Unexpected rent advance: Experts doubt the legality of the regulations

Sergio Massa begins a week of hard work and within a battery of announcements that he plans, a project could arrive that Mercedes Marcó del Pont prepared, when he was still in charge of AFIP and that Carlos Castagneto would have taken up these days out of box. The initiative aims at an advance on taxes which would affect about 1,900 companies that – following the war in Ukraine – made extraordinary profits due to rising commodity prices.

The government’s plan requires these companies to pay an extraordinary advance on income tax, e the amount raised will be used to finance a bonus for retirees.

Clarin consulted four tax experts. The initiative raises four main concerns: that it is transitory and does not become a tax; that more companies than the nearly 2,000 planned are involved; which remains in the hands of each company the obligation to prove that it does not have it “extraordinary income”. And we will have to wait for the final text to establish “if constitutional principles and rights are violated”.

Here’s what the specialists say:

Cesare LitvinLisicki CEO partner, Litvin y Asociados: the General Resolution drawn up, but not yet signed, provides for an additional advance for some taxpayers which have had extraordinary income, regardless of the items that have benefited from the increases in commodities.

First, this General Resolution violates the Principle of Legality which provides that there can be no tax without law. the unexpected income has not yet been approved by Congresswith which, it has no legal legitimacy to make an advance for RG which previously did not have parliamentary validation.

On the other hand, the project the law has important shortcomings, such as the way of measuring the subjects reached (not just the beneficiaries of better prices).

A major problem is the context, since it is taken as a basis consider rising profits a fiscal year tainted by the pandemic. With which, it is easy to exceed the parameters laid down by the projected standard.

Litvin also questioned its legal legitimacy: “If it’s just a further advance on earnings, is still questionable because it exceeds 100% of the previous year’s tax and is a deposit prior to the taxable event. In this way, through a simple resolution, it obliges to anticipate the tax on many occasions in excess of the principal obligation.

It should be remembered that Argentine companies have an excessive tax burden, penultimate worldwide. It currently accounts for 106% of trade profits, when the average for all countries is 45%, he added. Private economic activity is suffocated by the tax burden, at this juncture the public sector, with an unusual increase in public spending, should make the sacrifice that is asked of taxpayers.

Guillermo Perez tax specialist, CEO of Grupo GNP: pursuant to ART 21 of procedural law, the AFIP may request the payment of advance tax amounts which must be paid for the period in which the advances are cleared. The law does not provide for any restrictions in this regard and there have already been cases in which the AFIP has established advances “extraordinary”for example in the case of personal assets in the case of people who do not repatriate or schemes to receive savings / paper in dollars which would be “advances” even for people who are not registered in personal income or assets in this case the AFIP restores it only the following year.

The transcended ones mention an advance payment of an extraordinary naturethat is to say that it would be added to the 10 advances that the companies pay into account for the tax of the following year, which for a company ending in December, begin to be paid in June of the following year.

This advance would be between 15% and 25% more to the amount of advances that companies are already paying. If the mechanics of ordinary advances are maintained, the calculation basis would be the previous year’s profit and it should be possible to request a reduction if the company estimates that they will exceed the tax determined in 2022 (net of withholding taxes, among other things).

This point is not secondary, as as long as AFIP offers a mechanism to avoid overpaying the tax obligation, it could implement this payment on an additional account and reverse the burden of proof, leaving companies with the obligation to prove that they do not have such “extraordinary income”.

Currently, for the reduction of ordinary advances, it is sufficient to make a projection where the company shows what its determined tax would be. and AFIP usually grants the reduction while reserving the right to check the calculation.

If it were a mandatory advance, with no possibility of reduction, then there could be cases in which the advance would generate an overpayment, so as to already constitute an additional tax. Everything will depend on the mechanisms that the treasury puts in place (or not) to avoid this effect. Even when the tax authorities sacrifice the future collection – since a higher current advance would result in a lower payment at the time of the tax determination if implemented accordingly – without constituting an additional tax, it would increase its collection in real terms as a result of the advancement of this collection between 8 and 9 months (Payment August-September 2022 vs tax determination May 2023).

Finally, in previous years, companies have seen their tax burden increase due to the simple effect of not being able to calculate the 100% tax inflation adjustment, however, starting from December 2021, the law has begun to allow the full calculation , for which even with an extraordinary “nominal” income it would be reasonable that the loss that the net assets of a low-indebted company will suffer is also significant, with an expected inflation of between 80% and 90% per year. This likely offsets these alleged unexpected profits in many cases, and companies should take this into account when making any calculations to determine if this advance is appropriate.

Andrés Saladino, partner of Andersen Argentina: According to the versions circulated in the last hoursAFIP would be instrumenting a further advance – to those already established – of income tax (not an advance linked to what became known as the “High Income” tax project), and which serves as a payment in account of the taxpayers’ future obligation for that tax. It is not a new tax, but a financial advance.

This instrument for the collection of taxes by the AFIP is contemplated in the Tax Procedure Law. Although how it will be implemented is not known to date, and to prevent it from being branded as illegal The possibility should be contemplated that the taxpayer who believes that this additional sum exceeds his obligation for income tax, elaborates the authorization not to deposit it.

We remind you that AFIP has always implemented the payment of Irpef advances assuming that all taxpayers maintain the same tax capacity as that declared in the previous year, having to advance the equivalent of 92% and 100% of this amount (legal and human persons respectively).

Without prejudice to the legal justification for the implementation of a rule of these characteristics, as well as the fact that it is difficult to oppose a decision which (according to widespread) aims to alleviate the situation of pensioners who earn less, it is observed that once again the effort is made (in this financial case) private sector for the fulfillment of State obligations, and in particular taking into account that it is a collection shared with the provinces.

Sebastián Dominguez, partner of the SDC tax advisors: They first had a plan to add an additional rate with a higher commission, add an extra 15% to the income tax law. For what, they had no political consensus to do soso now they plan to increase the advances.

Today, almost 100 percent of the taxes paid the previous year are expected. Now it would be 115% or 125%, because we are talking about a rate of 15 or 25%. We have to wait to see how the regulations are drawn up, but in principle this is not reasonable based on the previous year. We have to wait to find out if constitutional principles and rights are being violated.

About the companies that might be interested, but when the project for the tariff was realized that 15% additional profitAlthough it was announced that it was only x companies, the project actually covered any company that met the parameters indicated in the project. Now we need to see if the same thing doesn’t happen.

As for reasonableness. Today 100% of the amount paid is in advance. If you ask for a 25% down payment, you need to see how it is taken, if companies are allowed to request a reduction of that down payment. There are many issues to consider which will depend on the fine print of the resolution.

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