In brief

The Supreme Court rejected the allegations from a taxpayer regarding the unconstitutionality of the third paragraph of Section 35 of the Multilateral Agreement and, therefore, confirmed the power of the municipalities to assess the Security and Sanitation municipal fee based on the total gross income of the taxpayer.

On 2 September 2021, in Esso Petrolera Argentina S.R.L. y otros c/Municipalidad de Quilmes s/acción contencioso administrativa case (Case CSJN 1533/2017), the Federal Supreme Court of Justice (CSJN) rejected the unconstitutionality of Section 35 of the Multilateral Agreement.

Facts of the case

Esso filed a claim against Quilmes Municipality ("Municipality") challenging the tax assessment of the security and hygiene fee ("Municipal Fee"), because it was determined on the basis of Esso's total gross income attributable to the province of Buenos Aires.

Esso calculated and paid the Municipal Fee, after the distribution of its gross revenues among the different jurisdictions in which it carried out its activities, only on the portion of gross income attributable to the Municipality. In this regard, Esso emphasized that the referred calculation covered all the expenses (direct and indirect) related to the services rendered by the Municipality in Esso's gas stations located within the jurisdiction of the Municipality.

The Municipality, however, calculated the Municipal Fee on the gross revenue invoiced by Esso in the Province of Buenos Aires, in accordance with a broad interpretation of the provisions of Section 35 of the Multilateral Agreement.

The Supreme Court of the Province of Buenos Aires rejected the claim filed by Esso, stating that the Municipality was entitled to calculate the Municipal Fee on 100% of the gross revenues attributable to the Province of Buenos Aires. In addition, it considered that the provision of services by the Municipality was proved, thereby ruling out the disproportionality alleged by Esso and indicating that there are no constitutional regulations or statutes that compel direct proportionality between the cost of the service and the amount of the Municipal Fee.

In this regard, the General Attorney's Office held that the Multilateral Agreement does not entitle the municipalities to increase the Municipality Fee's taxable basis as a consequence of a lack of evidence or payment of taxes in other municipalities, or the absence of establishment in other municipalities, in accordance with the precedent in YPF c/Municipalidad de Concepción del Uruguay.

Grounds for the CSJN ruling

The CSJN held that the interpretation on the scope of Section 35 of the Multilateral Agreement constitutes a local right and, therefore, local judges must analyze the disputes regarding its understanding.

Consequently, in the opinion of the CSJN, for purposes of calculating the Municipal Fee, the Municipality is entitled to consider the costs of the services rendered by the Municipality as well as the tax capacity of each taxpayer, as long as it does not become unreasonable, disproportionate and dissociated regarding the direct and indirect resources used by the Municipality to organize and render the referred services.

In this sense, by admitting the use of the tax capacity of each taxpayers for the purposes of calculating the Municipality Fee, the CSJN validated the determination of the Municipality Fee on the basis of the taxpayers' total gross income subject to the constitutionality test.

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