A recent case of the Argentine Supreme Court rejects the application of differential aliquots of the gross income tax to products manufactured outside each province.

The Court ruled in favour of Bayer S.A. in its claim against the province of Santa Fe, for charging a higher rate because said company did not manufacture its products in that jurisdiction.

The company sells medicines for human use and pharmaceutical products, as well as pesticides and chemical products for agricultural use, in the province of Santa Fe.

As a result of this activity, Bayer paid to the province of Santa Fe, regarding the gross income tax, aliquots of 1% and 2% to settle that said tax, in accordance with established by article 7 of the provincial tax act.

But this province claimed the German company an aliquot of 3.5% for the fiscal periods from January 2010 to June 2011, according to the provisions of article 6 of the act mentioned in the preceding paragraph. The amount requested by Santa Fe was near AR$3 million plus interests and fines.

The argument of Santa Fe ́s government was because Bayer’s products were manufactured in another jurisdiction, namely, in the province of Buenos Aires.

When delivering its decision, the national Court should merit if Santa Fe, was entitled to charge the company, a differential rate of 3.5%, to the goods marketed within this province, but produced outside the provincial territory.

The ruling of the argentine highest court rejected the reasonings of the province of Santa Fe, declaring unconstitutional the collection of this differential rate of 3.5% to Bayer for not manufacturing the products in its territory.

One of the arguments used by the court, was that although the provinces retain the necessary powers for the fulfillment of their purposes, among them, the determination of their tax regime, being able to choose the taxable persons and the determination of the means to distribute them, it is not less true that such attributions meet the limitations enshrined in the Argentine Constitution.

One of those limitations, is the one consecrated in article 16 of our Constitution, which equals all persons affected by a tax, within the same category, group or classification avoiding arbitrary distinctions. That is, taxable persons that are in the same class must receive the same legal treatment. If this is not accomplished, the principle of equality is being violated.

Another issue on which the Court placed special emphasis, is the discrimination made by Santa Fe, for the one and only reason that the domicile of Bayer was located in the province of Buenos Aires.

In this respect, the Court held that levying taxes to a company in a more burdensome way than companies located in that said province is not a legal and valid argument.

Also, it would be violating the provisions of article 75 part 13, which establishes that trade between the provinces can only be regulated by the national Congress. And likewise, Santa Fe would be creating a kind of entry barrier or internal customs, which alters the concept of interprovincial free trade provided for in our Constitution.

Finally and to finish these brief lines on a very important tax ruling, we can conclude that if the reasoning of the province of Santa Fe had been accepted by the court, i.e. of charging a higher rate to companies that manufacture their goods outside their jurisdiction, and a lower rate to those companies which manufacture them within their territory, possibly, economic and political conflicts between the different provinces may have arosen, and may have also created a climate of legal uncertainty, negative for welcoming prospective foreign and domestic investors.


Este artículo ha sido preparado por Facundo Correa Cremaschi. Para más información comunicarse a los teléfonos arriba indicados o por e-mail a: fcc@correacremaschi.com

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