impositiva”, maintaining what had been previously recommended by the Attorney General, in favor of allowing the taxpayer to update the tax losses as long as there is Income Tax to be paid.
In the case under analysis, Telefónica de Argentina SA had initially filed a reimbursement claim regarding the Income Tax for the fiscal years 2008 and 2009 requesting the application of the doctrine set forth in the “Candy” ruling, since not being able to update the amounts for deductible previous losses produces that the payment of the tax in question to be confiscatory.
By rejecting the extraordinary appeal filed by the Federal Tax Authority, the SCJ upheld the decision of the Court of Appeals which endorsed the taxpayer’s claim and extended the doctrine of the “Candy” ruling to the tax losses, rejecting the Federal Tax Authority position for a restricted application of the inflation adjustment mechanism, and since in this case it had been demonstrated that the Income Tax originally assessed had consumed 98% and 76% of the taxed income, for the 2008 and 2009 fiscal years, respectively.
Therefore, the ruling admits that the restatements on the following items may also be applied:
- Depreciation of movable, immovable and intangible assets;
- Tax costs of such assests at the time of their sale;
- Net operative losses.
This report should not be considered as legal or any other type of advice by Allende & Brea.
