In 2009 the Supreme Court of Justice ruled over the effect of the adjustment for inflation mechanism regarding the income tax assessment for fiscal year 2002 of the company Candy S.A.
The first instance judge granted the protective action ("acción de amparo") and allowed the taxpayer to adjust its tax result and eliminate from the tax base the income derive from inflation. The Administrative Court of Appeal confirmed such decision, hence, the Federal Tax Authority filed an appeal with the Supreme Court of Justice.
The Supreme Court of Justice confirmed the protective action filed by the taxpayer and argued that, based on the evidence produced at the trial and considering the case circumstances, if the taxpayer did not remove from the tax base the income derive from inflation, the tax would be confiscatory. If such was the case, the confiscatory effect would violate principles and rights protected by Argentine Constitution.
It is expected that, after the recent devaluation of the Argentine peso which increased the inflationary process in Argentina, the precedent set in "Candy" will generate once more judicial processes for those tax payers that determine the income tax without removing from the calculation the income derive from inflation.