Recently, Chamber B of the Argentine Tax Court (“TFN”, for its Spanish acronym) ruled against the Argentine tax authority (“ARCA”, formerly “AFIP”), determining the non-taxability of contributions to an irrevocable trust constituted by a taxpayer before the so-called Aporte Solidario y Extraordinario para Ayudar a Morigerar los Efectos de la Pandemia (“ASE”), also known as “Impuesto a las Grandes Riquezas” (“Wealth Tax”), established by Law No. 27, 260 in the midst of the COVID-19 pandemic.
Normative context
The Wealth Tax was created by Law No. 27,605 and regulated by Decree No. 42/2021, in the context of a global health emergency. It was levied on resident individuals and undivided estates, who owned assets in the country and abroad for a total value equal to or greater than $ 200,000,000 as of December 18, 2020.
The rates to be applied were established in a range between 2% and 3.5% in the case of assets in the country, and between 3% and 5.25% for assets abroad, varying according to the total value of the taxed assets.
Article 3 of said law expressly included within the taxable base contributions to trusts, trusteeships or private interest foundations and other similar structures, without making any distinction between revocable or irrevocable figures.
Ruling M.M.W. c/ AFIP-DGI s/Recurso de Apelación
In the analyzed case, the TFN revoked the ex officio determination of the Wealth Tax made by ARCA, which had included in the taxable base the assets contributed to an “irrevocable” trust constituted by a taxpayer before the tax became effective. The taxpayer argued that it had ceased to be the owner of the assets subject to the adjustment, and therefore, there was a genuine disallowance of the assets contributed.
Thus, one of the central arguments of the TFN to support its decision is that, although Law No. 27,605 does not differentiate between “revocable” and “irrevocable” trusts, the taxable base of the tax should only be calculated on the assets in which the taxpayer has some control or participation.
In fact, in the case of “irrevocable” trusts, this assumption does not apply since the use of this figure implies the loss of effective control by the taxpayer, i.e., the taxpayer ceases to have the ownership and decision-making power over the trust.
To support this argument the TFN cited Opinion 9/2013 which establishes as conditions for the determination of the irrevocability of a trust:
i. The effective divestment of the assets contributed, i.e., that they do not return to the trustor’s estate;
ii. The non-existence in the head of the contributor of decision-making powers of such importance that it may be interpreted that it is the effective owner of the assets of the trust -indirect management-; and
iii. The non-possession, by the contributor or the beneficiaries, of the quality of protectors of the assets or any other type of interference in their administration.
Since the verification of such requirements was not in dispute in the case in question, the TFN concluded that the assets duly contributed ceased to be the property of the appellant and, therefore, could not be taxed. The same reasoning was used by the TFN to hold that irrevocable trusts should not be taxed with the Personal Property Tax either.
Finally, the TFN ruled out the existence of elusive maneuvers, arguing that the disposal of the assets by the appellant was prior to the entry into force of the rule, even prior to the “suspicion period” and even before the circumstances that motivated the enactment of the rule existed, not evidencing that the act was entered into with the purpose of avoiding or evading the payment of the tax.
