I. Background

According to the Tax Reform Law passed in December 2017, every payment resulting from an employment termination was subject to income tax (even in the cases of mutual separation agreements and voluntary retirements) in the amount exceeding the statutory severance payment.

This provision would only apply to employees working as "directors and executives". However, the Law had delegated the definition of its scope to the Executive, for the purpose of determining who would be subject to taxation.

In November 2018, Executive Order 976/18 regulated this issue and defined "directors and executives" as those who concurrently comply with the following requirements:

(a) Having effectively held a position, continuously or not, within the last 12 months immediately prior to termination, in a board of directors, council, executive or steering committee, or similar corporate body, or to have performed a managerial position that implies decision making or implementation of policies and directives issued by shareholders, members, or any of the abovementioned bodies.

(b) The monthly gross salary taken as basis for the calculation of the applicable statutory severance must exceed the minimum wage effective as of the date of the termination in at least 15 times. Considering that currently the minimum wage is ARS $11,300, the established threshold to be subject to taxation would be a gross salary of ARS $169,500.

II. Regulation 4396/2019 (R 4396/19)

As a consequence of the lack of regulation between January and November 2018, there was great uncertainty as to the enforceability of the tax withholding. Even after November, and already having the delimitations of Executive Order 976/18, there might have been grey areas in which it was not clear whether the tax applied or not.

The recently issued R 4396/19 established that employers shall be exempted, only once, from the obligation to determine and pay income tax, provided they have not already done so, for those employees who were terminated and received a sum higher than the statutory severance between January 1, 2018 and January 10, 2019 (R 4396/19's effective date).

In that case, employees should personally submit an informative affidavit and pay the resulting tax.

Additionally, R 4396/19 introduced other operational amendments and adjustments to the process by which employers determine, liquidate and withhold the Fourth Category Income Tax,. Likewise, the R 4396/19 included some clarifications as regards the applicable deductions.